The House Ways and Means Committee heard from Ernst & Young (EY) this week regarding a study commissioned by the Ohio Chamber of Commerce and the Coalition of Ohio Metro Chambers of Commerce regarding an analysis of the governor’s tax proposal in the budget. The focus of the EY analysis is on certain tax provisions and their impact on businesses and individuals, including: personal income tax changes, the commercial activity tax (CAT), and general retail sales tax.
In their testimony, EY summarized the following as the key findings of their analysis:
- Increases to the CAT on gross receipts have the potential to “magnify economic distortions” caused by tax pyramiding.
- Extension of the sales tax to household services makes the operation of the tax more of a consumption tax, but inclusion of business services results in tax pyramiding.
- Complete exemption of pass-through income from entities with $2 million or less in receipts results in high marginal rates on additional revenue earned by entities just over the $2 million threshold.
- The use of receipts test for pass-through exemption may result in “significantly different effective tax rates” for owners of companies with similar profits but different amounts of receipts.
- Individual income tax cuts benefit households at all income levels; the exemption increase benefits households with income below $80,000.
- On balance, seniors still receive an overall reduction in taxes due to lower rates when combined with the reduction in senior tax credits and deductions on certain types of income.
Dan Navin, Assistant Vice President of Tax & Economic Policy for the Ohio Chamber of Commerce (Chamber) testified before the committee on March 11. Saying his membership includes all types and sizes of businesses in the state, Navin told the committee that the Chamber opposes the proposal despite the provisions that benefit small businesses. Navin said that the administration’s executive budget moves the state’s tax structure in the direction of providing economic benefits to small business and individual taxpayers that must be paid for by higher taxes on larger businesses.
Navin went on to tell the committee that the Chamber was in opposition to the governor’s proposal to increase the CAT from .28 percent to .32 percent, saying the rate must remain low and apply broadly in order for it to remain palatable for business. Regarding the governor’s proposal to expand the state sales tax base, he said the proposal would include a multitude of business to business services that would greatly increase the cost of doing business in the state. Arguing that business and professional services should not be thought of as a tax on final consumption, Navin said the expansion would result in tax pyramiding.
The discussion on the governor’s tax proposal will now move back to the House Finance Committee. Amendments to the budget are due by March 27, and a substitute version of the legislation will be unveiled the week of April 13. A link to the more detailed analysis by EY can be found on The Ohio House of Representatives' website.