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04/22/2013

Immediate threat of sales tax on services dead, but danger still exists long-term

The immediate threat of seeing the state sales tax extended to engineering and other business services is dead, but the concept is still very much alive and kicking.

Ohio Senate President Keith Faber said last week the Senate will not restore Governor John Kasich's sales tax expansion proposal in its version of the two-year state budget bill now under consideration.

The Ohio House of Representatives knocked the sales tax proposal out of the budget bill (Am. Sub. H.B. 59) before it voted to send the $61.5 billion spending plan over to the Senate on April 18.  All indications are, however, that the idea will receive futher consideration after the budget is put to bed.

In order to prevent the sales tax proposal from gaining traction in the Senate,  ACEC Ohio Executive Director sent senators a copy of a report issued April 4 by the Council on State Taxation, What's Wrong with Taxing Business Services? Adverse Effects from Existing and Proposed Sales Taxation of Business and Investment Services.

This report concludes that extending the sales tax to services will "reduce the competitiveness of in-state companies, adversely affecting a state's economic development efforts."

Despite the findings of this report and a growing mound of evidence that shows extending the sales tax to business services will hurt Ohio's economy, it is clear this issue is not going away.

Citing the growing importance of the service sector to Ohio's economy, several Republican legislators in leadership positions in both houses have discussed the desirability of expanding the base of the sales tax and moving the state toward a system that taxes consumption, rather than income.

Some expect that after the budget is passed in late June, a separate bill will be introduced to expand the sales tax base, so that the concept can be fully debated leading up to the next two-year state budget cycle.

Like a creature from a zombie movie, it appears the concept of extending the sales tax to services is a bad idea that just won't die.


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