Business groups release study and call for major changes to tax proposal in Governor’s budget
The Ohio Metro Chamber Coalition, which is comprised of the Ohio Chamber of Commerce and eight of Ohio’s largest metropolitan chambers of commerce, raised concerns with Governor John Kasich’s state budget proposal today.
The Coalition sent the Governor a letter expressing its concerns last week, indicating it does not believe the proposal in its current form will achieve the shared vision “to boost economic competitiveness of Ohio.”
The Coalition last month commissioned EY to conduct a study analyzing key components of the governor’s proposed budget. The study highlighted significant problems with the tax reform proposal that — if enacted — could stall Ohio’s recent economic rebound.
“As currently proposed, this is not the right tax plan for Ohio,” said Joe Roman, President and CEO of the Greater Cleveland Partnership and Chair of the Ohio Metro Chamber Coalition. “Raising and expanding taxes on Ohio employers may make the state a less competitive place to do business.”
The Commercial Activity Tax (CAT), a gross receipts tax, has been in place in Ohio for 10 years. The typical problems with a gross receipts tax have been largely muted as a result of low rates, which was the intention of the parties who enacted it a decade ago.
Roman said the proposal to increase CAT rates by 23 percent could trigger significant economic consequences for Ohio employers.
We need to do everything we can do to encourage our businesses to stay in Ohio and grow in Ohio,” Roman said. “Recent economic strategies confirm that the right growth opportunities for Ohio should be focused on helping to retain and expand our businesses. Increasing and expanding taxes on our employers may make it more difficult for Ohio’s businesses to thrive and expand. It makes it harder for them to retain and create jobs.”
According to the report, gross receipts taxes generate significant amounts of revenue at low tax rates because they essentially tax every transaction in the economic chain of bringing goods and services to market, irrespective of the intermediate nature of the transaction or the profitability of the entity. This results in tax pyramiding, whereby the effective tax rate increases as a result of multiple transactions in bringing a good or service to the consumer.
“The burden of this pyramiding outcome is felt differentially across industries and consumers, and has potentially significant economic consequences,” the study states. “What appears as a very small rate change is magnified in its effect.”
The report also warns about the negative economic effect that could occur if the state adopts the governor’s proposal to expand the sales tax to many more Ohio businesses.
Expanding the sales tax to include more Ohio businesses may make them less competitive with non-Ohio firms. The companies may also attempt to pass these higher costs along to consumers.
Phillip Parker, CEO and President of the Dayton Area Chamber of Commerce and Vice Chair of the Metro Chamber Coalition, agreed.
“Expanding the sales tax base, particularly on business services, may very well harm Ohio companies,” Parker said. “It could result in a substantial tax increase for many businesses.” As noted in the report, the business sectors most impacted by the proposed tax include manufacturing, finance/insurance and health care industries.
Parker and Roman said the Metro Chambers Coalition will continue to support the Governor’s and General Assembly’s efforts to strengthen Ohio and they look forward to working with state leaders to develop a better tax reform plan that achieves that goal. By using the study the Coalition commissioned, they will continue to work with the administration and legislature to develop the best consensus plan possible