First Posted: 3/2/2015
LIMA — Ohio is looking to change the way it looks at taxes.
That was the message given by Ohio tax commissioner Joe Testa to the Lima Rotary Club Monday. Also speaking were David Goodman, director of the Ohio Development Services Agency and Tanya Calbert, project manager for Ohio Means Jobs.
According to Testa, the Ohio Department of Taxation is looking to move away from an income tax-based revenue, currently proposing a 23 percent reduction in personal income taxes and eliminating income taxes for small businesses making less than $2 million.
“There will be a $500 million net tax cut over the next two years,” he said.
To pay for this reduction, the state would begin incorporating sales taxes on a broader range of services, including cable television subscriptions, parking and travel packages, along with increases in the state’s general sales and tobacco tax.
“We’re proposing an increase of the sales tax of a half percent and adding some additional services to that service tax base,” Testa said. “The cigarette tax would go up by $1 per pack while equalizing other tobacco products to the same level.”
Rotary members did bring up some concerns with these increases during the meeting. Chris Settlemeyer, owner of Travel Concepts, noted that adding a tax to travel packages could put her at a disadvantage over internet travel agencies that operate out of state. However, Testa noted that residents are responsible for paying state taxes on out-of-state purchases.
“We changed the income tax returns this year, putting a little box in there that you have to check off that says you do not owe any sales tax on purchases made across state lines,” he said. “You cannot file your personal income tax return until you either check that box that you don’t have any obligation or put the amount of tax you owe on that line and then pay it.”
Testa answered questions of how the sales tax increases would offset lower income taxes by saying that going to consumption-based taxes would give residents greater control over how much of their money would go to the state, with products like food and medicine remaining exempt.
“On a consumption-based tax, you as the consumer are making the decisions,” he said. “It is not extracted from your paycheck, where you have nothing to say about it.”
Testa also claimed that any additional sales taxes would not offset the benefits of lower income taxes.
“We’ve run a number of scenarios where we look at people of various income levels and plugged into these models the increased sales tax, based on behavioral studies, against the income tax reduction,” he said. “In every single scenario, they end up ahead.”
These tax proposals would have to be approved by the state legislature as part of the annual budget, which must be signed by June 30. If approved, the personal income tax reduction would take effect retroactive to Jan. 1, with the sales taxes implemented in September.
