Shift from the Income to Consumption Taxes Still Alive

The legislative debate over how to make Ohio’s state and local tax structure more competitive did not end with the June enactment of the state’s biennial budget bill. In particular, the municipal tax uniformity and reform measure, House Bill 5, is still awaiting House action. In addition, some key state policymakers continue to discuss the possibility of additional, broader tax reform.

The Municipal Tax Reform Coalition, comprised of nearly 30 business organizations including the Ohio Chamber, is the primary group supporting HB 5 and pushing for its passage. Working with HB 5 co-sponsors Reps. Cheryl Grossman and Mike Henne, the Coalition has made numerous compromises to address the concerns of municipalities about the bill, most of which deal with allegedly negative revenue impacts.

A new substitute version of HB 5 should be ready for consideration by the House Ways & Means Committee by the middle of September. Specifically, the substitute bill will further refine the provision allowing businesses to deduct prior year net operating losses (NOLs) from current year income for up to five years. The NOL issue has been the biggest obstacle to garnering the support of cities for HB 5 and the Coalition will likely be making one last revision to the NOL provision in hopes of achieving that objective.

As for other future tax reforms, Gov. John Kasich and legislative leaders want to build on the momentum of the 10 percent personal income tax and small business tax cuts enacted in the budget. The administration has made no secret of its desire to shift the focus of the state’s tax structure from taxing income to taxing consumption.

In anticipation of the upcoming tax reform debate, House Speaker Bill Batchelder has appointed a special House Tax Reform Study Committee that will have five meetings across the state over the next four weeks. The first four committee meetings, including the one that occurred last week in Chillicothe, will allow citizens and businesses to express their ideas and concerns about Ohio’s state tax policies. The fifth meeting, to be held at the Statehouse in Columbus on Sept. 17th, will solely discuss municipal tax issues.