GOP budget raises Ohio sales tax, goes after Internet purchases

There's a lot to like in the Republican budget for the state of Ohio - but there are some disturbing items as well: a sales tax hike and Internet taxes.

The first thing you should know is that Ohio's income went up last year. The Dayton Daily News reported in April:

The Buckeye State experienced big increases in sales taxes, personal income taxes, hospital-related taxes and corporation licenses in fiscal year 2012, the Dayton Daily News found.

Ohio’s tax receipts grew by $905.9 million in fiscal year 2012, which ended last June 30, compared to the previous fiscal year, according to an analysis of 2012 Census of Governments data released Thursday.

A new income source came from one-time licensing fees of $50 million paid by two of Ohio’s new casinos.

The state got $100 million in fees from the opening of casinos in Cleveland and Toledo in May 2012. While that’s a one-time occurrence for each casino, the state will add another $100 million in the current fiscal year for the casino in Columbus, which opened Oct. 8, 2012, and one in Cincinnati, which opened in February.

Ohio tax receipts increased by 3.6 percent in the last fiscal year.

The GOP budget fact sheet, provided by Gongwer Ohio, is titled: "Putting More Money Back in Ohioans' Pockets" and says:

"The House & Senate Majority Caucuses have said from day one that we need to shift towards a consumption-based tax structure and away from our current income tax structure, which penalizes success. Additionally, we have said from day one that you want to ensure that we are not playing a "shell game" where $1 of taxes are cut, but raised by $1 elsewhere."

They are proposing a 50% small business tax cut on the first $250,000 in net business income and a 10% income tax cut, which is a on the personal income tax rate over the next three years.

But there are tax increases in the plan:

* In the future, the Homestead Tax Exemption will be means tested and only apply to seniors earning less than $30,000. It applies to all seniors now. They will grandfather in anyone currently getting the exemption.

* The state has been subsidizing property taxes from local levies - at a rate of 12.5%. That will end for any new levies. The rationale is that with a lower income tax rate, property owners won't need the state subsidy.

* Gambling losses will no longer be deductible. You'll pay taxes on gambling gains, but won't be able to deduct losses.

* All cigarettes will be taxed at the same rate, which will be a bit lower than what is paid on regular cigarettes.

* If you purchase a magazine at the newsstand or grocery store, you pay sales tax on it. This tax will now be applied to magazines purchased through a subscription.

But the big one is the sales tax, which is increased from 5.5% to 5.75%.

Additionally, in a move they describe as "streamlining" and part of "modernizing our overall tax structure," Ohio will become a full member of a multi-state compact in order to expand the collection of sales taxes due from catalog and Internet purchases.

Another bullet item says they will be "equalizing sale of digital goods with their already taxed hard copy counterparts."

Since the actual language is not yet written, this could mean a number of things but the general consensus is that they are going to require the sales tax on Internet purchases.

All these plans to raise taxes are supposed to be offset by the decrease in income tax. But that assumes that the additional sales you end up paying is actually less than the cut in the income taxes. That may be true for some, but not for others. The good news for purchasers is that you don't *have* to continue purchasing things like magazines and clothes and cigarettes, etc... so you can see an overall reduction in the taxes paid.

I guess I'm just not convinced this will give Ohioans "more buying power and help create jobs."

Arguments in favor of Internet Sales Tax are all wrong

I've been listening to the arguments being made in favor of the Internet sales tax - a bill passed by the Senate and now headed to the House that would mandate the collection of sales tax for any on-line purchases from a company with more than $1 million in gross sales.

The claim by large, national corporations is that it will 'level the playing field' when it comes to collection of the tax because most of them already do this.

The problem is that the sales tax varies by jurisdiction with 9,646 different jurisdictions and a tax that is dependent upon where the purchaser lives.

Under current law, sales tax is collected by the merch ant based upon where the merchant is physically located and charged on on-line purchases only when a merchant has a physical location in a state.

It's a regulatory nightmare and companies with $1 million in GROSS sales might not have the NET profit to be able to afford the cost of the mandate. Then is also the possibility of purchasers giving a friend or relative's address in order to avoid paying a higher tax rate. What's to prevent someone from Toledo (with a 6.75% sales tax) from using an Erie, Michigan address (6%) in order to save the .75% difference?

The bigger question that bypasses all the arguments is this: why are merchants being used as a tax collector for the government?

The government is the person to whom the tax is owed. They are the ones who want the money and they are the ones who have the authority for penalizing the non-payment. Why is there even a middle-man in the first place?

Many entities use a company that specializes in collecting past-due bills. Those companies are paid for their services, either in a set fee or contract or by a percentage of what is collected.

But merchants don't get paid or compensated for collecting the government's bill of sales tax.

Ohio has a law that requires individuals to report on-line orders and then pay the appropriate sales tax on them. The state uses the yearly income tax form for doing this.

So why not just expand that procedure to all purchases?

Clearly, it's because government can't rely upon self-reporting of purchases and it may be unrealistic to expect individuals to keep track of the taxable vs. non-taxable purchases they make.

In fact, it's because the government doesn't trust individuals to self-report that they're not trying to expand their tax collection to entities that don't even live within the state.

Because certainly if individuals can avoid paying taxes, they do, regardless of how much they may support taxation in general or additional taxation on 'the rich.'

So we have a conversation about how merchants can be forced to be bill collectors for the state.

Anyone else see anything wrong with this?

What you'll pay taxes on if Kasich's budget plan is approved

The Columbus Dispatch has provided the complete list of Gov. John Kasich's sales tax plan included in his budget proposal. While he'd lower the sales tax by a half a percentage point, to 5%, he's adding it to more things.

As if we don't pay through the nose for our garbage through the (questionable) trash tax, refuse services are on the list. We'll be paying sales tax on top of our garbage tax!

While Kasich's proposal will lower individual income tax rates, and taxes on business, how much more will individuals and businesses be paying when they have to pay sales tax on accounting and bookkeeping, attorneys and other consultants? Of course, those costs will passed on to consumers, so you will probably pay twice.

But look at the entire list. Aren't funerals bad enough without being hit with sales tax on top of the other costs?

And if you're in need of debt counseling, do you really have enough money to pay sales tax on it?

How, exactly, are you going to pay sales tax on a coin-operated washing machine? Do they even have slots for pennies?

Magazine subscriptions? Downloaded books, movies and music? Parking lots and parking garages?

As Matt Mayer of Opportunity Ohio wrote in an email:

Yes, I know that Governor Kasich's proposed budget contains an income tax cut, but that tax cut is funded by tax hikes elsewhere instead of government spending reductions. And, yes, taxing consumption is generally preferred over taxing income, but, by refusing to reduce high government spending, that choice really is a choice between the lesser of two inferior choices. Some of those tax hikes will come right back to consumers as businesses will pass along those taxes to consumers or, worse, businesses and consumers who can move the location of their service purchases will do so, thereby harming Ohio businesses.

To back that up, he included some startling budget data:

1. Governor John Kasich's Budgets: 24.4% increase in General Revenue Fund expenditures in 4 years or 6.1% increase per year average.

2. Even within his own budgets, Governor Kasich increases General Revenue Fund expenditures by 20.7% from 2012 to 2015.

3. From 1990 to 2015, General Revenue Fund expenditures grew by 182% or 63% adjusted for inflation.

4. Ohio Governor Term General Revenue Fund Expenditures Growth: Voinovich Term I=19.8%; Voinovich Term II=20.3%; Taft Term I=25.7%; Taft Term II=11%; Strickland=4.4%; and Kasich=24.4%.

Additionally, Kasich is again proposing to raise the severance tax on oil and gas drilling (fracking). This idea was rejected by the legislature previously, but it's back - and he's hoping to *purchase* the new tax on one of our most economically promising industries through a class warfare approach: we'll tack from the evil big oil and big gas and give to you, the average, hard-working Ohioan. How is that any different from Pres. Barack Obama's class warfare of tax the rich and give to the poor?

It's the spending, stupid. Cut that and maybe we can truly lower the taxes - without having to increase them elsewhere.

And here's the kicker: counties get to add a percentage to the state sales tax and collect it as well, though the amount varies from county to county. In Lucas, they add 1% for a total of 6.5%. So local governments will see an increase in revenue just because the taxable list has been expanded to apply to additional items. Some might think this is a good thing as it could avoid other taxes, but remember: sales taxes are regressive - hitting lower income individuals harder than others.

This is not the path to growth for Ohio - only a path to the growth of government.

Here are the previously exempt items that you'll have to pay sales tax on - if his budget plan is approved by the General Assembly:

* Pet Grooming
* Intrastate Courier Services
* Marine Towing Services
* Packing and Crating
* Refuse Collection
* Insurance Services (not policy purchases)
* Investment Counselling
* Loan Broker Fees
* Property sales agents (real estate or personal)
* Real estate management fees (rental agents)
* Real estate title abstract services
* Service charges of banking institutions
* Tickertape reporting (financial reporting)
* Accounting (Personal services)
* Cutting, coloring, styling of hair
* Dating Services
* Debt Counseling
* Fishing and hunting guide services
* Funeral Services
* Laundry and dry cleaning services, coin-op
* Legal Services (Personal services)
* Mailbox Rentals
* Tax Return Preparation
* Travel Agent Services
* Accounting and Bookkeeping (Business services)
* Advertising agency fees (other than ad placement)
* Architectural, engineering, and related services
* Bail Bond Fees
* Call Center
* Check and Debt Collection
* Commercial art and graphic design
* Credit information, credit bureaus
* Interior Design and Decorating
* Legal Services (Business services)
* Lobbying and Consulting
* Magazine Subscriptions
* Mailroom Services
* Management consultant services
* Marketing
* Process Server Fees
* Sale of Advertising time or space (billboards, magazine, newspaper, local radio and television)
* Public relations, management consulting
* Secretarial and court reporting services (excludes temporary hiring)
* Telemarketing services on contract
* Telephone Answering Service
* Test laboratories (excluding medical)
* Software - custom programs - programming and modifications to pre-written program
* Downloaded books, music, movies/digital, other electronic goods
* Parking lots and garages
* Admission to: cultural events; professional sports events; school and college sports events' park admission and rides; circuses and fairs - admission and rides.
* Billiard Parlors
* Bowling Alleys
* Cable TV services
* Coin-operated video games
* Pari-mutuel racing events
* Pinball and other mechanical amusements
* Rental of films and tapes by theaters
* Professional Services: accounting & bookkeeping; architects, attorneys; credit rating services; data mining services; engineers; land surveying; public relations; sound recording; Stenographic services.
* Trailer Parks - overnight

Ohio Watchdog round-up: sales tax, hypocrisy, several tax

A round-up of article from Ohio Watchdog:

Sales tax, property tax and - oh yeah - children: Discussions about how to fund education in the state include raising the sales tax to replace the property taxes being charged locally. How much, who gets it and who decides is always the discussion - but where do the children fit into the equation?

Dear Mr. President - your campaign is out of control: The same day Ohio was celebrating being recognized as an All-Star state for our efforts to protect the military vote, the Obama For America campaign, the Democratic National Committee and the Ohio Democratic Party sued the state to overturn the very law that help us win the recognition.

Oh - and overlooked by everyone is the sheer hypocrisy of the ODP, along with chairman Chris Redfern, of suing to overturn a bill that every Democrat - including Redfern - voted for.

Yes, you read that correctly. The ODP is suing to overturn a bill that received unanimous support when it was passed.

Kasich renews calls for high oil, gas severance tax: I written in opposition to the severance tax, and several groups (here and here) have announced their opposition as well. This article describes the proposal and what proponents and opponents have to say. Tom Blumer also lists Another reason to oppose gas hikes on Ohio's oil, gas industry.

Lastly, Ohio Watchdog has done a series of articles exposing the bias and 'untruthfulness' of PolitiFact's truth or lie conclusions. The latest article looks at how PolitiFact slams a GOP spokeswoman's 'literally true' statement as somehow untrue. Unbelievable! But read all the posts in the series and you'll see how PolitiFact is just a tool to support liberals while criticizing conservatives. That's my opinion, but you'll see how valid it is after reading the series and you can judge for yourself.

Why TARTA wants a 53% increase in tax revenue

In 2009, the Toledo Area Regional Transit Authority (TARTA) began talking about instituting a sales tax of $.005 as a replacement for their two property taxes that are currently imposed.

Since that time, state law has changed and member communities have the choice of 'opting out' of TARTA service.  Previously, the only way a community could leave TARTA service was if board members representing all the members voted unanimously to allow them to do so.  At our March primary, Perrysburg voted to leave TARTA.

Of course, TARTA is now looking at ways to get money to replace the property taxes they were getting from Perrysburg.

If TARTA were to collect a half-cent sales tax within Lucas County, they estimate they would receive $25.6 million each year.  Their current levies generate only $16.7 million.  That's a 53% increase in taxes they'd be getting.

Money is definitely one of the reasons they want a sales tax. 

But there's another reason that may be even more attractive to TARTA.  With a sales tax, they never have to go back to the voters for approval. 

With two property tax levies, TARTA must present them for approval to the voters every four years. This gives voters the ability to judge whether or not TARTA is meeting their needs and using their tax dollars wisely.  TARTA must continually justify their actions, decisions and spending - and be accountable to the people they serve in order to earn a yes vote on the levies.

It also means they must mount a campaign with advertising and outreach to convince the voters of their value and request their votes.  This costs money, too.  And TARTA has a record of misusing public dollars for that purpose.  In fact, their actions resulted in a new state law to criminalize what TARTA General Manager James Gee did.

TARTA has had other financial problems as well.  In January, the Auditor of State declared their books 'unauditable' because they'd failed to supply all the data necessary to complete their 2010 audit.  When this became public, Gee claimed the items needed were "minor."  But they were far from minor:

It's not 'minor' to be missing your accounts receivable support for your federal operating assistance account.

It's not 'minor' to be unable to produce a listing of your fixed asset purchases and disposals.

It's not 'minor' to be missing your "Most recent (2011) internal Balance Sheet and Income Statement."

It's not 'minor' to be unable to produce - for 13 months! - your listing of contracts over $25,000 and the requests for proposals for all contracts over $50,000.

It's not 'minor' to be missing your list of disposals purchased with federal dollars. In fact, lack of the audit information on the federal items could result in loss of federal income.

It's not 'minor' to be missing details of your legal expenses, details about fluctuations in various accounts, reports for claims and litigation against the agency, or your complete check registers.

Gee then made a bunch of excuses for his failure to provide the required documents.  But no matter what lame excuse he came up with, it was clear that he was still to blame.

With all this going on, it's no wonder he and the board don't want to appear before the public to ask for their property tax levies to be renewed.

So they're going to see if they can obtain a permanent source of funding that will give them a 53% increase in revenue.

They do not deserve to be rewarded with additional funds.

*** For more on the financial difference between paying for a sales tax versus a property tax, please read this.

How long do Americans work for each type of tax?

From the National Center for Policy Analysis:

In 2011, Americans will devote 2 hours and 13 minutes of every eight-hour workday, or over a quarter of their working hours (27.7 percent), to paying taxes. In a nine-to-five workday, it takes until 11:13 a.m. to earn enough to pay that day's share of taxes at the federal, state and local level. If we add the federal deficit to the picture -- that is, if the federal government were planning to collect enough in taxes during 2011 to finance all of its spending -- Americans would work until lunchtime, 12:07 p.m., for the government, before keeping any of their earnings for themselves, says the Tax Foundation.

These calendar- and clock-based illustrations are a useful way to explain how much the nation as a whole spends on government:

* Individual income taxes require the most work; all but seven states, and some localities, levy an income tax. When these are added to the federal income tax burden, income taxes are projected to amount to an average of 46 minutes of work in an eight-hour workday.

* Social insurance taxes (taxes dedicated to funding social insurance programs such as Social Security and Medicare) require 29 minutes of work.

* Sales and excise taxes require 20 minutes of work.

* Property taxes require 16 minutes of work.

* Corporate income taxes require 16 minutes of work.

Source: Kail Padgitt and Alicia Hansen, "Nation Works until 11:13 a.m. to Pay All Taxes, Lunchtime to Pay off the Deficit," Tax Foundation, May 5, 2011.

For text:

http://www.taxfoundation.org/files/ff268.pdf

Quick hits...TARTA, fish kills and mulch

A few quick hits on the news of the day while I await the delivery of 6 cubic yards of mulch from the City of Toledo.

(BTW - if you need mulch, the City has a great product at only $15 a cubic yard, which is quite a deal! And delivery is only $20. Hmmm...I wonder if this covers their costs or is this one of the reasons the city is in the hole with their budget? I think I'll think about that tomorrow or Sunday as I'm spreading the mulch around my yard.)

* TARTA is going to continue to push for a switch from property taxes to a sales tax as a method of funding, despite the fact that one of their member communities, Sylvania Township, voted against the proposal. They need unanimous support from their member communities to put the switch on the ballot.

Many of the suburban communities have been complaining for years about the lack of the service from this organization, despite the amount of money they pay for it. And with today's economic conditions, many struggling families are wondering why they're cutting back on their expenditures only to find they're paying for and/or subsidizing other peoples' method of transportation.

The TARTA levies (there are two of them) must be approved every 4 years by voters. A sales tax only has to be approved once, so that is certainly an advantage to TARTA. It would be applied on everything but prescriptions and groceries, raising the costs of all other items purchased in Lucas County and giving us one of the highest sales tax rates in the state.

TARTA likes to talk about how their estimates show people will pay less in sales tax than they do in property tax - but they never talk about the tax deductibility of those property taxes and how that might impact individuals who itemize. I've done calculations for our family and I know a TARTA sales tax will cost us more than the property tax.

But the biggest objection I have is that TARTA hasn't implemented many of the ideas from any of the studies they've done over the last 40 years or so. Today's paper quotes them as saying a bus costs about $45/hour to operate. There's no way they're going to ever break even if that is correct.

I heard one of the Monclova Township Trustees on the radio the other day talking about the increased pay the administration has gotten over the last several years. While I don't recall the exact amount, the figure of 20% sticks in my mind.

Oh - and the sales tax will generate roughly twice as much revenue for TARTA as the two current levies combined. So we'd be giving them even more money to run at a loss.

This just doesn't make sense.

* Fish kills at the Bayshore Power Plant cost us $30 million a year. At least, that's what the headline in the paper today says.

And how, exactly, do these dead fish cost us that much money? I have no idea - and the story doesn't say, though it does cite a 'study' as the source of the conclusion. But there's no link to the study so we can read it for ourselves and answer this question.

Oh - and the proposed solution is for the plant to build a $100 million cooling tower. What seems to be missed is that WE, the users of the energy from that plant, will have to pay for that $100 million cost - if it comes in at only $100 million. I think most people would say that other, less costly methods should be tried first. After all - what's more important to most people in the area: fish or their own checkbooks?

But here's the part that really gets me: the double standard.

Whenever an industry group does a 'study' that says a process or action is okay or not harmful, enviro-wackos claim the study cannot be trusted because of who paid for it.

***Side Note: I distinguish between enviro-wackos and normal individuals who happen to care about the environment and want to practice good conservation techniques - sort of like myself! So not all environmentalists are enviro-wackos.
End Side Note***

But when environmental groups - some of them known for 'radical' approaches - fund a study that says fish kills cost us $30 million a year, no one bats an eye or even remotely suggests that perhaps the study has a 'bias.'

See the double standard? When environmentalist groups fund a study, the study is valid - but when industry groups fund one, the study is biased and flawed.

You can't have it both ways.

Sales tax versus property tax

TARTA is pushing for an additional amount to be added to our sales tax (.5%) as a method of funding to replace their property tax levy.

From a personal perspective, I understand the reasoning that many property owners will have on this: I'll save money because a sales tax will cost me less than the levy.

This is certainly true for me - I'd have to purchase over $41,000 of taxable items to equal the more than $200 per year I currently pay for the TARTA levy on my property tax bill. (Of course, a couple of major purchases like a car, major appliances, or home improvements could put me over that level.)

However, with the sales tax I'd lose the ability to periodically express my approval/disapproval of the service provided by voting for/against the levy.

And while I might save money going to a sales tax, others in my neighborhood who have smaller lots and homes wouldn't. In fact, I checked the amount the local ice cream store pays for the levy and they'd only have to have about $6,500 in taxable purchases to exceed what they're currently paying. When you're purchasing napkins, spoons, paper products, cleaning supplies, and other non-resale items, getting to that level isn't hard.

Renters will probably not see a reduction in their monthly payments if the landlord has a reduction in the property tax - but they will pay more for their purchases.

There are many other aspects of this issue, some generic in terms of which system of taxation is actually better (or has the least impact financially) and others are specific to TARTA.

I'll be talking about this on Eye On Toledo tonight and adding more blog posts as I refine my own position.