How will Ohio's new tax adjustments affect you?Published: 8/31/13 @ 12:01
By JAMISON COCKLIN
Shoppers in the Mahoning Valley and across Ohio can expect to pay a bit more at the cash register starting Sunday, but they’ll also notice a slight increase in their paychecks next month, too.
As part of the $62 billion, two-year state operating budget approved by Ohio lawmakers and signed into law by Gov. John Kasich in July, the sales tax rate will increase by one-quarter percent from 5.5 percent to 5.75 percent, or 25 cents for every $100 spent on vehicles, electronics, clothing and other retail goods.
The increase is part of a larger package of tax adjustments that will reduce overall business and individual taxes by an estimated $2.7 billion over the next three years. A decrease in the state’s income tax rates means that employers will withhold less taxes from workers’ paychecks starting Sunday.
Employers will withhold 8.5 percent less this year, 9 percent less next year and 10 percent less in 2015.
The cuts are retroactive, which means Ohio taxpayers will be credited on their 2013 state income tax returns for what they overpaid in the first eight months of this year.
According to data from the Ohio Department of Taxation, a family of three with an average annual income of $75,698 will save $105 a year in taxes, while the 0.25 percent sales tax increase would cost an additional $37 per year.
The same data show that an individual with an average income of $38,235 would save $49 in taxes and pay an additional $23 a year in sales tax.
The department of taxation estimates that 35 percent of an average Ohio family’s spending is subject to the sales tax. Groceries, housing, medicines, education and many other purchases are exempt from sales taxes. Even with the latest change — Ohio’s first increase since 2003 — the state’s rate is still lower than about half the U.S. states.
Because the decrease in income taxes is expected to be offset by the sales tax increase, the changes will not stimulate Ohio’s economy or the revenue state government takes in, said Cleveland-based economist George Zeller.
Policy Matters Ohio, a liberal think tank in Cleveland, has estimated that the income tax cuts would result in the top 1 percent of Ohio wage earners on average receiving $6,000 a year while the bottom fifth of wage earners would have to pay $12 a year.
“It’s considered a regressive tax because those with a higher income spend less of their earnings on sales tax, whereas those with a low income spend most of their earnings buying things just to survive,” Zeller said.
For the most part, though, many agree that the sales tax increase will have a marginal impact.
Gordon Gough, executive vice president of the Ohio Council of Retail Merchants, said any time workers have more in their paychecks they’re bound to spend just a little more. This is good for retailers, but he said consumers will “swipe their credit cards and sign the dotted line.” In other words, they won’t notice the increase in prices.
For example, under the new sales tax, a consumer who pays $10 for a meal after Sunday will pay an additional 2 cents in tax. A consumer that purchases a vehicle for $20,000, meanwhile, will pay an additional $50 in sales tax, according to the department of taxation.
Steve Chos, executive vice president of the Automobile Dealers Association of Eastern Ohio, said dealerships in the Mahoning Valley did not seem to be concerned about the increase in sales tax.
He said some of them were interested in advertising before the increase went into effect, but they were not at all worried about a drop in sales.
Carol McFall, chief deputy auditor in Mahoning County, said counties across the state will not benefit in any way from the increase in sales tax. It’s a state tax, and counties will not get any of it.
County governments must impose their own sales tax increases or place them on the ballot, she said.
The Associated Press contributed to this story