News and Analysis
This week, House Bill 343, which would exempt employment services and employment placement services from sales and use tax, cleared the House Economic & Workforce Development Committee on a 7-4 vote.
The bill was contentious in committee because of the potential loss of state revenue to local governments. However, the tax was created with no clear tax policy; it became effective in 1993 in order to fill a hole in the state budget.
This continues to be a priority tax issue for Ohio manufacturers who must pay sales tax on their temporary employees.
Use the easy email tools at OMA’s Manufacturing Advocacy Center to ask your representative to support this bill.
This week the 2020 Tax Policy Commission, established by the General Assembly, continued hearings on the state’s overall tax climate. JobsOhio and the Ohio Farm Bureau offered testimony about how their constituents are impacted by Ohio tax policy.
John Minor, President and CIO of JobsOhio, said, “… we target industries that help drive the state’s economy and provide job growth opportunities; industries like advanced manufacturing, biohealth, food processing, IT, automotive and aerospace, financial services and shale energy.”
Brandon Kern, Director of State Policy, Ohio Farm Bureau provided an overview of how various Ohio taxes impact farmers. He used the opportunity to describe how the Current Agricultural Use Valuation tax (CAUV), which measures the value of land for its agricultural use, could be improved. Mr. Kern noted that most Ohio farmers are not excessively negatively impacted by the commercial activity tax.
OMA Connections Partner, Tax Credit Group, reports that the Consolidated Appropriations Act of 2016 contains a provision for a permanent research and development tax credit. In addition, new rules would allow taxpayers with gross receipts less than $50 million dollars to utilize the credit to offset Alternative Minimum Tax liability.
Also, for certain startup phase businesses, the credit could be used to offset payroll tax liability. (Click here to learn more about the proposed legislation.)
With these new provisions included in this legislation, there will be a massive expansion of companies who can now take advantage of this incentive. Read more from Tax Credit Group.
Additionally, OMA Connections Partner, GBQ Partners, reports which provisions may become permanent or just extended.
This week the House Economic and Workforce Development Committee continued its debate on House Bill 343. The bill, supported by the OMA, would eliminate the state sales tax on temporary employees.
Opponents, including local governments, liberal think tanks, and social advocates, offered testimony this week. They expressed concerns ranging from an increase in the temporary workforce to less funding for local governments. Here’s the opponent testimony of Policy Matters Ohio and the County Commissioners Association of Ohio.
Committee members pushed back and questioned why the tax was ever assessed in the first place and reiterated it is harmful to Ohio’s competitiveness.
This week representatives from OMA member companies Cargill, Inc. and Whirlpool Corporation testified on behalf of the OMA in support of House Bill 343 before the House Economic and Workforce Development Committee. The bill eliminates the sales tax on temporary employment services, something the OMA has pushed during the past several General Assemblies.
In his testimony, Don Brown, State Government Relations, Cargill, Inc. stated: “As Cargill evaluates growth and investment at existing Cargill facilities to meet growing customer demands, Ohio locations are at a disadvantage to similar locations in other states where employment services are not taxed. Ohio is a clear outlier on the taxability of employment services. HB 343 addresses a competitiveness issue.”
Luke Harms, Senior Manager, Government Relations, Whirlpool Corporation, testified: “The impact of H.B. 343, to repeal the imposition of sales and use taxes on temporary employment services is not only founded on sound tax and economic policy, but will help Ohio manufacturers like Whirlpool to remain globally competitive.”
This week, the General Assembly 2020 Tax Commission heard from Dr. Richard Vedder, Distinguished Professor of Economics Emeritus at Ohio University, who provided testimony about Ohio’s tax system.
He said, “This is a good time to be examining our tax system. We are not in the midst of a fiscal crisis requiring hasty emergency action. The state’s economy is in decent shape, although we are in long-term national economic slowdown of historic proportions that no doubt will adversely impact on our fiscal future. The enormous rise of unfunded federal liabilities reflecting not only a huge national debt but also unsustainably large entitlement programs will also adversely impact us.”
The commission which was created in the current state budget is in the process of reviewing Ohio’s revenue system including all taxes. The commission will make recommendations about how Ohio can improve its tax system and promote economic growth.
OMA Connections Partner, Clark Schaefer Hackett, reports that the Bipartisan Budget Act of 2015 contains a provision that can significantly affect the retirement planning of many Americans. It eliminates two strategies that many married couples have used to maximize Social Security benefits. Read about it here.
SB 208 (Beagle, R-Tipp City), which fixes an unintentional income tax hike in last session’s income tax reduction bill, was passed this week by the General Assembly and is on the way to the governor’s desk.
Unfortunately, the bill contains a commercial activities tax (CAT) exemption for personal care products within an integrated supply chain. The exemption is apparently designed to benefit one company: L Brands (owner of Bath & Body Works) in New Albany. The exemption is anti-competitive, and, along with other CAT carve-outs and exemptions, will put pressure on the rate for other taxpayers in the future.
The bill also partially restores funding to local school districts for tangible personal property taxes phased out in the major tax reforms of 2005.
This week, the Senate passed SB 208 with an amendment that again erodes the base of the commercial activity tax (CAT) by creating a new, very broad CAT exemption, thereby setting a precedent potentially ruinous to the tax.
The amendment expands a CAT exemption that was passed within HB 64, the state budget bill enacted earlier in 2015, that applied to a defined situation: personal care products sold within integrated supply chain. The current law excludes certain taxable gross receipts of a manufacturer, supplier, or distributor of beauty, health, personal care, or aromatic products which meet a certain criteria. This new amendment would greatly expand this exclusion to a broad array of businesses.
OMA tax counsel Mark Engel of Bricker & Eckler LLP provides more detail here. In sum, he says: “Bottom line is that this provision picks a winner and gives it a huge advantage over its competition: The CAT no longer applies to intermediate transactions, thereby lowering its prices. There is no reason this model couldn’t, or shouldn’t, be implemented for any other nonintegrated manufacturing operation. There goes the CAT.”
Thank you to those members who went on record with their senators.
This week the OMA along with the Ohio State Medical Association, Ohio Dental Association, and Ohio Chemistry and Technology Council filed three amicus briefs (Crutchfield, Inc., Mason Companies, Inc., and Newegg, Inc.) at the Supreme Court of Ohio in support of the Department of Taxation.
At issue are three companies challenging the state’s authority to collect commercial activity tax (CAT) when the companies do not have a physical presence in Ohio. The three companies in question do business in Ohio and sell their products in Ohio.
The amicus brief argues that the issue in the case, allowing companies that enjoy the benefits of doing business in Ohio to the tune of tens of millions of dollars with no physical presence escape paying CAT, would undermine the tax structure and penalize companies who choose to physically operate in Ohio.