Gov. John Kasich’s budget proposal to cut taxes on businesses and to expand the sales tax base presents a quandary for business organizations which can see benefits as well as disadvantages for their members.
House Bill 59 lowers the rate of the state sales tax from 5.5 percent to 5 percent while expanding the state tax base to include most sales of services.
Julie Feasel, a spokesperson for the Ohio Chamber of Commerce, said the chamber hasn’t yet taken a position on the tax proposals in the budget.
“We are still reviewing the bill. Our tax committee met today to go through portions of the bill and we have other committees meeting over the next couple of weeks. Because the bill is over 4,200 pages, it might be a couple of weeks before any decision is made on what position, if any, we will take,” she said.
Currently, the sale or use of services are exempt from taxation unless a particular service is expressly subject to the tax.
The bill reverses that and instead requires the taxation of sales of services unless the sale is exempted, according to an analysis of the bill by the Legislative Service Commission.
Services that will remain exempt include:
• Medical and health care
• Educational and tutoring
• Real property construction
• Lease or rental of a residence if the lessee occupies the dwelling for at least 30 days and the dwelling is his or her primary residence.
• Adult and child day-care
• Social assistance
• Services used in the production of tangible property by mining
• Residential trash pick-up and disposal at single-, two-, and three-family dwellings.
• Funeral services
• Transactions in which a consumer obtains insurance.
• Services of an employer for workers.
From Jan. 1 through June 30, 2012, about $4.3 billion in state and permissive (local) sales and use tax was collected from 180,934 different vendors. Out of the 30 classification groups, collections ranged from a high of $542.4 million from general merchandise stores to a low of $3.1 million from the agricultural, forestry, and fishing sector, according to the Ohio Department of Taxation.
The bill reduces personal income tax rates over three years and creates a new deduction for business income for those receiving income as a sole proprietor or as an owner of a pass-through entity (S corporations, partnerships or limited liability companies treated as partnerships for federal income tax purposes). The deduction equals half of the business income and is capped at $375,000 per year or $187,500 for married couples who file separately.
Valerie Winterfield, executive director of the Oak Harbor Area Chamber of Commerce, said the organization defers to the Ohio and U.S. chambers on political issues.
“It creates too much feedback from both sides in a small town. We focus on helping the business and growing our community,” she said.
The board of governors of the Ohio State Bar Association, however, has voted unanimously to oppose the expansion of the sales tax, arguing that taxing legal services would put Ohio businesses at a competitive disadvantage and cause clients to move their business to a state without similar taxes.
Joel Dollarhide, a certified public accountant with an Oregon firm, said the bill would likely result in a 5 percent cost increase for businesses using outside professional accounting services
“Currently no state adjoining Ohio levies a sales tax on professional accounting services, if the State of Ohio goes forward with this new sales tax it would lead to a competitive disadvantage for Ohio CPAs,” he said.
Sarah Beavers, executive director of the Eastern Maumee Bay Chamber of Commerce, said lower taxes could be beneficial to the business community but the bill warrants more study.
"We feel a change in legislation that promotes business growth is important. A reduction in certain taxes will hopefully improve small business by allowing them to invest in their business and back into the community. We will be looking into HB59 further as it was just recently introduced," she said.
Roger Geiger, executive director of the National Federation of Independent Businesses/Ohio, told the Ohio Township Association recently the federation’s membership was split fairly evenly on the proposal.
He said about 1 million small businesses would benefit from the tax cut but they remain concerned about the broadening of the sales tax.