Sales tax slide presents challenge for county governments


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By Justin Wier and Kalea Hall

news@vindy.com

YOUNGSTOWN

Mahoning County officials over the years have touted a continued 3 percent growth in sales-tax collections as they face a $4.5 million budget shortfall with the loss of revenue from a statewide tax on Medicaid managed-care organizations.

Yet 2017 data from the state Department of Taxation shows a 1.8 percent decline in sales-tax collections in Mahoning County. This creates new concerns for officials struggling to maintain revenue levels to fund government.

As online commerce continues to grow, a decline in foot traffic at brick-and-mortar stores and a complicated collection system for some online sales could further erode the sales-tax base counties rely on as their main source of funds.

Suzanne Delaney, executive director of the County Commissioners Association of Ohio, noted that the negative pressures on county budgets continue to build at a time when the opioid crisis continues to require greater spending from counties in areas including children services and public safety.

BY THE NUMBERS

Mahoning County experienced a slight decline in sales-tax collections in 2017 with a further decline predicted for 2018.

This year’s total of $43 million follows a record $43.8 million collected in 2016, which was fueled in part by a 1/4-percent increase in the county’s sales tax rate effective April 1, 2015.

The county budgeted collections of $41.1 million in 2018.

In Trumbull County, where the tax rate has been 1 percent since July 2005, the county also saw a slight decline in sales-tax collections from about $26.6 million in 2016 to $26.2 million in 2017.

Trumbull budgeted collections of $25.1 million in 2018.

This comes as the counties prepare to live without revenue from the tax on Medicaid managed-care organizations (MCOs), which brought in about $4.1 million in Mahoning County and $3.3 million in Trumbull County annually.

A ruling by the federal Centers for Medicare and Medicaid Services told the state to expand the tax to non-Medicaid MCOS or eliminate it. Ohio stopped collecting the tax on July 1.

Mahoning County received $5.2 million in transition aid to get it through the fourth quarter of 2017 and all of 2018 and Trumbull County received $4 million. After that, the counties have no guarantees for further revenue from the state.

Mahoning County officials had expressed hope that growth of about 3 percent annually in sales-tax collections could help weather that storm, but the numbers appear to have plateaued in 2017.

Mahoning County Auditor Ralph Meacham expects sales-tax collections to remain steady over the next several years. Despite the closing of Kmarts in Boardman and Austintown, Meacham said U.S. Route 224 remains busy in Boardman.

A Kmart also closed in Warren in 2016, and the company is closing its Howland store this spring.

Boardman avoided the latest round of closings by Sears, Toys R Us and Sam’s Club. The Niles Toys R Us also avoided closure.

Southern Park Mall and the Eastwood Mall Complex continue to fare better than other shopping malls, such as the Shenango Valley Mall in Hermitage, Pa.

Meacham hesitated to declare the current numbers a portent of doom.

“I don’t know that I can draw any conclusions,” Meacham said. “It might be the demographics affecting us.”

That could include population decline, which translates to fewer people shopping, and an aging population that tends to live on fixed incomes and consume less.

MISSING OUT

Because of a complicated collection system for online sales, Ohio missed out on between $288 million and $456 million in sales-tax collections in 2017, according to a report by the U.S. Government Accountability Office released in November 2017.

Using the average of those values, that means Ohio’s counties are missing out on about $75 million in sales tax revenue, Dulaney said.

It’s an area of concern, she said, because statewide, sales tax comprises about 50 percent of the average county’s revenue.

In Mahoning County, sales tax comprised 67.4 percent of the county’s general and criminal and administrative justice funds in 2016, according to the Mahoning County Auditor’s office.

Dulaney called the current tax-collection system “outdated” and said changes are needed to create a level playing field with brick-and-mortar stores.

The system relies on a 1992 Supreme Court ruling that requires companies to collect taxes only from states in which they maintain a physical presence.

The Supreme Court plans to hear a case asking it to reconsider that ruling.

In the meantime, Ohio requires taxpayers to self-report use tax for online transactions where out-of-state retailers do not charge sales tax. Use tax is the same as sales tax, but it is imposed on the consumer rather than the vendor.

“In Ohio, if you look at the income tax return there’s a line that allows you to report and pay the use tax you owe,” said Gary Gudmundson, spokesman for the state Department of Taxation. “You need to recognize then you are responsible for reporting and paying the tax.”

Local tax preparers say it’s rare for consumers to actually bring in the receipts from online purchases they make to report them.

Andrew Reigstad, owner of Tax 29 in Boardman and Cortland, said he’s had some customers report the online purchases where sales tax wasn’t applied, but it’s not very common.

The U.S. Government Accountability Office found in its report that “consumer compliance rates for use tax remittance are estimated to be very low.” The report cites a 2015 study that found in the 27 states that allow taxpayers to pay use taxes on their state income tax returns, only about 1 to 2 percent of returns included them.

In tax year 2015, out of 5,356,440 Ohio income tax returns, 68,385 returns — or 1.3 percent of the total — reported owing use tax, according to the State Department of Taxation.

Meacham voiced concerns about the current system.

“We’re absolutely losing,” Meacham said. “And since it’s the major revenue source for county governments, we’ve taken a beating on that.”

He expressed a desire to level the playing field but acknowledged the logistics of requiring online vendors to charge rates that could vary across the country’s 3,007 counties could be a “nightmare.”

Trumbull County Auditor Adrian Biviano said the county has lost revenue from online sales through the years.

“I think the state Department of Taxation is making more of a conservative effort to go after some of the entities who aren’t charging sales tax,” he said.

Dulaney said the CCAO puts a high priority on collecting sales tax on internet sales and protecting the sales tax base for Ohio’s counties.

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