Ohio firms could get tax breaks
Akron Beacon Journal - June 1, 2003
But individuals may see new taxes in Senate budget plan; schools would lose
By Doug Oplinger and Dennis J. Willard
The Akron Beacon Journal
COLUMBUS – The Ohio Senate is working on a budget proposal that could raise nearly $2 billion in new taxes and other revenues in 2005 — most of it from individuals — while granting hundreds of millions of dollars in tax breaks for businesses over the next several years.
With four weeks left before the next fiscal year begins, the Finance Committee is expected to vote on the Senate’s budget plan Tuesday. The full Senate is expected to vote Thursday.
That leaves three weeks for the Republican-controlled House and Senate to meet in conference to resolve substantial differences and to deliver the bill to Gov. Bob Taft.
The business tax breaks include an acceleration of the elimination of tangible taxes on inventory, an 83 percent reduction in taxes on new equipment and elimination of a $130 million tangible tax reimbursement to local governments, most of which goes to schools.
Barbara Shaner, legislative director for the Ohio Association of School Business Managers, said that if the changes are fully implemented, in about 12 years, school districts would have lost $400 million to $500 million in annual local tax revenues that would have to be made up with other property tax increases.
Sen. Ron Amstutz, R-Wooster, said the tax reductions are needed to address Ohio’s declining manufacturing base. The breaks would encourage new investment in the state.
The Senate said its two-year budget plan restores $28 million in school aid in the first year and $218 million in the second that the House had cut from Taft’s school-funding proposal.
However, the Senate proposal in the second year of the biennium would spend about $90 million less on education than Taft’s plan. About $30 million of that comes from reducing aid to vocational school students, which appears in the Senate plan without explanation.
Todd Puster, treasurer of Streetsboro schools in Portage County, already was struggling to balance the books for the fiscal year ending June 30 when the Senate plan was unveiled Wednesday. His district was hurt by Taft’s order in March to cut funding to schools to balance the state budget and by an increasing number of property owners who are delinquent on real estate taxes.
Puster said that about one of six local tax dollars raised in his district comes from tangible property taxes — enough to pay the wages of high school teachers and administrators. No one can tell him how those taxes would be affected.
It was ironic that, on Friday, Puster had to file a five-year financial outlook for Streetsboro schools with the Ohio Department of Education. State lawmakers who invoked the requirement contended that school treasurers weren’t planning well.
“This stretches their credibility (in the legislature) to do this without knowing any of the numbers,” Puster said.
Proposed tax changes
The proposal to change tangible taxes on personal property — equipment and machinery — and on inventories would affect districts in three ways, said Shaner of the school business managers association.
The state currently pays the first $10,000 in personal property taxes owed by businesses.
The state proposes to continue exempting businesses from paying the first $10,000, but no longer would reimburse schools and other governments. The reimbursement would be phased out over 10 years, saving the state $14 million in the first full year and about $130 million annually in 10 years, she said.
The only way for schools to make up for the loss of the reimbursement would be to seek higher taxes on real estate.
Second, the Senate proposed a major tax break on new investments.
For example, a company that makes a $100,000 investment in equipment today can depreciate the value in the first year to pay taxes on 96 percent of the purchase value. Over a period of time, the value can be fully depreciated to 16 percent of the purchase price.
Under the Senate plan, any new equipment purchased after Jan. 1 could be taxed at the fully depreciated price immediately.
The third change, according to Shaner, is the proposal to eliminate the tangible tax on business inventories in 12 years. Currently, the law phases out the tax in 25 years.
Shaner said she wanted school treasurers to testify in Senate hearings so senators could understand how the changes affect individual districts, but she was told that her association would have to speak for all of them.
Impact on local schools
Amstutz said senators are looking at the impact upon local schools.
“I think it does require further examination,” he said.
He also said businesses would pay about one-third of the cost of the proposed sales tax increase. “Some would say business will be hit harder than others by a sales tax increase,” Amstutz said.
Eric Fingerhut, D-Shaker Heights and the ranking Democrat on the Finance Committee, said that the business tax reductions came out of the blue.
“We can’t support the tax reductions unless schools are made whole,” Fingerhut said. However, he said Republicans may have enough votes to move the bill without Democrats.
Zach Schiller, a researcher at Policy Matters Ohio, reported recently that the tax increases proposed by the legislature would affect middle- and lower-income households more than those with higher incomes.
The Senate would raise the sales tax from 5 to 6 cents on the dollar for two years, raising about $1.2 billion in the fiscal year beginning July 1 and $1.3 billion the second year.
Earlier this year, the General Assembly and Gov. Taft approved incremental increases in the gasoline tax, eventually raising $600 million annually beginning in July 2005.
Schiller’s study doesn’t include the proposed expansion of the Ohio Lottery to include casino gambling — a proposal that arguably would not affect higher income households as much as it would others. The proposal could go to a statewide referendum in November.
While gambling is not considered a tax, it would generate more than $500 million in state revenues, which the legislature proposes to use to support horse breeding, horse wagering and education.
“We’re not getting tax reform,” Schiller said. “We’re getting bits and pieces of tax measures that help business interests at a time when the state is in severe need of new revenue and is cutting back on Medicaid, child care and other services.”