Ohio’s Governor Kasich has proposed a two-year budget plan for Ohio that focuses on cutting income tax, while broadening the scope of the state sales tax. The proposal would impose a tax on formerly exempt services, such as accounting and legal services. Governor Kasich’s budget plan would reduce the sales tax rate from the current 5.5% to 5%, but would ultimately increase the state’s revenue from sales tax by widening the scope of taxable services.
Governor Kasich’s plan to tax legal services has been met with strong opposition. While the Governor believes that broadening the sales tax to include professional services is “fair,” as services now comprise two-thirds of Ohio’s economy, many professional organizations are speaking out against the proposal.
In particular, the Ohio State Bar Association opposes the legal services sales tax and it has lobbied the General Assembly in an effort to defeat passage of the Governor’s budget proposal. As part of its opposition, the OSBA has pointed out that a sales tax on legal services will jeopardize access to the Ohio legal system for individuals and businesses alike. Additionally, critics suggest that the proposed tax will make it more expensive for foreign corporations to do business in the state, and they will be discouraged from participating in the State’s economy.
Currently, the detrimental effects of Governor Kasich’s proposed budget plan are outweighing the possible benefits in the eyes of more than just professional associations like the OSBA. The House of Representatives has overwhelmingly rejected the majority of Governor Kasich’s budget plan, which has been completely overhauled by the GOP-House Republicans’ re-write. The House Republican leaders have amended the budget plan, largely because of their opposition to expanding Medicaid coverage. However, they have also eliminated the plan to broaden the services sales tax in the amended budget plan. This amended plan, sans the proposed sales tax on legal and other professional services, will be reviewed by the House Finance and Appropriations Committee, and the budget plan must be signed off on by both the House and the Senate by July 1, 2013.
If Governor Kasich has failed to convince his fellow Republicans that his budget plan is effective, it remains unlikely that the sales tax on legal services will go into effect with this 2-year budget plan. We will continue to monitor this subject and provide updates as events unfold.