As expected with such a comprehensive plan, members of the House Finance Committee peppered Tax Commissioner Joe Testa with their concerns about various aspects of Gov. John Kasich’s tax reform proposal. There are 22 separate tax changes contained in House Bill 64, the proposed 2016-17 state biennial budget. The bill would reduce personal income taxes (PIT) by $5.7 billion and raise sales, commercial activity (CAT) and other taxes by $5.2 billion, resulting in a net two-year tax cut of $523 million.
The PIT reductions would come in the form of a 23 percent across-the-board cut, lowering the top rate to 4.1 percent. In addition, the plan would eliminate the PIT for certain owners of pass-through entities, such as partnerships and S corporations, on their individual share of business profits. Business owners could only qualify if their pass-through business has $2 million or less in gross receipts. HB 64 would also significantly increase the personal exemption for taxpayers with less than $80,000 in taxable income.
However, it was the proposed tax increases in HB 64 that garnered the lion’s share of the House committee’s attention. One committee member questioned why cable TV services should become subject to state sales tax since local jurisdictions already levy a franchise fee that is equivalent to a tax. Several members raised concerns, shared by the Ohio Chamber, that the proposed 23 percent CAT rate increase would make Ohio less competitive, particularly for manufacturing investment and jobs. Such a CAT increase would also negatively affect retailers and other high volume, low margin businesses.
Legislators also expressed concerns about how the proposed severance tax increase on oil and natural gas might adversely affect future production and drilling activity in the Utica Shale play. Others were alarmed about the potential impact on lower-income Ohioans of raising the state sales tax a half-penny from 5.75 to 6.25 percent and substantially raising cigarette and other tobacco taxes.
Finally, an issue that was not specifically discussed by the committee is the proposed extension of the sales tax to “management consulting services”. While legal, accounting and other financial services are not specifically listed in the new services proposed to be taxed, the exceedingly broad definition of “management consulting services” in HB 64 would likely reel in many legal, accounting and other finance- and business planning-related services purchased by businesses.
The tax provisions of HB 64 will now be heard by the House Ways & Means Committee, which has scheduled a hearing for Tues., Feb. 17.