Only 15 states had a lower tax burden than Ohio in fiscal 2009, according to a new analysis by the Federation of Tax Administrators in Washington, D.C.  That’s nine places better than 2005, when Ohio embarked on a program to change the state’s tax system.

”The sweep, the magnitude of this tax reform is really breathtaking,” Ohio Tax Commissioner Richard A. Levin said.

”I think there was a general consensus in the business community that our tax system was outdated and created obstacles to business investment in Ohio and therefore the creation of jobs in Ohio,” Levin said.

The plan legislators launched in 2005 called for phasing out Ohio’s two heaviest business taxes and replacing them with a smaller, simpler tax.

One was the tangible property tax on machinery, equipment and inventory, on the books since 1846. The phase-out ended last year, and Ohio is now one of only 10 states that do not levy the tax.  The other was the corporation franchise tax, also called the ”profits tax,” which is fully eliminated this year.

In their place is the commercial activities tax (CAT), which taxes gross receipts. But that tax generates less than half the revenue of the two previous taxes. Also, products sold by Ohio companies outside Ohio do not count toward the tax, making it ”a powerful incentive to manufacture products in Ohio,” Levin said.

Another tax change hits residents right in their pocket. Ohio’s five-year plan called for reducing the personal income tax by 4.2 percent each year, for a 21 percent cut.

The state stayed on course for the first four years, reducing personal income tax rates by 16.8 percent. For a family of four with a household income of $60,000, that amounted to about $357 a year.

But a problem with the state budget caused legislators to postpone the final 4.2 percent cut, due last year, until 2011.

Levin said that in planning the state’s two-year budget last year, officials were counting on $850 million from new video slot machines to make up for the income tax loss. But an Ohio Supreme Court case by opponents has that gambling option on hold.

Jay Foran, senior vice president of the Northeast Ohio business attraction group Team NEO, said Ohio’s new tax structure has made the difference in the decision of some companies to locate here.

”We have had situations where when it got down to the finals [between Ohio and another state], I can think of a couple of cases where the tax structure tipped it in our favor,” he said.

Team NEO regularly works with site consultants and companies looking to move or expand their businesses, and Ohio’s tax reform generally comes up in discussion.

In the end, incentives often offered to new businesses are nice, ”but they are short term,” Foran said. The new tax system ”offers a reward for the long term.”

Levin said that when combined, changes in business and personal income taxes have resulted in a net savings to Ohio taxpayers of $2.1 billion a year.

To afford those changes, government has slimmed down.

Since 2007, the state’s work force has been reduced from 63,559 employees to 58,766 — almost 5,000 people. Those who remain are required to take 10 unpaid furlough days this fiscal year and next, said John Kohlstrand, spokesman for the Ohio Department of Taxation.

As the tax changes have been rolled out, the Ohio Business Roundtable has collected and promoted comments from top-level business managers throughout the state.

”Ohio’s tax reform initiatives have simplified the tax system and improved both the state’s business environment and the competitiveness of Ohio companies,” they learned from Tim Smucker, chairman of the J.M. Smucker Co. in Orrville.

And Jeff Davis, chief financial officer of Polymer Packaging Inc. in Massillon, was quoted about his company’s positive experience.

”The timing of Ohio’s tax reform couldn’t have come at a better time as Polymer Packaging searched for a suitable location to expand its operations,” he said. ”The elimination of the personal property tax at a time when we were going to invest so much in equipment and inventory will result in considerable savings that will help offset our increased working capital needs.”

Still, at least one recent report slammed Ohio’s tax environment.

In January, the Tax Foundation, a Washington, D.C., think tank, called Ohio’s tax reform a ”Band-Aid” and said ”Ohio’s tax structure is hostile to business.” The organization said its formula shows Ohio to be the 47th worst state in tax burden.

State officials, however, say the Tax Foundation will not reveal to them what their formula is, and have called the organization on several mistakes in its published report.

For instance, the report calls on Ohio to eliminate taxes on ”net worth,” Kohlstrand said. But that’s the corporation franchise tax, and it’s gone.

In another example, the report said Ohio could improve its business climate by eliminating the tax on intangible property, Kohlstrand said. But that tax was repealed in the 1980s.

”They’re relying on math that they don’t share with anyone, and discussing taxes that we don’t have,” Kohlstrand said.

Excerpts from Paula Schlies’ article in the Akron Beacon Journal.  See the full article here:

Tags: Ohio Tax Reform, Team NEO

This entry was posted on Monday, April 5th, 2010 at 11:50 am and is filed under Corporate Executive, Economic Developer, Regional Ambassador, Site Consultant. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.