By Joseph Henchman
Ohio Revenue Commissioner Richard A. Levin slams the Tax Foundation for criticizing the terrible Commercial Activities Tax (CAT), a gross receipts tax that Levin himself helped usher in. Economists of all stripes agree that gross receipts taxes, while deceptively simple and low, actually introduce severe economic distortions and result in significantly different effective tax rates on similar or even identical products.
But Levin also says the Tax Foundation is wrong to criticize Ohio for its franchise and intangibles taxes, both of which he says don’t exist. (He even equates them to unicorns and pixie dust). The franchise tax (with a rate of 4 mills, distinct from the corporate income tax) has indeed been repealed, but only very recently (January 2010). Our State Business Tax Climate Index, which comes out each fall, will reflect this repeal in our 2011 report.
As for the intangibles tax, it is alive and well. Levin should know, as he was the named defendant in a case involving the tax that went all the way to the Ohio Supreme Court in 2008, UBS Financial Services v. Levin. For a tax that Levin says was repealed in 1985, it seems to still be imposing significant costs on companies doing business in intangibles. I hope Levin lets UBS know that they don’t need to pay that tax after all.
What really matters, though, is that state officials have long engaged in a propaganda effort to claim that Ohio’s tax system is low and attractive despite significant evidence to the contrary. (Levin notes that he “sense[s] genuine excitement…about our new state tax system.”) In reality, Ohio taxpayers are burdened with the 7th highest state-local tax burden in the United States. Our review of state tax structures finds theirs to be the 47th least business-friendly in the United States. Few impartial experts think that Ohio will see much in the way of job growth or capital formation without serious reform.
And it needs to be reform that leads to lower tax burdens and less economic distortions, not the “reforms” of the CAT that go in the opposite direction.
Joseph Henchman is Tax Counsel and Director of State Projects of The Tax Foundation