Governor’s budget proposal tackles municipal income tax problems

Written on Jan 30, 2017

Governor John Kasich’s biennial budget proposal, released Jan. 30, 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.

A number of the reforms are the result of years of collaboration between The Ohio Society of CPAs and Ohio leaders working toward a common goal: to further improve Ohio’s business climate and make our state more competitive.

The budget won’t be introduced in bill form for several more days so full details are not yet available. But OSCPA has learned that several included provisions were from our Tax Reform Task Force’s white paper, “Improving Ohio Tax Climate,” released in June 2016.

This task force of 19 member tax experts worked for over one 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 Ohio Tax Commissioner Joe Testa met with the task force in September at OSCPA’s offices to dig into the details.

The initial proposals in Gov. Kasich’s package most directly impacting CPAs and Ohio businesses include:

  • Centralizing municipal net profits tax filings and payments through the Ohio Business Gateway versus the current process of filing directly with each Ohio city or village or its designated agency – as OSCPA recommended. The governor proposes one filing form, one uniform administration and appeals process through the Ohio Department of Taxation, and that information would be uploaded from commercial software packages. Individual municipalities would continue to set rates and determine tax credits, administer employer withholding and deal with individual filers.
  • The throwback rule used by a number of Ohio municipalities would be eliminated, as OSCPA recommended.
  • No increase in the Commercial Activity Tax rate for Ohio businesses, as OSCPA recommended. Suppliers to Qualified Distribution Centers (QDCs) would pay 10%of gross receipts on goods delivered to QDCs.
  • Reducing the personal income tax rate by an additional 17%, taking the top rate down to 4.33%. Of concern is that this decrease largely will be paid for by increasing another tax: the state sales tax rate will increase to 6.25% from 5.75%.
  • Also of concern: the proposal to expand the sales tax base to a limited number of services such as lobbying, cable TV, certain cosmetic surgeries, and others. OSCPA was pleased to see that accounting, consulting, legal and other essential business services are not on the expansion list.
  • Shrinking the number of income tax brackets from 9 to 5, as OSCPA recommended.
  • Equalizing the tax on cigarettes to include other tobacco products, as OSCPA recommended.

“While we do have some concerns, we’re pleased with the proposal overall and the impact it should have on Ohio’s economic environment,” said Scott Wiley, CAE, OSCPA president and CEO. “Our state tax reform task force studied these issues thoroughly to find ways to help businesses here compete.”

Gov. Kasich’s proposal is just the first step in the biennial budget process, which will continue through June. The House and Senate will hold numerous hearings on the package, and interested parties will undoubtedly have much to say.

OSCPA will be testifying before the House in the coming weeks, and will provide additional updates once the budget bill is released. Read the Administration’s summary of the budget bill package released Jan. 30.

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