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Sales Tax Package In Doubt; Mid-April Floor Vote Planned For Budget

Majority Republicans in the House appear poised to shake up Governor Kasich's $63.3 billion budget considerably in the coming weeks, with a proposed sales tax extension to services apparently on thin ice and an overhaul of the administration’s plan for Medicaid appearing likely if approval is forthcoming from the federal government.

House hearings this week revealed general unease with certain aspects of the governor’s plan to expand the sales tax to services and increase the oil and gas severance tax – part of a larger proposal to cut income taxes.

While many Republicans are supportive of the concept of shifting from an income-based to a consumption-based tax system, initial analyses of the package have uncovered problems and complications that lawmakers would be hard-pressed to solve in the relatively tight time frame allowed for processing the budget measure (HB59).

Some of those issues were discussed Thursday in a new sub-panel of the House Ways & Means Committee, which convened for the first time to focus on the tax provisions. 

While Democrats have been more vocal in their overall opposition to the sales tax plan, many Republicans are also expressing doubts both publicly and privately – especially considering its scope.

In fact, a prominent House Republican had as many questions for Tax Commissioner Joe Testa than anyone else in the subcommittee Thursday: Rep. Ron Amstutz (R-Wooster) is the House Finance chairman and a former Ways & Means Committee chair.

Rep. Gary Scherer (R-Circleville) also had numerous questions about how the sales tax would apply to services among various types of affiliated entities and submitted a list to the Ohio Dept. of Taxation for follow up answers.

Rep. Peter Beck (R-Mason), chairman of the regular House Ways & Means Committee, said no decisions have been made regarding the sales tax components.

“We’re just looking at all the options at this point,” he said. “It’s a vital component of the entire budget process, so it would be hard to take out. But it’s not something that we can’t do and those options and considerations have to be considered.”

Commissioner Testa said the administration would continue to make its case for the governor’s goal of broadening the sales tax to cut income taxes on individuals and businesses, regardless of whether or not it remains in the budget.

“We understand that what we are proposing here is broad, we think it’s important for the future of the state,” he said in a recent interview.

“We will deal with it any way the legislature decides. If they decide to take separate action or separate pieces out, we’ve been there before,” he said, recalling the House chopped up the governor’s mid-biennium review proposal into several bills last year.

“If they feel that that’s a better way to drill down on issues because they are so complex, then I will be here and we’ll testify and give them the answers the best we can,” he said.

Mr. Testa said he welcomed lawmakers’ scrutiny, which could reveal details that might not have been fully vetted in the original proposal. “We want to work with the legislature. We understand this is a heavy lift with a lot of moving parts.”

Absent the expanded sales tax revenue, any personal income tax cut would likely be diminished but could still be sizeable based on revenue projections and other factors, officials say.

If Mr. Kasich’s sales tax plan does fall by the wayside in the near term it likely will not be declared permanently dead considering the GOP’s fondness for the consumption-based approach.

One Republican likened the circumstance to when former Gov. Bob Taft came up with a package of reforms early in the last decade. While they were initially rejected based on technical hurdles, time constraints and other factors, many ended up in law a few years later as part of the 2005 tax restructuring package.

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