• Ohio: Business Entities Oppose Parts of Governor Kasich's Tax Proposal
  • April 15, 2015 | Authors: David H. Godenswager; David M. Kall; Susan Millradt McGlone
  • Law Firm: McDonald Hopkins LLC - Cleveland Office
  • In the weeks since Ohio’s Gov. Kasich released his budget proposal, some businesses have expressed concerns over its projected impact on them. Certain components of the proposal include increasing the sales tax by .5 percent, expanding the sales tax to include new goods and services, and implementing a 23 percent increase in the commercial activity tax (CAT) from .26 percent to .32 percent.

    For example, the Ohio Metro Chamber Coalition, which is comprised of the Ohio Chamber and eight of Ohio’s largest metro chambers of commerce, commissioned Ernst & Young to study the plan. In a March 2, 2015 letter to Gov. Kasich and others, the letter writers explained why they think the proposal will fail to boost the economic competitiveness of Ohio. The initial review, they wrote, suggests “the proposed plan does not look to create greater efficiency within government in order to support tax cuts.” Instead, it:
    • Shifts tax burdens from one group to another;
    • Pits different businesses and individuals against each other while government spending continues to grow;
    • Has built-in “cascading and pyramiding impacts” which appear to mitigate some of the proposal’s benefits; and
    • Has a potential negative impact on schools and local governments, which would require a subsequent increase in taxes.
    Various other tax experts have testified to their opposition before Ohio’s House Ways and Means Committee with comparable messages. For example, on March 11, 2014, Dan Navin, the assistant vice president of tax & economic policy for the Ohio Chamber of Commerce (the Chamber), emphasized that his organization seeks comprehensive tax plans that “stimulate business investment and growth and create jobs without intentionally establishing a zero-sum game pitting potential winners against and at the expense of potential losers.”

    The Chamber views the net $523 million tax reduction as insufficient to offset the $5.2 billion in tax increases, much of which would be borne by businesses. The Chamber also expressed concern that the reduction will not result in a substantial improvement to the state’s economic competitiveness.

    Navin identified the current feature of the CAT that makes it workable is the low tax rate imposed on a broad base of goods and services. The proposed increase to the tax rate threatens to jeopardize the competitive advantage that Ohio manufacturers currently enjoy, which is grounded in that low rate.

    As for the sales tax increase, it is described as a consumption rather than a sales tax because it taxes many of the services consumed in Ohio, including business-to-business consulting, accounting, and legal services. Navin described this as a disturbingly broad “pyramiding tax on production or distribution,” as opposed to one on final consumption, which has the potential to tax virtually every facet of a business. He predicted that Ohio businesses would be unable to remain competitive with out-of-state firms.

    That same day, numerous other business entities expressed their opposition to the CAT and/or sales tax expansions, including the MillerCoors Brewing Company, Ohio Cable Telecommunications Association, the Ohio Parking Association, and Creative Vacations & Cruise Centers.

    One of the few proponents submitting testimony was the Ohio State Medical Association, which supports the tax increase on cigarettes, e-cigarettes, and other tobacco products. Citing a 2012 National Health Interview Survey, Ohio State Medical Association representative Tim Maglione theorized that raising the cost of tobacco and nicotine use would reduce consumption and reduce the following statistics:
    • 23 percent of adult Ohioans are smokers;
    • Approximately 18,000 adults in Ohio die each year from causes directly related to their own smoking;
    • $5.64 billion in annual healthcare costs in Ohio directly caused by smoking; and
    • $622 per household resulting from the state and federal tax burdens.