Monday, December 11, 2017

2020 Commission Takes Testimony on Laundry List of Tax Issues

The 2020 Tax Policy Study Commission heard expansive testimony Monday on the range of personal and commercial tax issues facing the state from the Ohio Chamber of Commerce and the Ohio Society of CPAs (OSCPA), with additional comments from the Ohio Department of Taxation and Ohio History Connection on the historic preservation tax credit.

Daniel Navin, assistant vice president of tax and economic policy for the chamber, who previously addressed the commission in February, began and concluded the group’s testimony with particular attention to the sales tax and severance tax. (See The Hannah Report, 2/24/16.)

Navin called any proposal to expand the sales tax base to business and professional services “counter-productive and anti-competitive.”

“Subjecting business and professional services to sales tax should not be thought of as a tax on final consumption, but rather as a pyramiding tax on production/manufacturing and distribution,” he said, turning to the ongoing debate over severance tax on the emerging shale drilling industry in Ohio.

“No industry likes to be targeted for paying higher taxes that would benefit a different segment of taxpayers ...,” Navin said. “We believe the primary purpose of the severance tax is to sufficiently fund the Ohio Department of Natural Resources (ODNR) in order to maintain its program of regulating the industry.”

He was followed by James Seiwert, global director of grants and incentives for Owens-Illinois, Inc. and chairman of the chamber’s Tax Committee. He said Ohio already suffers by comparison to some other states due to an uncompetitive municipal income tax, advising caution in a possible overhaul of publicly funded tax expenditures.

“When management hears that a competitor received an incentive, they want to know why our plant didn’t receive any assistance ...,” Seiwert said. “Every plant considers these incentives important to their cost structure. These issues should be considered as the commission reviews and evaluates all tax credits authorized by the state.”

Tom Zaino, managing member of law firm Zaino Hall & Farrin LLC and chairman of the chamber’s Board of Directors, focused on the cost compliance with manifold municipal income tax authorities and the issue of “double taxation.”

“The easiest and most efficient way to reduce the compliance costs would be to require centralized reporting and collection of municipal income tax. Centralization would not only benefit business, but also benefit municipalities by lowering the cost of administration,” Zaino said, urging consideration of a “statewide council of governments” under R.C. 167.01 similar to a Regional Income Tax Authority (RITA).

He also faulted the so-called “throwback rule” that allows sales tax on goods shipped from Ohio to other states. “This rule is simply a tax grab by municipalities on unsuspecting taxpayers and has no tax policy rationale or benefit,” he said.

He commended the goal of SB288 for the pass-through entities (PTE) tax paid by corporate-owned PTEs, which have no mechanism for an offset as do PTE owners paying personal income tax.

As for the Commercial Activity Tax (CAT), Zaino said the key to its success is to keep the CAT rate low and is application “broad-based.”

Certified public accountant (CPA) Matt Yuskewich, current chair of OSCPA’s Federal Tax Legislation Policy Committee and past chair of the OSCPA Board, spoke next. He presented testimony on the group’s recent white paper on the work of the Ohio Tax Reform Task Force, saying generally that an effective tax code has five attributes: competiveness, simplicity, stability, equity/fairness, and neutrality. As such, he recommended that Ohio reduce its current model to three to five personal income tax brackets.

“If pursued, moving to a flat tax in Ohio should be done with an acute awareness of the realities of the situation, and the strong likelihood of the financial challenges it will cause, especially during an economic downturn,” Yuskewich said, turning to the business income tax deduction for earnings under $250,000.

“While we strongly support the goal of helping small business owners in Ohio thrive, we also encourage a careful evaluation to determine if the desired growth is taking place with this important group of business owners,” he stated, saying evidence examined by OSCPA suggested most of the tax savings were going to personal compensation or other forms of cash, rather than to capital investments.

He asked the Legislature to fix the Ohio marriage penalty on couples filing a joint federal return, and agreed with Zaino on the move to a centralized bureau for municipal tax collections.

“Ohio is at a significant disadvantage regarding municipal income taxes since only 10 other states have a system whereby cities and villages can tax  both where you work and live,” he said, recommending 100 percent reciprocity between cities and elimination of the “throwback” rule.

On other tax topics, Yuskewich seconded the opposition to expanded sales taxes on professional services and commented on Ohio’s total sales and use tax rate of 5.75 percent at the state level and 1.39 percent at the county level.

“Ohio jumps to the 19th highest combined sales and use tax rate in the country and the highest among our neighboring states,” he said.

Yuskewich also addressed the CAT: “OSCPA has the longstanding position that the CAT is effective as long as the following criteria remain intact: The rate is low, the base is broad, the exemptions are few, and compliance is simple.”

He added that CPAs had no particular opinion on an appropriate severance tax rate, though its white paper did include some thoughts on effective administration of the tax.

Deputy Tax Commissioner Marjorie Kruse and Deputy State Historic Preservation Officer Amanda Terrell spoke on the historic preservation tax credit, with Kruse summarizing the department’s role in processing, verifying, tracking, and refunding the credit. Terrell said the effectiveness of the program is seen in the number of reapplications for the credit – up to three and four times.

“What that says to us is that many of these owners need the credit in order to make the financing work -- otherwise, would they really sit on a property for months or years longer than necessary?” she said.

Arguing for the success of the program, Terrell said Ohio ranked third nationally in FFY15 for the number of certified historic buildings seeking the federal credit; no. 2 for the number of completed projects reviewed and forwarded to the National Park Service; and no. 1 for the number of applications for buildings preparing to begin rehabilitation and construction.

After the hearing, Sen. Bob Peterson (R-Sabina), chairman of the commission, said the next meeting would be held in the last week of July.
Story originally published in The Hannah Report on June 20, 2016.  Copyright 2016 Hannah News Service, Inc.


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