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Economy & competitive position/Public sector

In Ohio, tax repeal advocates tout anecdotes

While Michigan tinkers with its tax structure in an effort to improve its business climate, its neighbor to the south already is collecting accolades and attracting investments.

Site Selection magazine, in its March issue, awarded Ohio its Governor’s Cup for attracting 498 major capital investment projects in 2011, the most among the 50 states. Michigan ranked 18th with 85 capital projects.

Among the tax changes made in Ohio: a phased repeal of the levy on industrial and commercial equipment — a policy the Snyder administration wants to adopt this year inMichigan.

“That’s one of our proudest accomplishments,” said Ryan Augsburger, managing director of the Ohio Manufacturers’ Association, about the equipment repeal two years ago. “We are quite happy that this is a pro-manufacturing state and that the state legislators have held to it. We’re going to continue to be a more attractive environment.”

However, Augsburger, nor other advocates, made any specific claims of jobs created by the tax change.

As in Michigan, Ohio’s personal property tax on business equipment supported local government operations. Local government and school leaders inMichiganare urging lawmakers to consider a constitutional amendment guaranteeing that the $470 million per year estimated to be lost via a PPT change will be replaced.

The Ohio Legislature replaced most of its personal property tax with a commercial activities tax. Since that tax is collected on sales within Ohio, it favors manufacturers that sell most of their goods outside the state. Grocers, gas station owners and others who do most of their business within Ohio were not happy with the change.

Neither were local government leaders.

“We were fighting it tooth and nail,” said Kent Scarrett, director of communications and a lobbyist for the Ohio Municipal League.

The proposal by Gov. Rick Snyder would replace most of the PPT funds now going to local governments and schools with money “gained” via expiring tax credits for business.

Other changes in Ohio, including the repeal of its estate tax, which supported local governments, and cuts in the state’s local government fund have left several cities in financial distress, OML’s Scarrett said. And the new commercial activities tax does not fully replace the revenue generated by the old personal property tax, he said.

Backers of the repeal are betting it will increase Ohio’s economic activity, reduce unemployment and generate more tax revenue for local governments. Ohio’s unemployment rate fell slightly to 7.5 percent in March, its lowest level since November 2008 and below Michigan’s rate of 8.5 percent.

“There are signs definitely that the economy is getting better,” Scarrett said. “There are companies coming in — not as fast as we’d like to see. People are praying the economy gets better, but we don’t think it will come fast enough. I think it’s too early to tell what these changes will mean.”

Seven years after Ohio began phasing out taxes its elected leaders deemed barriers to business growth, tax-cut proponents are quick to point to anecdotal evidence of success.

Ford Motor Co. is closing a plant in Mexico and moving production to Avon Lake,Ohio, investing $1 billion in the state, Site Selection reported.

The Ohio Steel Council last week announced that its industry has $1 billion in new capital investment under way in the state.

Whirlpool Corp. recently moved some of its production from Iowa to its plants in Ohio. “Whirlpool strongly supported Ohio’s pro-investment tax reforms in 2005,” company spokeswoman Kristine Vernier said, “and these reforms were one of many factors that helped support major Ohio investments.”

A study released by the nonprofit Tax Foundation in February ranked Ohio as having the fifth best tax climate for mature businesses and third best for new businesses. Michigan ranked 25th for both mature and new businesses, but the study didn’t take into account the state’s recent repeal of the Michigan Business Tax, which it replaced Jan. 1 with a Corporate Income Tax.

Ohio had the third-lowest effective tax rate on new business investment, an Ernst & Young study released a year ago found, while Michigan’s rate ranked 24th among the 50 states — again before its recent change in the business tax.

“I think there’s something to be learned from Ohio,” said Robert Cline, Ernst & Young’s director of state and local tax policy economics. Several states are repealing and cutting business taxes, forcing other states to do likewise if they want to remain competitive, he said.

“Unfortunately, there are no slam-dunk predictors it will create ‘X’ number of jobs,” said Cline, who was Michigan’s director of revenue and tax analysis under former Gov. James Blanchard. “We certainly do know there is increasing mobility of capital across state lines and internationally.”

Pat Shellenbarger is a freelance writer based in West Michigan. He previously was a reporter and editor at the Detroit News, the St. Petersburg Times and the Grand Rapids Press.

3 comments from Bridge readers.Add mine!

  1. David Waymire

    And there is increasing mobility of talent across state lines. Let’s not forget, Gov. Snyder has said talent, not capital, is the driver of today’s economy. These kinds of changes benefit capital at the expense of talent (taking money away from education and cities where young talent congregates). It’s a losing economic strategy, good for attracting $14 an hour factory work but at the expense of $50,000 a year knowledge industry jobs.

  2. Jason

    The problem is NOT the PPT repeal, the problem is there is no solid proposal for a fair and equal replacement tax that will not harm the safety of communities that depend on the PPT. Further, the current replacement is only 81% and could be phased out as soon as 2016. Slow down and find a real proposal rather than trying to get re-elected.

  3. William C. Plumpe

    ….And it is telling that in Ohio’s case THEY REPLACED THE PERSONAL PROPERTY TAX WITH ANOTHER TAX — But even then the “replacement” tax is apparently not adequate to account for the funds raised by the personal property tax. In Michigan’s case the fairest, easiest and most equitable option that would satisfy everyone (except the State who would lose control of funding and lose revenue) would be to provide a dollar for dollar credit to the Michigan corporate or individual income tax for personal property taxes paid with a carry forward for any unused portion. And exempt the first 20,000 in assessed and taxable value. That would give the Republicans a chance to say they made a major change to the tax code that will aid small businesses. And municipalities and school districts will retain a large majority (about 80%) of their personal property tax revenue. And administration of the tax will be made less onerous and it will encourage compliance. But that will never happen because this is a “political issue”—reasonable options are not allowed. Enough said.

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