Multistate Tax Update -- April 2, 2015
Ohio: Business entities oppose parts of Governor Kasich’s tax proposal
In the weeks since Ohio’s Gov. Kasich released his budget proposal, some businesses have expressed concerns over its projected impact on them. Certain components of the proposal include increasing the sales tax by .5 percent, expanding the sales tax to include new goods and services, and implementing a 23 percent increase in the commercial activity tax (CAT) from .26 percent to .32 percent.
For example, the Ohio Metro Chamber Coalition, which is comprised of the Ohio Chamber and eight of Ohio’s largest metro chambers of commerce, commissioned Ernst & Young to study the plan. In a March 2, 2015 letter to Gov. Kasich and others, the letter writers explained why they think the proposal will fail to boost the economic competitiveness of Ohio. The initial review, they wrote, suggests “the proposed plan does not look to create greater efficiency within government in order to support tax cuts.” Instead, it:
- Shifts tax burdens from one group to another;
- Pits different businesses and individuals against each other while government spending continues to grow;
- Has built-in “cascading and pyramiding impacts” which appear to mitigate some of the proposal’s benefits; and
- Has a potential negative impact on schools and local governments, which would require a subsequent increase in taxes.
Various other tax experts have testified to their opposition before Ohio’s House Ways and Means Committee with comparable messages. For example, on March 11, 2014, Dan Navin, the assistant vice president of tax & economic policy for the Ohio Chamber of Commerce (the Chamber), emphasized that his organization seeks comprehensive tax plans that “stimulate business investment and growth and create jobs without intentionally establishing a zero-sum game pitting potential winners against and at the expense of potential losers.”
The Chamber views the net $523 million tax reduction as insufficient to offset the $5.2 billion in tax increases, much of which would be borne by businesses. The Chamber also expressed concern that the reduction will not result in a substantial improvement to the state’s economic competitiveness.
Navin identified the current feature of the CAT that makes it workable is the low tax rate imposed on a broad base of goods and services. The proposed increase to the tax rate threatens to jeopardize the competitive advantage that Ohio manufacturers currently enjoy, which is grounded in that low rate.
As for the sales tax increase, it is described as a consumption rather than a sales tax because it taxes many of the services consumed in Ohio, including business-to-business consulting, accounting, and legal services. Navin described this as a disturbingly broad “pyramiding tax on production or distribution,” as opposed to one on final consumption, which has the potential to tax virtually every facet of a business. He predicted that Ohio businesses would be unable to remain competitive with out-of-state firms.
That same day, numerous other business entities expressed their opposition to the CAT and/or sales tax expansions, including the MillerCoors Brewing Company, Ohio Cable Telecommunications Association, the Ohio Parking Association, and Creative Vacations & Cruise Centers.
One of the few proponents submitting testimony was the Ohio State Medical Association, which supports the tax increase on cigarettes, e-cigarettes, and other tobacco products. Citing a 2012 National Health Interview Survey, Ohio State Medical Association representative Tim Maglione theorized that raising the cost of tobacco and nicotine use would reduce consumption and reduce the following statistics:
- 23 percent of adult Ohioans are smokers;
- Approximately 18,000 adults in Ohio die each year from causes directly related to their own smoking;
- $5.64 billion in annual healthcare costs in Ohio directly caused by smoking; and
- $622 per household resulting from the state and federal tax burdens.
Here is the most current version of the legislation.
Wisconsin: Lawmakers propose shifting personal property tax burden to real property
Republicans in the Wisconsin legislature have recently proposed a bill that eliminates the property tax on personal property, such as equipment, beginning in 2020. Personal property placed in service on or after Jan. 1, 2016 is not subject to the property tax, and personal property placed in service before Jan. 1, 2016, is subject to the property tax based on the actual depreciated value of the property. The bill also eliminates aid payments the state makes to local governments for computers and related equipment.
Instead, Wisconsin homeowners could see a collective $270 million increase in their real property taxes, according to the Wisconsin State Journal. Rep. Robert Kulp (R-Stratford), a co-sponsor of the bill, and Wisconsin Realtors Association Vice President Tom Larson both agreed that the personal property tax, also referred to as an equipment tax, is a burden for businesses, in part because of the headaches caused by tending to its administration. But Larson asserted that eliminating that tax while increasing taxes on homeowners is not the answer, and he is not alone.
In a joint letter, the League of Wisconsin Municipalities (LWM) and the Wisconsin Counties Association urged legislators not to shift more of the tax burden onto homeowners. Noting that the total statewide personal property tax levy in 2013 (collected in 2014) was $290 million, and that the total state aid payment to local governments for computers will be $83.8 million in 2015, officials cautioned members of the Wisconsin State Legislature of several negative ramifications of the bill, including:
- Homeowners already pay 70 percent of the statewide property tax levy, and this measure increases that figure by 2.7 percent. On a median valued home, the net tax would go up by about $80 (from $2,926 to $3,008).
- Cities and villages account for 82 percent of Wisconsin’s personal property tax collections, so homeowners in those locales will bear most of the burden of the tax shift. As an example, the city of Fond du Lac could lose over $127 million, or 4.9 percent of its total taxable property tax base. The US Census ranked Fond du Lac #15 of 1,400 Wisconsin cities by population, with 43,025 residents.
- In the past when the legislature exempted personal property, instead of shifting the burden to homeowners, it reimbursed local governments for the lost tax revenue. Under this kind of scenario, rather than shifting the personal property taxes to residential home owners, the state would make annual payments to local governments totaling $268 million based on 2013(14) values and rates, to compensate them for the lost tax base.
In contrast to this opposition, the Wisconsin State Journal article reported that restaurants, hotels, contractors, grocers, auto repair shops, and other business groups approve of the bill, and at least a dozen co-sponsors have signed on. These industry segments owned nearly $11.8 trillion in machinery, equipment, furniture, watercraft, and other portable property in 2014.
Maryland establishes guidelines for the Regional Institution Strategic Enterprise Zone Program
Like other states, Maryland has developed incentives to encourage economic development and revitalization in certain geographic areas. The Regional Institution Strategic Enterprise Zone program (RISE Zone) refers to a geographic area that has a strong connection with a qualified institution and is targeted for increased economic and community development.
A RISE Zone is either:
- In immediate proximity to a qualified institution;
- Has a connection with a qualified institution and its proposed activities;
- Is a rural area and has a connection with the qualified institution and its proposed activities; or
- Is already designated as a RISE Zone.
RISE Zone is designed to facilitate business access to institutions, and the institutions’ assets, to create jobs within the communities in which the institutions are located. For firms locating in a RISE Zone, or for or an existing company significantly expanding within a zone, Maryland is offering real property and income tax credits related to capital investment and job creation. In addition, it will provide a “business concierge” with the Department of Business and Economic Development (DBED) to assist businesses with identifying and utilizing other state programs for which they might qualify, and with permitting and licensing applications.
The DBED has recently adopted new regulations detailing the requirements, procedures, and application process for designation as a RISE Zone and a qualified institution.
In seeking designation as a qualified institution, an applicant institution must provide evidence of a significant financial investment or commitment to an area intended to be a RISE Zone, including the following:
- A description of the projected amount and type of financial investment;
- An explanation of where the investment or commitment will be made, and its purpose;
- A hard copy and digital map of the proposed RISE Zone;
- The acreage of the proposed RISE Zone;
- An explanation of why the investment or commitment is significant to the area;
- A list of resources and expertise the applicant has in economic development and community revitalization, and how the applicant intends to apply them;
- An explanation of how the applicant intends to create new jobs, including the number and types of jobs;
- An explanation of the commitment of time and financial resources in the community, including outcomes; and
- Evidence that the applicant possesses the necessary financial resources.
Bizjournals.com reported that DBED Secretary Dominick Murray expects that RISE Zone will amplify the economic development potential of Maryland’s colleges and universities. A RISE Zone designation will last for five years, and can be renewed for another five.
For additional information regarding these subjects, or any other multistate tax issues, please contact:
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