It’ll be difficult to avoid paying Gov. John Kasich’s proposed new sales tax on services, which could take effect Sept. 1. When you go to the movies, buy Canton Charge or Mount Union Purple Raider tickets, get your dog groomed or even go bowling, you would have to pay a 5.6 percent tax in Stark County. Predictably, many local business owners aren’t happy about the plan.
Gov. John Kasich’s proposed sales tax on most services will affect just about everyone in Stark County.
If the Ohio General Assembly approves the governor’s plan, starting Sept. 1, you’ll pay an extra $5.60 for every $100 you’re charged for dozens of services that are now tax exempt.
That includes about a 5.6 percent tax every time you get a haircut, go to a movie, buy Cleveland Browns tickets, visit the Pro Football Hall of Fame, retain an attorney, hire an accountant, download purchased music, go bowling and get your dog groomed.
Last month, the governor proposed overhauling the state’s tax system — cutting the state’s sales tax from 5.5 percent to 5 percent, reducing income tax rates by 20 percent over three years and exempting half of businesses’ first $750,000 a year in profits from taxes.
But Kasich also seeks to increase severance taxes on hydraulic fracturing for oil and gas. And more significantly, he wants to apply the state sales tax to services, raising $1.37 billion a year. Because local piggyback taxes would be applied also to services, the Stark County government and Stark Area Regional Transit Authority sales taxes, which now total 0.75 percent, would be rolled back to an estimated 0.6 percent.
The Kasich administration says the tax cuts exceed the tax increases by
$1.4 billion over three years. It argues that because the state has shifted from a goods-based economy to a more service-based economy, it’s fairer to tax services as well so the state can lower the overall rate.
“There is a conviction that a consumption-based approach is fairer to all businesses,” said Gary Gudmundson, a spokesman for the Ohio Department of Taxation. “Why should services be exempt? Why do goods have to bear the whole burden of the whole sales tax?”
Gudmundson said if more businesses and individuals are able to keep more of the money they earn, they would invest more of it to create jobs.
The Ohio Democratic Party opposes the plan and cites a Policy Matters Ohio report that says the tax changes would result in more than $10,000 a year in tax savings on average for those earning more than $335,000.
Those earning middle-class incomes would see little change in their tax bills, the report said, while those earning very low incomes could pay $63 more.
“The Ohio Democratic Party does not support the governor’s plan to raise taxes on the middle class while turning around and giving handouts ... to the governor’s friends and the super wealthy,” said Ohio Democratic Party spokesman Jerid Kurtz.
“I don’t know where they got their numbers,” said Kasich’s spokesman Rob Nichols, who added that many of the proposed service taxes would affect high-income people.
He said the net tax cuts would allow employers to hire more workers, benefiting low-income people.
Page 2 of 3 - Several local business owners and nonprofits were predictably not enthusiastic about the tax.
“It’s going to create administrative problems. We’re going to have to do more bookkeeping,” said M.J. Albacete, executive director of the Canton Museum of Art, which would have to tack on a 34-cent tax to $6 adult admissions. “Thirty-three cents or whatever is not a big deal, but what troubles me is how people, especially legislative people, have an image of the arts as another kind of entertainment like we’re movies.”
“It sounds like a pain in the butt,” said Scott Tabron, the owner of Market Heights Barber Shop in Canton. A haircut, “is something you pretty much have to have versus buying a big screen TV. It’s not a luxury.”
He said customers might tip him less if he adds 67 cents in tax to the cost of a $12 haircut.
“It’s just more paperwork for us,” said Joann Geramita, the owner of Happy Tails dog grooming in Canton.
The state allows businesses to keep 0.75 percent of the sales taxes they collect to cover collection costs. But Geramita said that would not be enough to compensate her for the hassle of collecting $5.60 in taxes for a $100 grooming of a Rottweiler.
“Little people like us, we don’t have bookkeepers and CPAs,” she said. “You have employees so you have all the paperwork involved with that and all the withholding involved with that. ... and you have all the paperwork with just doing business, and it’s just one more thing that you have to do.”
“We are concerned about anything that would add to the debt burden of the clients that would come to us,” said Kathy Virgallito, the regional director for partnerships for Apprisen, a credit counseling service with a Canton office.
Apprisen charges a startup fee and monthly fee of $35 to make debt payments on behalf of clients. Under Kasich’s plan, clients would have to pay another $2.
“My thought generally is we are opposed to it,” said Dave Groves, a partner for accounting firm Bruner Cox in Jackson Township. “We could lose some of the individual customers. They may look at either doing the returns themselves or going to some other lower cost option.”
“I think we’ll be one of the few states in the union that will have that charge on legal and accounting fees,” said Gust Callas, a partner for the Canton law firm Black McCuskey. “On criminal cases, are we now going to tax an individual for hiring an attorney? ... it’s going to be so complicated.”
Page 3 of 3 - Callas said it’s easier to tax goods because it’s clear where they’re located at the time of purchase. But how would the state determine where a legal service was performed? Each Ohio county has its own sales tax rate.
“If I have a client with six offices and the legal advice benefits all six offices and there’s six different counties and six different tax rates, how am I going to allocate it? ... I’m going to hire one body just to figure out the taxes and allocations.”
And what if he performs work for a client out of state?
“You’re going to have more internal costs for small businesses than is worth the hassle unless they simplify it,” he said. “It’s going to cost the clients money and the law firm will probably eat some of it.”
Gudmundson said many businesses figure out their taxes on more complex transactions than legal fees. He said he’s confident attorneys would be able to work with the new tax.
“When I first saw it, I groaned,” Charles Hammontree, the president and CEO of Green-based engineering firm Hammontree & Associates said about the tax. “It just makes hiring a consultant more expensive in Ohio than some other competing state.”
While he believes the tax would be a “bookkeeping headache,” he doesn’t believe it would significantly hurt business. A large percentage of clients are government agencies that would be exempt from paying the tax. Hammontree likes the proposed income tax cut and praises Kasich for being fiscally responsible so he’s not necessarily opposed to the plan. However, the firm would have to pay the tax on services it purchases from others.
“We’ll be paying more in service taxes than what we’re saving on income tax,” Hammontree predicted.
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