County officials skeptical of Kasich sales-tax proposal

3/8/2013

ASSOCIATED PRESS

COLUMBUS — Ohio county officials generally like Gov. John Kasich’s plan to expand the sales-tax base to a long list of services, but they’re raising the alarm over the idea the state thinks it can then cut their locally approved “piggyback” sales tax rates.

“We believe that this violates the principle of local control and sets a dangerous precedent that could open the door to the reduction of other locally enacted taxes in the future,” Larry Long, executive director of the County Commissioners Association of Ohio, told a House subcommittee this week.

Counties are authorized to enact a local sales tax rate of up to 1.5 cents on the dollar to “piggyback” on top of the statewide rate of 5.5 cents. Forty-eight counties have enacted the maximum rate. Lucas County is at 1.25 cents on the dollar.

Mr. Kasich has proposed expanding the state’s sales tax base to a litany of currently untaxed services — cable TV, legal services, coin-operated laundries, haircuts, pet grooming, travel agents, advertising, and magazine subscriptions among them.

That alone is expected to generate more than $3 billion in additional sales tax revenue over the next two years.

The expansion, however, is part of a broader tax package that also calls for a half-penny reduction in the current sales tax rate to 5 percent, a hike in severance taxes paid by shale oil and natural gas drillers, and a net $1.4 billion income tax cut for individuals and small businesses.

Arguing that the broadening of the sales tax base could lead to a financial windfall for counties that would negate benefits of the net tax-cut plan, Mr. Kasich has proposed cutting counties’ “piggyback” rates to ensure they don’t take in more than 10 percent over what they collect now. They could collect an additional 5 percent during the second year of the budget.

Lucas County would see its rate reduced to an even penny on the dollar under the first year of the plan.

The rates would be recalculated each year for three years during which counties would be prohibited from enacting any increases in their rates.

While increases of 10 percent in sales-tax collections in the first year of the budget and 15 percent total in the second might look good at first, Lucas County Administrator Peter Ujvagi told the subcommittee that it “has the potential to be a Potemkin’s village for counties — looking strong from the outside, but no substance on the inside.”

Counties already are suspicious of the administration given the 50 percent cut they suffered in local government funds in the current two-year budget.

They argue that the recalculation of their piggyback sales tax rates doesn’t take into consideration normal revenue growth expected even without the base expansion. They argue such actions would infringe on decisions local voters have already made and violate state law in cases where the local sales tax at a specific rate is earmarked to pay off debts for things like jails, stadiums, or convention centers.

Counties argue that the three-year moratorium ignores cases where counties may be preparing to ask voters for a rate increase for a capital improvement project or instances where a piggyback sales tax rate is coming up for renewal.

“That’s a concern of mine,” said Rep. Jeff McClain (R., Upper Sandusky), who chairs the Ways and Means Subcommittee. “I don’t think we have the authority to suspend their ability if they’re not at the max.”

Mr. Ujvagi, a former state representative, joined the voices of those challenging the idea of trading a sales-tax expansion for an income tax cut.

“For the vast majority of Ohioans, the additional sales tax will be greater than the income tax reduction,” he said. 

“Restricting local county authority and the citizen’s power to determine local sales tax levels for three years and possibly longer is not democratic, fair, or equitable either.”

Contact Jim Provance at: jprovance@theblade.com or 614-221-0496.