Ohio Tax Expenditure Review Committee Prepares for Next Budget Battle

With the growth in Ohio state government spending, the upcoming Fiscal Year (FY) 2020-22 operating budget is anticipated to be a challenging awaiting a new Governor and the 132nd  Ohio  General Assembly  that will include a new Speaker of the Ohio House.  HB 9 from the 131st General Assembly created the Ohio Tax Expenditure Committee that is charged with reviewing the statutory tax credits, deductions and exemptions of the Ohio Revised Code, with the intention to make recommendations on whether to eliminate, keep or modify each. The bipartisan committee, made up of six legislators from the House and Senate along with the Ohio Tax Commissioner hearings scheduled in April and May 9 of 2018.

The Ohio Tax Expenditure Review Committee has held several hearings for coal, farmers, retailers, and other groups.  These interest groups advocated for the continued use of a number of tax exemptions or tax credits constituting $9 B in lost revenue for the state.  As an example, a coal tax exemption that costs the Ohio General Revenue Fund $73.4 million in Fiscal Year 2018 and $74.3 million in FY 2019 or the tax credit pertaining to tangible personal property used in agriculture and for the sales and installation of agricultural land tile and portable grain bins that is estimated to lower GRF revenues by $331.1 million and $339.4 million in FY 2018 and 2019. The tile and grain bin concession has a smaller impact at just over $1 million in each of those years.

Taxing manufacturing companies is a major issue of focus for the General Assembly’s Tax Expenditure Review Committee.  The manufacturing tax exemption is the largest tax break in the Ohio Revised Code leading to estimated deferred revenue from the General Revenue Fund totaling $2.210 billion and $2.299 billion respectively in FY 2018 and FY 2019. The packaging exemption, led to GRF losses of $255 million and $264 million during those respective fiscal years.  Ohio’s 88 counties and their transit authorities incur over a $1 B in lost tax revenue just based upon the manufacturing tax exemption over the FY 2019 and 2020 tax years. Other tax breaks on the committee’s agenda included:

  • Sales to churches and certain other nonprofits, which is expected to lead to GRF losses of $614 million and county and transit authority losses of $150 million in FY 2019;
  • Sales to the state and any of its political subdivisions (with losses of $122 million and $30 million respectively); and
  • Sales by churches and certain non-profits (losses of $47 million and $11 million respectively).

The ultimate goal of the Ohio Tax Expenditure Review Committee is not totally clear but the removal of tax exemptions or the timing and procedure for it.  A clear focus of the committee is the use of the sales tax exemption for tangible personal property used primarily in manufacturing tangible personal property and packaging and packaging equipment. Manufacturing is expected to come under additional review from a state tax standpoint as the number of jobs in the manufacturing industry nationally and Ohio has dramatically declined. Ohio has dropped to having 14% of its workforce engaged in the manufacturing industry.