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Ohio Considers Sales Tax Reduction. But What About SST Simplification?

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Ohio Governor John Kasich released that state's proposed budget plan for fiscal 2014 - 2015, which includes various tax rate decreases. The plan also includes a proposed expansion of the sales and use tax base for Ohio taxpayers.

Included among the proposed budget changes are:

  • A 20% decrease to personal income tax rates across the board reducing the top marginal rate to 4.74% with middle class taxpayers seeing a marginal rate decrease to 3.287%;
  • A 50% exclusion from taxable income base for owners of any pass-through entity of up to $375,000;
  • A decrease in the state sales and use tax rate from 5.5% to 5% and a reduction to local rates by up to 20%;
  • Expansion of the sales and use tax base to include a range services primarily effecting medical care and education; and
  • Several changes effecting the calculation of severance taxes on natural gas.

With state budgets hurting from lack of tax revenue and most states arguing that an increase in their tax base or rates is necessary for them to continue providing services to residents, this comes as an interesting turn of events. As 2013 begins to unfold before us and signs point to an economic recovery looming around the corner, should we expect this trend to continue? We have seen a couple of states announce sales tax rate reductions coupled with this expansion of their tax base and I have to wonder: Is this the writing on the wall? Should we expect to see more of this type of shift in state budgeting processes?

More importantly, does the broadening of the tax base by an SST state do more harm than good as it relates to service revenue streams?  We know that these states went to a lot of effort to “simplify” their sales tax law and we also know how “un-simple” service based taxation can be, even in the best of times.  While I give credit to Ohio for seeking ways to minimize the tax burden on its residents, one must ponder the increased complexity for taxpayers in the service industry nation-wide and how they will interact with SST states (and dare I even mention MFA states should that pass?) should this become a trend.

Again, is this is a sign of things to come and can we expect to see more SST states look to a broadened tax based to increase revenue without increasing rates?  My best guess is absolutlely yes.  What are your thoughts on this approach of a broadened tax base - at the cost of simplification?

A complete release of this Governor's proposed budget plan can be found here: http://obm.ohio.gov/.

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