BEFORE THE HOUSE WAYS & MEANS COMMITTEE
OPPONENT TESTIMONY ON HB 356
Presented by Daniel Navin; Director of Legislative Affairs, Ohio Chamber of Commerce
Thursday, March 25, 2004

Chairman Kilbane and Members of the Committee,

My name is Daniel Navin and I am the managing director of legislative affairs for the Ohio Chamber of Commerce. I am here today to give opponent testimony on HB 356, legislation that would authorize the sales tax rate in a county to be increased for school district purposes, if a majority of school boards in the county approve a resolution to place the issue on the ballot and if the tax is approved by a majority of the county’s voters.

Our opposition to the bill is based primarily on two philosophical grounds. First, we believe there are already too many taxes that are revenue sources for too many different government/public sector jurisdictions. For example, property taxes are a revenue source for counties, municipalities, townships, school districts and other community-based organizations; income taxes are a revenue source for the state, municipalities and school districts; and sales taxes are a significant revenue source for the state and counties, but organizations such as regional transit authorities, local economic development organizations and convention & visitors’ bureaus receive revenue from sales taxes.

I don’t need to tell this committee how difficult the issue of comprehensive tax reform is, even if you are simply trying to calibrate the economic impact of potential tax changes on taxpayers and their future behavior in reaction to those changes. When you then add in the fact that multiple levels of government or numerous public sector providers of services are the beneficiaries of the revenue from a particular tax, or there exists a situation where essentially the same tax is imposed at the state and local level benefiting different jurisdictions in the public sector, it severely limits the state’s flexibility to make positive tax changes that will improve the economic viability and competitiveness of our state as a whole.

The second reason for our opposition to the bill stems from the connection between local school districts and the taxpayers that support them. The two main local revenue sources for schools are the property tax and school district income tax (SDIT). The property tax is levied on real and tangible personal property located in the school district and the SDIT is levied on residents of the school district. The relevant point here is that these two locally-levied taxes are directly imposed on those who reside and own property in the district, and who would, along with the state, be responsible for the operation and performance of the local school district.
That direct connection between the local voters and their local school district becomes more attenuated when a sales tax is proposed for school district purposes. This is because some, if not many, of the “payers” of the tax neither own property nor reside in the school district that receives the revenue from the additional tax. In other words, part of the obligation of local residents and property owners to support their local schools is being exported/transferred to those who may not own property or reside in the school district.

In rebuttal to this argument, some might say the same situation exists with the state sales & use or personal income taxes, i.e., the sales or personal income tax paid by a resident of ABC school district doesn’t necessarily find its way back to the local school district or community where the taxpayer resides. We acknowledge that is true, but that is the inherent nature of a statewide tax whose proceeds are deposited into the general revenue fund – the redistribution process will not result in every community receiving 100 cents back for every dollar paid by a local taxpayer.

Without belaboring the obvious, the difference lies in the fact that HB 356 would allow a locally-levied tax to be imposed on some payers of the tax who neither reside or own property in the school district. Further, if the authority granted by the bill were to be used by many school districts across the state, in our view, other levels of government would be requesting if not demanding more permissive authority to raise the sales tax rate.

Finally, we have taken this position on the bill fully aware that some of our members could in the future experience reductions in their real and tangible personal property taxes coming from the higher sales taxes. I merely point this out to the committee as indicative of what we believe is a broader, more comprehensive analysis of the bill’s potential impact, rather than one of narrow self-interest.

Chairman Kilbane and members of the committee, that completes my testimony and I will be happy to answer any questions you might have.