On Tuesday, March 7, Director of Tax & Economic Policy Jeff McClain provided interested party testimony to the House Ways and Means Committee on the governor’s proposed budget, House Bill 49.

In his testimony, McClain thanked the administration for proposing the municipal income tax reform contained in the bill, but also voiced the concerns of Ohio Chamber members regarding major tax shifting.

McClain explained that the municipal tax reforms included in the governor’s budget would simplify filings, saving Ohio businesses time and money that is better served growing business and creating jobs. The reforms proposed would allow for one tax form that would be filed through the Ohio Business Gateway. Currently businesses have to file in each municipality in which they do business which is time consuming and costly.

To answer a question posed by local municipalities regarding direct control of the municipal taxes collected McClain said, “The proposal applies solely to the business side and continues the municipality’s direct control over the personal income tax which is approximately 86 percent of the revenue.”

He also reiterated that the Ohio Chamber is in support of the proposal to do away with what is called the “throwback” rule. “This practice of allowing municipalities to tax revenue from sales made by its business taxpayers to other jurisdictions and where the taxpayer does not have employees nor regularly does business is archaic and unjust.”

He explained that the throwback rule discourages economic development by encouraging companies to locate in places that don’t have this rule. “It is unfair and needs to be removed,” he said.

As for the governor’s proposed decrease in the personal income tax rate while increasing the business taxes, McClain testified that this is in part a $1.2 billion tax shift that unfairly impacts Ohio businesses. He pointed to several studies that show about 40 percent of sales taxes are business related.

“With just a half-penny increase in the sales tax, Ohio produced goods and services would cost an additional $575 million,” McClain stated. “Consequently, the Ohio Chamber cannot agree with the fundamental premise of the plan, and therefore cannot support it.”

The Ohio Chamber will continue to follow the business aspects of the state’s budget and update its members as necessary as it moves through the House. House leadership has indicated that they would like to bring their version of the budget to a vote by the full House the first week of May.