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ACEC tells legislators: Sales tax on engineering will destroy jobs

If the state sales tax is levied on engineering services, Ohio companies will be put at a severe disadvantage with engineering firms outside the state and jobs will be lost.

That was the message ACEC Ohio Executive Director Donald L. Mader delivered Wednesday to the Ohio House Ways & Means Subcommittee that is considering the Kasich Administration's proposal to extend the state's five percent sales tax to virtually all business and professional services.

"If adopted by the General Assembly this change in tax policy will put Ohio engineering and architectural firms at a tremendous cost disadvantage with our competitors from outside Ohio and will result in the loss of many well-paying, high-tech jobs," Mader told the committee.

"While highly rewarding professions, engineering and architecture are not highly profitable business ventures. The imperative to avoid the payment of sales tax on subconsultant services will force Ohio architectural and engineering firms, especially those located close to the state’s borders, to consider moving their operations across border, taking jobs with them.  We know this is not the desired outcome."

Mader predicted that, "In addition to costing jobs, extending the sales tax to engineering and architectural services will drive up the cost of both public and private construction.  It will certainly be a drag on Ohio’s construction industry, just as it is beginning to show signs of recovery from the recession of 2007-2008."

He concluded his testimony by noting that in 2007, Michigan adopted a tax on professional services "only to repeal it before it could even take effect, due to massive public opposition.  Florida and Connecticut went through the same ordeal in the 1980s.  There is a good reason why only three small western states collect sales tax on business and professional services: it destroys jobs.

"Given the experience of these other states, and the likelihood of a similar outcome here, we respectfully request that the House Ways & Means Subcommittee reject the proposal to extend the sales tax to business and professional services."

ACEC Ohio was one of dozens of business and professional organizations and individual companies that testified against the sales tax proposal during three days of hearings this week. (Click here for a more comprehensive report on testimony offered by others.)

Virtually every one told of complicating factors relating to their individual industries that had obviously not been anticipated by those who developed the proposal.

Anthony L. Ehler, a tax attorney with Vorys, Sater, Seymour & Pease, told the committee it simply didn't have enough time, in the normal state budgeting process, to write legislative language to address the many thousands of unique issues involved in attempting to apply the sales tax to virtually every imaginable service.

The sales tax expansion was proposed by the Kasich Administration to enable reductions in the personal income tax and taxes on small business owners, with the ultimate goal of boosting Ohio's economy and creating jobs. In its testimony, the Ohio Society of Certified Professional Accountants said it would have the exact opposite effect.

A broad sales tax on services would disproportionately impact small businesses who will bear a higher proportion of the cost, according to the CPA society. This will restrict their ability to grow their businesses and create jobs in Ohio.

The plan will lead to the purchase of more services across state lines and the cost to individual Ohioans would likely exceed the savings from a phased in 20% cut in personal income taxes, the CPAs concluded.

While the sales tax proposal appears to be in trouble, ACEC Ohio members should not assume that it will not be enacted.  Council members who have not already done so should immediately contact their state representatives and ask them to oppose the sales tax expansion.

It is particularly critical that members of the two House committees considering the sales tax proposal, the Ways & Means Committee and the Finance & Appropriations Committee, hear from you on this issue.  If your business or residence is located in the district of one of these legislators, you should contact that legislator immediately and ask them to vote to remove the sales tax extension provisions from H.B. 59.

Click here for information on how to contact your state legislators and the key points you should make in your communications.




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