Gov. John Kasich’s tax proposal promises to cut $1.4 billion in taxes for Ohio businesses and residents, but his plan to apply a reduced sales tax rate to more services has met resistance from businesses locally and statewide.
“It’s a big idea,” said Rob Nichols, Kasich’s spokesman. “It’s not been tried before. We understand why people get antsy, but at the end of the day it cuts everyone’s taxes down.”
Under the plan, sales tax would go down .5 percent. However, it would extend to a number of service-based fields that previously did not have a sales tax, such as accountants, lawyers, real estate agents, insurance agents, salons and spas and more.
Additionally, income tax would be cut 20 percent over three years, and small business taxes would decrease 50 percent, Nichols added.
“There is going to be a significant tax cut, and we think it’s absolutely critical,” he said. “Ohio is a high tax state and it’s a barrier to job creation.”
But business owners such as Springfield’s Dean Blair call the tax plan a “sheep in wolf’s clothing.”
If the bill passes, auto dealers such as Foreman-Blair on Columbia Avenue would be able to sell cars cheaper. But Blair said there would be other unintended costs to businesses, such as a rise in the cost of service parts, advertising and even renting an office.
”I’m a fan of most — not all, but a lot — of what Gov. Kasich has done, and I admire his desire to change things,” Blair said. “However, he really needs to study what he’s doing on this one. This one’s ugly.”
Local Republican state Rep. Bob Hackett acknowledged discontent from the business community.
“It’s a work in progress. Right now we’re getting a lot of pushback from the business community,” he said. “We support (Kasich), and we do want to reduce income taxes in the state. With tax reform we have to make sure we sit down and do it right.”
State legislators frequently mentioned unintended consequences of the bill, primarily with business-to-business transactions.
State Rep. Peter Beck, also a Republican, is the head of the Ways and Means committee and has been involved in overseeing the bill.
Beck mentioned issues such as paying taxes on commercial rents, patents, landscaping and advertising as something that could harm businesses. A company could choose to use certain services less as a way to save money, or end up losing more money to maintain a lease in a building.
However, he notes the income tax cut as well as a possible small business tax cut. Beck said small businesses would not have to pay taxes on revenue over $750,000.
In testimony from businesses, Beck said some thought the tax cuts would offset increased business costs, others said it would not.
“But the hope was to pay for the tax reduction with the small business tax cut and the 20 percent reduction in income tax and decreasing all the (sales tax) rates,” Beck said.
Nichols said the broadening of the sales tax makes the tax atmosphere fair.
“A big portion of Ohio’s economy is service,” Nichols said. “Why should business that provides a service not pay?”
Some service-based businesses, such as Reflections Salons, are already prepared for such an increase.
Sandra Steinberger has owned Reflections on North Limestone Street for 20 years. She said the salon already started charging sales tax on massages, facials, pedicures and manicures.
“And people apparently have become accustomed to that, so how they react to additional taxes is what you would expect,” she said. “It won’t make too many people happy.”
Steinberger said her business took a hit during the recession but is rebounding. Smaller businesses like hers do have more trouble adjusting to increased costs, and Steinberger does fear an additional tax could slow some of the regrowth.
“It’s out of our hands,” she said. “In all seriousness, the small business person has always been expected to willingly try to survive under the burden of taking care of everybody else.”
Springfield’s Small Business Development Center has remained neutral on the effect of the tax plan on small businesses. Director Steve Anzur said for the most part consumers would become used to the additional tax.
And the affect of the proposed 50 percent small business tax cut is unclear since there is no set definition for a small business, added Mark Keating, SBDC loan program manager.
Anzur said the plan could even the playing field for different businesses, but he acknowledged that new policies, especially ones that include possible tax increases, make people nervous.
The Ohio House of Representatives finished business testimony in preliminary hearings for the proposal in mid-March and the finance committee is now accepting amendments from lawmakers for the bill, Beck said. The House has tentatively scheduled to revisit the issue by April 18.
Sales taxes could be applied to …
Some items currently exempted by the state sales tax would be taxed at 5 percent under Gov. John Kasich’s proposed budget.
Industrial and mining services
Metal, nonmetal and coal mining services
Seismograph and geophysical services
Finance, Insurance and real estate
Service charges of banking institutions
Loan broker fees
Property sales agents
Real estate management fees
Real estate title abstract services
Cutting, coloring, styling of hair
Fishing and hunting guide services
Laundry and dry cleaning services
Tax return preparation
Travel agent services
Billboard, radio, television, newspaper and magazine advertising
Advertising agency fees
Bail bond fees
Check and debt collection
Commercial art and graphic design
Interior design and decorating
Lobbying and consulting
Packing and crating
Process server fees
Secretarial and court reporting
Telemarketing services on contract
Telephone answering service
Test laboratories (excluding medical)
Software-modifications to pre-written program
Computer online services
Other electronic goods-downloaded
Admissions and amusements
Pari-mutuel racing events
Amusement park admission and rides
Circuses and fairs
Coin operated video games
Admission to school and college sporting events
Admission to cultural events
Pinball and other mechanical amusements
Admission to professional sports events
Rental of films and tapes by theaters
Credit rating services
Trailer parks - overnight
Source: Ohio Department of Taxation