Ohio tax policies found friendly to businesses

4/21/2011

Five months after an election was won in part with a pledge to make Ohio "open for business," two new surveys of tax burdens on businesses and their owners say Ohio was among the most tax-friendly states in the nation -- in 2009 and 2010.

The accounting firm Ernst & Young LLP's annual ranking of tax burdens on new investment puts Ohio third lowest at an effective tax rate of 4.4 percent on new investment, trailing only Maine and Oregon.

Meanwhile, the Virginia-based Small Business and Entrepreneurship Council, a nonprofit pro-business advocacy group, says Ohio had the 9th-best business tax system in the nation and the best of any state in the northeast quadrant.

By comparison, Michigan ranked 24th in the Ernst & Young study and 27th in Small Business and Entrepreneurship Council comparison.

The Ernst & Young study looked at the potential tax liabilities that new investments might face in 2009 in selected industries, such as during the site selection process for a potential new factory or corporate headquarters. The estimated tax burdens were combined to provide an overall measure of the business tax competitiveness of each state.

"The results reflect the type of analysis that businesses use to evaluate decisions about where to locate new capital investments in plant and equipment," Ernst & Young report author Robert Cline wrote.

While companies typically look at a wide range of factors when choosing a location to build a factory or headquarters, "tax factors can be a determining factor between states with otherwise similar nontax costs."

The other study measured 18 tax measures -- from its top personal income tax rate and capital gains tax rates to whether the state imposes an Internet access tax -- and combines them into one score, stacking that measure against the other states.

In the SBEC study, Ohio finished behind South Dakota, Texas, Nevada, Wyoming, Washington, Florida, Alabama, and Alaska, largely because it ranked 30th with its state and local property taxes as a share of personal income. Michigan finished 40th in that category. But Ohio finished higher overall because it doesn't have a corporate income tax or a corporate capital gains tax as some other states do.

Ohio's newly elected Republican Gov. John Kasich based his successful campaign on improving Ohio's business climate.

In Michigan, newly elected Republican Gov. Rick Snyder has introduced a budget that seeks to dramatically lower business and corporate taxes while simultaneously increasing the tax burden on lower and middle-income residents as well as taxing pension benefits for the first time.

Contact Larry P. Vellequette at lvellequette@theblade.com or 419-724-6091.