02/26/2015

Don't allow 'back door' sales tax on engineering, ACEC tells legislators

Enactment of tax changes proposed in Governor John Kasich's two-year state budget would lead to the "back door" taxation of engineering services and should be rejected, ACEC Ohio told legislators Wednesday.

In testimony before the Ways & Means Committee of the Ohio House of Representatives, ACEC Ohio Executive Director Don Mader said, "it is encouraging that the General Assembly and the administration seem to share the goal of growing Ohio’s economy and creating more jobs. However, we do not believe that increasing the tax burden on Ohio’s job producers, as is called for in House Bill 64, is the right strategy for accomplishing this goal."

In order to accomplish a 23 percent reduction in the state personal income tax over the next two years, Kasich has asked the Ohio General Assembly to increase the rate of the Commercial Activity Tax from 0.26 to 0.32 percent of company gross receipts.  In addition, he proposed that the state sales tax be increased by half a percent, to 6.25 percent, and that the sales tax be collected on an array of services, including "management consulting."

Mader told the committee that, "While House Bill 64 does not specifically single out engineering and architecture as services being subject to the state sales tax, the definition of 'management consulting service' is so astoundingly broad that it would no doubt result in the 'back door' taxation of our services.

"Given that the proposed definition of 'management consulting' includes activities such as 'manufacturing operations improvement,' 'site selection,' 'production planning and control' and 'materials management and handling,' it does not strain credulity to imagine the Ohio Department of Taxation will aggressively seek to recover sales taxes on the types of services my members routinely provide – and which are at the very heart of what engineers do," he said.

"While further reduction of the state personal income tax might be a laudable objective, we question the benefit of doing that if it results in a significant increase in the business community’s tax burden – especially when we are still trying to fight our way out of the devastating recession of only a few years ago," Mader said.

"The way to make sure my engineering companies grow and add jobs is to help us remain competitive, not by adding to our tax burden and the tax burden of all those commercial and industrial enterprises whom we serve."

Among other organizations testifying in opposition to the tax package were the Ohio Society of Certified Public Accountants, Ohio Automobile Dealers Association, Ohio Bar Association, the Manufacturing Policy Alliance, Ohio Grocers Association and Ohio Council of Retail Merchants.

Committee Chairman Jeff McClain (R-Upper Sandusky) said at least two more hearings will be held before the panel decides the fate of the tax package.