?2008 Volume 5
RetoolingOHIO
A bulletin for members of the Ohio General Assembly on policy issues critical to Ohio manufacturers
THE POLICY POINT:
Protect Vital Tax Reform
In 2005, Ohio lawmakers approved a landmark tax reform package designed to enhance Ohio's business climate and stimulate investment, growth and job creation. Ample evidence indicates the reforms, which are still being phased in, are having their intended effect. That being said, efforts continue in some quarters to try to carve out tax exemptions or credits and to earmark tax revenues to dedicated purposes - efforts that, if successful, will undermine the effectiveness of the reforms and, ultimately, weaken Ohio's global competitiveness. The OMA urges lawmakers to stand firm in protecting the integrity of the 2005 reforms and to resist any efforts by special interest groups to chip away at its key provisions.
What Were Ohio's Primary Tax Reform Goals?
Prior to the passage of HB 66 in June 2005, Ohio's tax code was widely acknowledged to be outdated, burdensome and anticompetitive. The Ohio General Assembly responded by approving a comprehensive tax reform package that represented a major overhaul of state tax policy. The reforms were designed to achieve a number of important policy objectives: Reduce overall tax rates-for both businesses and individuals-making Ohio more competitive for investment and talent. Eliminate tax on investment, thereby spurring innovation, growth and job creation. Broaden the tax base to treat similar businesses in a similar fashion and spread the tax burden more equitably among all sectors of the state's economy. Provide more stable, predictable revenues for essential state programs and services. Simplify compliance with state tax requirements.
RetoolingOHIO
Key provisions of HB 66, which took effect July 1, 2005, and is being implemented over fi ve years, included the following: Phasing out the tangible personal property tax (TPPT) on most business inventory, manufacturing machinery and equipment, furniture and fi xtures. The TPPT had long discouraged capital investment, hampering companies' ability to innovate, increase productivity and create jobs.
Viewed as a comprehensive package, the reforms were designed to create a tax structure that once fully phased in will grow as the state's economy grows.
Phasing out the corporation franchise tax (for most companies) at a rate of 20 percent annually. The corporation franchise tax was a high-rate, narrowbase tax-the opposite of sound tax policy-with so many loopholes that it was ineffective at generating stable, predictable revenues needed to provide essential government services. Phasing in a new Commercial Activities Tax (CAT)-a broad-based, low-rate tax on gross receipts from Ohio sales for virtually all types of businesses with annual gross receipts of $500,000 or more. The CAT was the essential linchpin of the reform package, allowing for the elimination of the tangible personal property tax and the corporation franchise tax. Reducing personal income tax rates for all Ohio taxpayers-including owners of S-corporations, typically small businesses, who essentially pay their business tax through their personal income tax-by 21 percent (4.2 percent annually). Ohio's high personal income tax rates had undermined the state's ability to attract and retain the top talent Ohio companies need to compete globally. Viewed as a comprehensive package, these reforms were designed to create a tax structure that once fully phased in will grow as the state's economy grows. continued inside
