Download (PDF) Ohio’s Bounded Assets Taxes: Complex and in Need of Reform
Ohio’s Bounded Assets Taxes: Complex and in Need of ReformScott DrenkardEconomist, Tax Foundation
Hearing of the Ways and Agency Board of the Ohio House of RepresentativesMay 7, 2013
Chairman Beck, Ranking Member Letson, Associates of the Committee:
My name is Scott Drenkard, and I’m an economist at the Tax Foundation. For those alien with the Tax Foundation, we are a non-partisan, non-profit alignment that has monitored budgetary action at all levels of government back 1937. We accept produced the Facts & Figures handbook back 1941, we account Tax Freedom Day anniversary year, and accept a abundance of data, rankings, and added advice at our website, www.TaxFoundation.org. We are guided by the attempt of complete tax policy: simplicity, neutrality, accuracy and stability.
I’m admiring to accept the befalling to allege today with attention to H.B. 5, a bill to ameliorate elements of Ohio’s borough tax system. While we booty no position on the bill, I achievement to accord some angle based on our research.
In 2011, we wrote a cardboard on city- and county-level assets taxes, and begin that of the 17 states that await on bounded assets taxes, Ohio has amid the accomplished rates. In 2010, bounded assets tax collections as a allotment of accompaniment claimed assets were 1.06 percent. The alone accompaniment with college able ante is Maryland.
However, complete tax action is not aloof about how abundant money is collected. It is about accession acquirement for all-important government casework in the best able way possible. Ohio’s borough tax arrangement is far from that ideal. H.B. 5 does a abundant accord to aish some of the complication congenital into Ohio’s borough tax system. I’m acquisitive it represents a alpha to a movement by assembly to accomplish the cipher added alive and user-friendly.
Today, I’d like to do article I commonly don’t get the adventitious to do, and that is say article nice about Maryland’s tax system. Maryland is agnate to Ohio in that the accompaniment leans heavily on bounded assets taxes to armamentarium government, but it does so in a way that about minimizes aborigine headache. If you attending at their accompaniment assets tax form, the absoluteness of the acquiescence with the bounded assets tax is handled on aloof a few curve of the form. Taxpayers artlessly accumulate their taxable assets from band 21 (their taxable income) by the allotment agnate with their locality, which is calmly amid in the instructions, again decrease out two credits for low assets individuals. H.B. 5 does not get Ohio to this accepted absolutely yet, but this aloof illustrates that bounded assets taxes can and should be aloof that easy.
Figure 1: Maryland Bounded Assets Taxes on the Accompaniment Form
By contrast, Ohio law makes individuals ample out added forms account their bounded assets tax liability. Sometimes individuals ample out assorted forms, and businesses generally do. Frustratingly, these tax bills are generally trivial, acceptation that municipalities are accidental a abundant accord to acquiescence costs, which economists will acquaint you are aloof a tax accountability that doesn’t alike aggregate any revenue.
What’s worse is that anniversary of these jurisdictions has what we alarm bounded “base autonomy.” That agency that anniversary belt is acceptable to appear up with their own adding of taxable assets and their own accumulating requirements. This is abnormally ambiguous if the localities don’t amusement credits for taxes paid to added jurisdictions in the aforementioned way. In Ohio, it’s absolutely accessible to pay bounded assets taxes on the aforementioned dollar to added than one jurisdiction. This is an abuse to the accustomed assumption of alienated bifold taxation.
There are nine states that accept bounded abject freedom for their sales taxes, and we clue that capricious and it counts adjoin those states in our anniversary adding of the Accompaniment Business Tax Climate Index. We absolutely don’t alike clue abject freedom in bounded assets taxes, and truthfully, that’s because we didn’t alike apperceive that any accompaniment had aggressive bounded assets tax bases until I was asked to affirm actuality today. H.B. 5 doesn’t move to an absolutely compatible abject for bounded assets tax collections, but it is a start.
One of the elements of accord that the bill would accompany is in the assay of net operating accident carryforwards. NOL carryforwards are an important aspect of any tax cipher because they advance neutrality amid businesses and individuals that accept altered assets breeze patterns.
The actuality that taxes are calm already a year is aloof a apparatus to advice with budgeting; but not all businesses accomplish on a 365 day assets model, and it’s important to acclimatize for this actuality of economics. Some entrepreneurs booty years architecture up start-up basic and comestible little accumulation with hopes of accepting beyond profits in the future. NOL carryforwards advice bland this assets aberration so we don’t abuse new avant-garde enterprises. H.B. 5 ensures that carryforwards are at atomic offered for bristles years.
One of the added apparatus of this bill that deserves acclaim is the ameliorate of the “casual entrant” exemption, which is all-important to accompany tax complication beneath control. Currently, businesses are affected to abstain assets taxes in assorted jurisdictions alike back their advisers absorb aloof a few canicule alive there. I’ve heard abhorrence belief of account professionals in Ohio that end up with over 20 W-2s at the end of the year.
My intuition tells me that abounding businesses artlessly don’t bother with activity through the agitation of denial in all the jurisdictions their advisers ability appointment and instead aloof achievement their books don’t get audited. This is a abundant archetype of tax law that undermines autonomous compliance. Businesses appetite to pay all the taxes that are due, but artlessly acquisition that too difficult.
H.B. 5 extends this accidental aspirant absolution to 20 days, abating some of this pressure. However, I anticipate the admeasurement could go somewhat further. In Pennsylvania, localities artlessly tax non-residents based on their primary abode of employment, and this cuts bottomward on a amazing bulk of added paperwork. I anticipate that is a applicable archetypal for states that accept bounded assets taxes, and one that Ohio should booty beneath able consideration.
In closing, while I’ll be the aboriginal to accept that authoritative tax changes like those in H.B. 5 are not the best animated altercation topic, I’m admiring to see this board demography a austere attending at authoritative the bounded assets tax anatomy in the Buckeye Accompaniment added sensible. It will acquire huge benefits. Thank you for your time and consideration; I attending advanced to your questions.
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