Measuring tax burden is part science and part voodoo. Every state likes to tout their tax reform initiatives but the proof can be hard to measure. With so many variables, measuring tax burden becomes difficult.
As an avid baseball fan, I am always fascinated on some of the crazy statistics quoted by hard core fans – like one’s batting average in the 7th or later inning with two outs and runners in scoring position. (Yes, there is a statistic for that!) As Maine’s former state revenue commissioner, I am very much attuned to how much tax burden statistics means to businesses making relocation or expansion decisions. Like it or not, every state is competition with all the other states and these days, with the entire world.
While tax burden is a major consideration for business, a state’s regulatory system, bond rating and labor relations climate are also important.
Ohio Tax Reform
Recently I read about Ohio’s tax reform efforts. The economic development and chamber of commerce folks are in hyper drive singing the praises of the state’s recent tax reform initiatives. A $2.7 billion tax cut and favorable tax policies on corporate income, machinery and equipment are certainly laudable.
Last year, the independent Tax Foundation ranked Ohio overall tax burden at 39th (out of 50 states). Corporate tax was much better at 22nd while individual income tax was in the bottom 10 in the nation.
Businesses that hire many employees and wealthy entrepreneurs still shy away from Ohio. Why? Because of the individual income tax.
In addition to relatively high income tax rates, Ohio may have the worst and most complex income tax system in the nation. Some 600 towns each levy their own income tax. Worse, the rules differ from town to town so it is possible to work in one town and live in another and get taxed by both!
14 states in the U.S. allow cities or counties to levy and income tax but most have uniform rules. Not Ohio.
Regulatory burden is always a concern to the business community. Forbes reports that one small Ohio business had to fill out 221 W-2’s and 39 tax returns yet had only had 19 employees. Many of the returns reportedly had a tax due of $5 or less. Allowing every city to levy its’s own income tax (Ohio let’s schools levy a school income tax too) means that employers whose employees travel (like contractors or delivery services) may have to track employee’s time hourly. A delivery worker could literally work in 10 or 20 cities a day!
CPA’s and tax lawyers are probably the only people profiting from this byzantine system of taxation. But even the CPAs are complaining. The Ohio Institute of CPA’s announced that municipal tax reform was their number one legislative priority this year.
We applaud the Ohio legislature and governor for making the buckeye state somewhat more business friendly. We caution the business community, however, from believing every word that comes from state and local economic development flacks. If you have a business and are seeking to expand or relocate, engage the services of a qualified tax policy expert.
In addition to measuring the real tax burden for your business, a qualified consultant can help look at the other factors and even negotiate with state and local officials for targeted and specially tailored tax incentives.
Post by Brian Mahany, Esq.
About Mahany & Ertl. We are a small boutique law firm with a national presence. Founder Brian Mahany is Maine’s former state revenue commissioner, special counsel to the Senate President on tax policy and the author of several targeted tax incentives for the semiconductor, ship building and retail industries.
Brian can be reached at or by telephone at (414) 704-6731 (direct). He and his team of tax incentive lawyers represent all size businesses from small boutiques to Fortune 500 companies.