Tax Commissioner Joe Testa on Feb. 9 again tried to convince lawmakers that Ohio should reduce its reliance on the income tax and move more toward a consumption-based tax system. His comments came during testimony before the House Finance Committee on Governor Kasich’s biennial budget proposal, which has been introduced as House Bill 49.
The Governor is proposing a 17% income tax reduction being paid for by an increase in the sales tax rate (from 5.75% to 6.25%) and expansion of the sales tax base to select services, an increase to the severance tax, and increases to taxes on beer/wine and cigarettes, other tobacco products and vapor. The Ohio Society of CPAs has repeatedly stated that Ohio should not compensate for projected losses from income tax rate reductions by increasing other tax rates or expanding their base, as the state is merely shifting the burden and reallocating the tax obligation, thereby picking winners and losers. However, OSCPA does strongly support the Governor's proposals to improve Ohio municipal income tax: centralizing filing, collection and administration of the net profits tax within the Ohio Business Gateway and Ohio Department of Taxation, and eliminating the punitive throwback provision utilized by a number of cities.
“We have focused in on the areas we think are the most problematic,” Testa said. “Income tax, we think is problematic. Municipal net profits tax is problematic. We have tried to zero in on the areas we think are the biggest detriment to economic growth.”
The proposal spells out major reforms to Ohio’s burdensome municipal income tax system and other types of state taxation, several of which were recommended last year by OSCPA’s Ohio Tax Reform Task Force. These include centralized collection of municipal net profits tax and elimination of the throwback rule used by a number of Ohio municipalities.
The group worked for more than a year developing recommendations after state leaders asked for guidance on how to make Ohio’s tax structure more competitive. OSCPA presented its recommendations to the Ohio Legislature in June, and Testa met with the task force in September at OSCPA’s offices to learn more.
Kasich's budget calls for a net tax cut of about $39 million over two years. It also contains provisions that will impact other Ohio taxes, education, economic development and more, including other ideas endorsed by OSCPA, namely:
- No increase in the Commercial Activity Tax rate for Ohio businesses.
- Shrinking the number of income tax brackets from 9 to 5.
Testa called centralized collection "a pro-business move," saying he hears many complaints from businesses about how cumbersome it is to file returns with so many localities. He said ODT has "considerable experience" with this type of arrangement from its collection of other local taxes, and it could probably do so at a lower cost. View Testa’s complete testimony from Feb. 9.
Tax Commissioner Joe Testa is scheduled to shoot an episode of OSCPA Spotlight with us the week of Feb. 20. What questions would you ask him? Leave them in the comments below.