Most people are accustomed to paying a sales tax on goods, but under the governor’s newest tax proposal, sales tax would be extended to include a number of services as well.
Under Gov. Bob Taft’s latest tax reform proposal, services such as cable television, admission to theaters and events, dry cleaning, newspapers and tattooing, just to name a few, would be subject to a 5 percent state sales tax.
“It (the sales tax) affects just about anybody who retails anything,” said John Mahaney Jr., president of the Ohio Council of Retail Merchants.
Durb Morrison, owner of Stained Skin tattoo parlor, said while he doesn’t believe the sales tax would hurt business, he doesn’t think the tax should only be applied to certain services and not others.
“I think it should be across the board,” he said.
The proposal, which Taft unveiled last week, is the latest remedy to Ohio’s ailing budget woes, which is projected to fall $720 million short this fiscal year. This latest proposal is separate from the governor’s proposed “sin tax” increase on alcohol and cigarettes that was unveiled mid-January.
“In the last 27 months the governor has cut $1 billion in state services,” said Orest Holubec, a spokesman for the governor. “This is an attempt to raise much-needed additional money while protecting our priorities — K-12 education, higher education and job creation programs.”
“Rather than impose across the board increases, the governor decided to reform the tax system,” said Gary Gudmundson, communications director for the Ohio Department of Taxation.
Some of the services that may affect students the most include theater and event tickets, parking, cover charges for bars and cable television.
Gudmundson said the parking tax would include the sale of Ohio State parking permits, but the ticket sales tax would not include OSU sporting events, including football and basketball games, because they are not-for-profit events. Columbus Blue Jackets games and concerts held at the Schottenstein Center that are not affiliated with OSU will be subject to the 5 percent sales tax.
In addition to the expanded application of the sales tax, the sweeping tax reform would lower personal income tax rates, even eliminating the tax for some of Ohio’s poorest. The reform would also lower corporate franchises’ tax rate from 8.5 to 7 percent and eliminate tax avoidance opportunities for corporations.
According to Taft’s office, the taxes included in the reform package would generate about $996 million in fiscal year 2004 and $1.278 billion in fiscal year 2005.
Gudmundson said Taft’s new tax proposal reflects a system to better tax Ohio’s changing economy.
“The current system was developed to tax an economy that has changed — particularly sales tax, which was developed in the 1930s to tax hard goods,” he said. “In the past 40 years, services have become more a part of our economy. In 1959 service comprised 40 percent of our economy; today they are 59 percent of it.”
The proposed sales tax has a number of affected industries questioning the tax reform.
“We have some serious questions because it was created in a vacuum,” Mahaney said. “We were not invited to be part of the solution — we only received a courtesy briefing. You can’t just decide to broaden sales yourself without dealing with the people who are going to pay and collect the tax.”
Ed Kozelek, executive vice president of the Ohio Cable Telecommunications Association, said his industry opposes the sales tax because customers already pay up to 5 percent in fees to local governments and cable television is a primary source of information and entertainment for lower income families.
“It’s the people who rely most on cable who will be hit hardest by this tax,” Kozelek said. “Senior citizens, those who are housebound and families with limited resources turn to cable for news, entertainment, educational and arts programming.”
David W. Field, executive director of the Ohio Cleaners Association, an organization which represents dry cleaners, said he believes a 5 percent sales tax would likely hurt sales.
Democrats agree a tax increase is needed to solve the budget dilemma, but Senate Minority Leader Gregory DiDonato, D-Dennison, said he was skeptical about the proposed sales tax expansion.
“I’m not really sure I understand the gist of what the governor is doing,” he said. “He went through and picked and chose what services to tax. It seems to me the tax should be an across-the-board tax.”
DiDonato also said his constituents are wondering what’s going on at the capital in light of all the proposed tax increases in the past few weeks. “After seven-straight days of waking up with a new tax on the front page of the paper, people are starting to get a little tired of it,” he said.
