Revenue from the state sales tax increase would go into a special fund for schools and local governments.
COLUMBUS -- Property taxes on business machinery would be eliminated, and revenue that would have been collected by schools and local governments would be replaced by making permanent the temporary 1-percent state sales tax increase, under a bill to be filed in the Legislature.
"It hurts job creation," state Sen. Eric D. Fingerhut, D-Cleveland, said Friday of the tangible personal property tax.
"We should tax the profits of corporations ... and the income of workers, but to tax the component that creates jobs seems to me to be crazy," said Fingerhut, the primary sponsor of the soon-to-be introduced measure.
Under the proposal, which is also being co-sponsored by state Sen. Marc Dann, D-Liberty Township, tangible personal property taxes that are collected by counties, cities, townships and public school districts would be eliminated beginning July 1.
Permanent sales tax increase
Also under the proposal, the temporary state sales tax increase, scheduled to expire July 1, would be made permanent, with the revenue generated earmarked for special fund solely for public schools and local governments.
State lawmakers passed the temporary sales tax increase as part of the two-year, $48 billion state budget that runs through June 30.
Fingerhut said eliminating the tangible personal property tax would promote business investment in equipment and machinery, an important factor in a state with many industrial plants and factories.
"It would send such a powerful message," Fingerhut said.
"Tax reform is the word of the day," said Dann, who sits on the tax-writing Senate Ways and Means and Economic Development Committee. "This has got to be a part of the package."
State officials have called revising the state's personal-income and corporate taxes among the highest priorities of the new two-year Legislature that began this month.
Under Fingerhut and Dann's proposal, excess money generated by making permanent the temporary sales tax would be dedicated to expanding the 10 percent residential property tax rollback. Any shortfall in the revenue to local governments and the schools, under the proposal, would be made up by the state's general fund.
The temporary sales tax increase has generated about $1.3 billion annually for state coffers.
According to the Ohio Department of Taxation, in 2003 the tangible personal property taxes generated $1.6 billion. Of that, public schools collected about $1.17 billion, the state tax department said.
Fingerhut and Dann say, if it's extended, revenue from the 1-percent sales tax increase is projected to grow, while revenue from the tangible personal property tax is projected to decline over the years.
Dann said he and Fingerhut have solicited support for their proposal from other senators including the Republicans that control the upper chamber. Republicans outnumber Democrats 22-11 in the Senate.
Majority Republican leaders couldn't immediately be reached to comment, but there are signs that changes could come to the tangible personal property tax.
Republican Gov. Bob Taft said in a recent interview he could propose changes to the tax on business equipment when he unveils his proposal to reform the state's tax system in the next few weeks.
The Ohio School Boards Association, which represents the interests of school boards throughout Ohio, said it will monitor any proposed changes to the tangible personal property tax.
"Our only position would be to make sure that school districts get dollar-for-dollar replacement revenue for any reduction or replacement of the tangible personal property tax," said Fredrick Pausch, director of legislative affairs for the OSBA.