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Published: Wednesday, 3/23/2005

The tax-reform game

IN THE fractious world of Statehouse politics, tax reform is always a relative thing. Whether it's good or bad depends on who's being taxed, on what, and how much.

A key battle in Columbus these days hinges on a split in the business community, which, coupled with a display of unusual unity between legislative leaders and Gov. Bob Taft, has produced the essential ingredients for changing the way Ohio businesses are taxed.

The Ohio Manufacturers Association, House Speaker Jon Husted, and Senate President Bill Harris all are behind the governor's tax plan, which calls for replacing the current corporate franchise tax with a broader commercial-activity tax. It would be coupled with phase-out within two to five years of the tangible personal property tax on machinery, equipment, and inventories, which is uniformly detested by businesses.

The idea, which Mr. Taft floated in his State of the State speech last month, is to tax a greater number of businesses at a lower rate, which ostensibly would be more fair, and to get rid of a tax that discourages businesses from investing in Ohio.

Not all businesses agree. While the OMA supports the plan, several of its largest members - General Motors, Ford, and Toledo's Dana Corp. - oppose it. That's because the complex structure of the corporate franchise tax makes it easier for multi-state businesses with an army of expert accountants to avoid paying it.

Indeed, the state tax department has released a list (without names) of the top 10 corporate-franchise taxpayers, with sales in Ohio ranging from $1.5 billion to $5.2 billion, showing that many pay little or no tax.

Number 2 on the list, for example, a company with $4.6 billion in Ohio sales, not only had no corporate tax liability but received a $3,000 refund. Company number 4, with $3.5 billion in sales here, did even better - a $1 million refund. Four of the top 10 paid the minimum corporate franchise tax, which is $1,000.

It's difficult to look at those numbers and see anything other than an inequitable tax, at least if you're a manufacturer. Also behind the governor's plan are the Ohio Business Roundtable, the Ohio Farm Bureau, and lobbyists for small businesses.

Smaller concerns support the governor because the business-activity tax would exclude the first $1 million of a company's sales. And Mr. Taft also would institute a 21 percent cut on the rates of the personal income tax, which is how many small businesses pay their taxes.

On the other side of the debate are the Ohio Chamber of Commerce and the retail merchants, including grocers, who claim they would get soaked under the governor's plan.

However the battle plays out, it is essential that the legislature and governor do something positive to help Ohio shed its reputation as a high-tax state.

Since 1998, Ohio has lost 20 percent of its manufacturing jobs - 200,000 in all. High taxes didn't kill all of them, but lower taxes can bring some of them back.

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