Testimony

Testimony On the Next Step In Tax Reform
Before the House Ways & Means Committee
August 22, 2006 – Presented by:
Daniel Navin, Assistant Vice President, Tax & Economic Policy, Ohio Chamber of Commerce


Chairman Kilbane and Members of the Committee,

My name is Daniel Navin and I am the Assistant Vice President, Tax & Economic Policy, for the Ohio Chamber of Commerce. Joining me today are Kathleen Hughes, partner with the CPA firm Taylor, Applegate & Hughes, and George Schueller, tax manager with the CBIZ accounting firm. Both Ms. Hughes and Mr. Schueller have extensive tax, accounting and consulting practices representing small businesses, and Ms. Hughes is a board member of the Ohio Small Business Council, an affiliate organization of the Ohio Chamber. Mr. Schueller is a member of the Chamber’s Tax Committee.

We come before you today for two reasons:
1. to talk in general about the impact of last year’s tax reforms on the kinds of companies Ms. Hughes and Mr. Schueller advise. A progress report, of sorts.
2. to outline some additional steps Ohio possibly should take to further improve and enhance its competitiveness in the state & local tax arena.

One caveat, however, before we delve into the gist of our testimony. We are not here to rehash the debate over the HB 66 tax changes, more specifically the CAT tax. The Chamber’s position is that the legislature has spoken on the issue and the CAT is now a new part of Ohio’s business tax structure. More time must pass and data be accumulated before we can credibly assess the CAT’s overall impact on the state’s economy. Until then, stability of the reforms, keeping them in place for an appreciable period of time, is the best way to allow them to work and have a positive effect. Thereafter, we can more fairly gauge their effectiveness and decide whether minor tweaks or major revisions are warranted and necessary.

I’d like to make a couple of points before turning it over to my colleagues. Generally speaking, the major tax reforms enacted through HB 66 – tangible personal property tax (TPP tax) repeal; 21% personal income tax (PIT) reduction across all taxpayer brackets; phase-out of the corporation franchise tax (CFT) coupled with the phase-in of the CAT; permanent half-penny sales tax; and repeal of the 10% real property tax rollback on Class 2 commercial/industrial property – are being adjusted to fairly well by Ohio taxpayers. This observation is both influenced and tempered by the fact that the plan is still very much in the transition phase.

In fact, among the four taxes being either phased-in or phased-out (TPP tax, PIT rate reduction, CFT repeal and the CAT), many taxpayers are paying three of them – TPP, CFT & CAT. This can be rather confusing even for corporate tax compliance people, much less upper management and boards of directors. My colleagues will talk a little bit about this situation, but the bottom line is that we feel confident that taxpayers will get through any initial anxiety about the phase-ins, phase-outs and new rules of our improved tax structure.

A second observation is I have received positive feedback about the TPP tax repeal and PIT reductions, as one might expect. Since most Ohio businesses in virtually all industry sectors have been clamoring for removal of the TPP tax for years, it’s perfectly understandable that its ultimate repeal would be applauded. The same applies to the PIT reduction, about which I’ve received numerous positive reactions. Go figure.

I have been surprised, however, by the lack of significant negative reaction to the 10% commercial rollback repeal. This is especially surprising in light of the fact that the rollback repeal is not being phased-in, but rather was immediately imposed on taxpayers for tax year 2005. Perhaps one reason for the relative lack of negative reaction is that many real property taxpayers also own businesses that pay the TPP tax as well. Consequently, the trade-off for companies in those circumstances works for them. In addition, there are many other companies that don’t actually pay real property tax as the property owner (although they end up paying it in higher rent or lease payments) but do pay the TPP tax, and thereby see themselves as winners in the trade-off.

I will now give the floor to Ms. Kathleen Hughes and then to George Schueller, after which we will all be available to answer any questions you have.