- House Bill 64, as Introduced, Includes Expansion of Ohio’s Sales Tax to Debt Collection Services
- March 25, 2015 | Author: Audra Taylor Funk
- Law Firm: Weltman, Weinberg & Reis Co., L.P.A. - Grove City Office
- Ohio, like many states since the Great Recession, is looking to find a way to increase revenue while at the same time decrease small business income taxes and state income taxes for its residents.1 The current plan as proposed in the 2015-2016 budget includes not only an increase in the sales tax to 6.25%, but an ambitious expansion of its tax base to include professional services. House Bill 64, as currently introduced, on or after October 1, 2015, would add language to Title 57 of the Ohio Revised Code to expand the sales tax base by expressly including the sale or use of debt collection and repossession services among other named professional services2, as well as the transfer of bad debt.3
"Debt collection services" are defined therein as "collecting payments for claims and remitting the payments collected to clients." "Repossession services" are defined as "repossessing tangible assets including automobiles, boats, equipment, aircraft, furniture, and appliances, for a creditor as a result of delinquent debts." And finally, "bad debt" is defined as "any debt that is worthless or uncollectible, has been uncollected for at least six months, and is deductible for federal income tax purposes."4 Importantly, in its current form, those services would be taxed "regardless of the profession of the provider of the service" with very limited exception "if the service is performed by an employee for the employee's employer."5
The first wave of public testimony concerning H.B. 64 was heard by the Ohio House Ways and Means Committee on Tuesday, February 24, 2015. It was largely attended by opponents who testified as to why the legislative proposal would not work in its current form, attacking its breadth and the lack of clarity as to how it would be applied to these newly identified professionals. The general consensus among opponents is that to add additional services to the sales tax base would disrupt the current balance between sales and income taxes in Ohio and the harm caused by such a drastic shift would greatly outweigh any benefit derived.6 The general business perspective is that the current formula is working, so why mess with it.7
The majority of states do not have a tax on professional services and so the opponents argue this would place Ohio at an economic disadvantage. Texas and Pennsylvania are among the minority of states who do tax debt collection services. Their provisions apply to creditors who, as defined therein, are actively conducting business in their states.8
From a historical perspective, when property taxes decreased because of the Great Depression, states began taxing the sale of goods to make up for the loss of revenues, which made perfect sense in an economy based primarily upon the sale of goods. Today, as our economy is focused more and more on the rendering of professional services, many proponents of such restructuring believe it's time our tax structure has caught up with the current economy based upon a hybrid between the sale of goods and services.9 However, opponents to such restructuring believe this is contrary to the fundamental design intended by sales tax on end use consumption rather than business inputs.
It is unlikely H.B. 64 will pass in its current form.10 However, opponents to the sales tax expansion are watching the proposed legislation with a close eye. It is anticipated that this proposed legislation will be subject to a lot of debate and considerable revisions until it morphs into its final form. Weltman, Weinberg & Reis Co., L.P.A. will continue to monitor this proposed legislation and provide updates as they become available.
1 "States Seeking Cash Hope to Expand Taxes to Services" By Monica Davey, The New York Times (March 27, 2010).
2 "Cable services, travel services, research and public opinion polling services, public relations services, lobbying services, management consulting services, motor vehicle parking services" are among the list of newly identified professional services subject to tax in the proposed legislation. See the Ohio Legislative Service Commission Summary of H.B. 64, as introduced, Page 377.
3 Ohio Legislative Service Commission Summary of H.B. 64, as introduced, Page 377.
4 Id at Page 378.
5 H.B. No. 64, As Introduced, Page 2001 - 2002.
6 "Expect a Tax Cut in Budget, House Speaker Cliff Rosenberger Says" By Jim Siegel, The Columbus Dispatch (February 27, 2015).
8 See Rule 3.354 of the Texas Administrate Code titled "Debt Collection Services", 34 TAC Section 3.354 (2015); and Section 60.10 of the Pennsylvania Administrative Code titled "Adjustment and Collection Services", 61 Pa. Code Section 60.10 (2015) respectively. 9 "Expect a Tax Cut in Budget, House Speaker Cliff Rosenberger Says" By Jim Siegel, The Columbus Dispatch (February 27, 2015).