02/04/2013

Governor proposes extending state sales tax to engineering, architectural services

Other taxes would be cut

Governor John Kasich today proposed that the state's sales tax be assessed on engineering, architectural and many other professional services.

The proposal, contained in the administration's $63 billion General Revenue Fund budget proposal for fiscal years 2014-2015, would raise an estimated $661 annually from A/E and other "design services."

Legal and accounting services also would be subject to the sales tax, but services "that one may consider to be essentials for modern life," including residential construction, rental of residential property, education services, social assistance services, day care services, insurance premiums and residential trash removal would continue to be exempt.

In return for eliminating the sales tax exemption for most business and professional services – which would raise an additional $2.652 billion in 2015, the first year of the change – Kasich proposes to reduce the state sales tax from 5.5 to 5 percent and to cut the state income tax by 20 percent over three years.

In the detailed budget "Blue Book," Kasich is said to be "concerned that the current Ohio state and local tax system relies too heavily on the income tax, and contains fundamental inequities in the sales tax. The heavy reliance on the income tax harms Ohio in its competition with other states for jobs and investment.

"The inequitable structure of the sales tax, where the vast majority of goods are taxed but where only a minority of services are taxed, does not reflect the modern economy where services are almost two thirds of all consumption spending, and it distorts consumption decisions between goods and services."

The administration also contends that "the narrow sales tax base has had the impact of pushing up sales tax rates on those items that are taxed. Finally, the taxation of most goods but relatively few services may also make the burden of the sales tax fall more heavily on lower income families, who tend to consume more goods than services."

Kasich’s tax reform proposal "would also reduce both the state sales tax rate and local sales tax rates in keeping with the principle that broader based and lower rate taxes are more efficient (less distortive of individual choices) than taxes with narrower bases and higher rates," according to the Blue Book.

ACEC Ohio has historically opposed any effort to extend the sales tax to engineering and other professional services.  The Council's Board of Directors will review Kasich's proposal at its meeting on February 14 in Columbus.