Sometimes state legislators are put in uncomfortable positions. I've been in many during the years that I have served in the Ohio House of Representatives. The most recent example is when I got my haircut. Sitting in a chair while an upset small business person with sharp scissors is asking me about Gov. John Kasich's plan to charge sales tax on haircuts and other types of services made me more than a little nervous.
The governor's proposal that would reduce the state sales tax from 5.5 percent to 5 percent, but would expand it to many services that people use every day raises concerns, especially for small businesses and the middle class. Some of the services to be taxed under his proposal are: cutting, coloring and styling of hair; admission and games at circuses and fairs; amusement park admissions and rides; bowling alleys; cable TV services; admission to cultural events (including concerts, museums); rental of films and tapes by theaters; admission to school sporting events - high school, college and professional; county fairs; accounting and bookkeeping; legal services; parking lots and garages; advertising agency fees (not ad placement); architectural, engineering and related services; property sales agents (real estate or personal); insurance services (not policies); horse boarding, training or grooming, as well as pet grooming and more.
A complete list can be found at jobsbudget.ohio.gov/documents/Taxability-Chart.pdf.
You may have noticed that the list of what would be taxed under the proposal includes admission to fairs and sporting events. This proposal would charge a tax on tickets to the county fair and high school football games. I have already heard from fair boards about the burden this will place on the county fairs, especially for the treasurers who volunteer their time. Fair boards and schools are tax exempt, so I don't understand requiring them to charge sales tax on tickets to their events. This raises questions about the thought that went into this proposal.
The administration has estimated that the expansion of the sales tax would generate $2.65 billion annually. Although the budget proposal would also cut income taxes for businesses and individuals, the net effect will probably be a tax increase for small businesses and middle income residents. Small businesses may be burdened even more, as they would have to become the tax collection entity for the state. Many would probably have to hire accountants or bookkeepers adding to the cost of doing business and, yes, under the proposal, sales tax would be charged on the accounting services.
It is also becoming evident that the sales tax expansion would generate much more revenue than is being estimated. Some business groups have stated that it would generate 3 times what the administration is predicting. As reported in Hannah News, during testimony before a House Committee, Mike Needler, president of Fresh Encounter, a grocery chain based in Findlay, said sales taxes on credit card bank merchant fees could cost his business $100,000 extra a year.
He said the grocery business tries to operate on a net profit of 1 percent, and there's little ability to pass costs on to customers in the short run. "It is my opinion that this type of tax structure on our industry would have a long run effect of increased food costs and less competition," Needler said, calling it essentially a tax on food.
This expansion of the sales tax can be harmful to the border areas of the state, including Jefferson, Belmont and Monroe Counties. Again as reported in Hannah News, Thomas Zaino, a former tax commissioner under Gov. Bob Taft, said in submitted testimony on behalf of the Ohio Society of CPAs that a survey of its members found most in opposition to the expansion and indicating that it was "so unworkable that it overshadowed any positive impact the income tax reductions would provide."
He noted the increased financial pressure on businesses, increased costs for business-to-business and related party transactions, enforcement problems and the competitive disadvantage for Ohio-based businesses.
The proposal also makes changes to the sales taxes that have already been approved at the county level. Many of these were voter approved issues for 911, infrastructure, economic development and other services. It limits the amount of revenue that a county can gain from the expansion of the sales tax. Counties could have used revenue to help other local governments that are struggling due to cuts in the state's local government fund.
While I commend the governor for trying to modernize the state's tax policy, the bottom line is that this proposal would hurt the middle class, both small and large businesses, and the border areas of the state. If passed as is, it could turn out to be one of the largest tax increases in state history.
(Cera, D-St.Bellaire, represents Ohio's 95th District in the General Assembly)