Although Governor Kasich’s proposed budget from February has some tax breaks in it for Ohio contractors, the tax increases in the budget eat up nearly all of those breaks. The proposal calls for an income tax decrease by an average of 23 percent for all taxpayers and exempts small business owners with gross receipts of less than $2 million annually from any income tax. These cuts would reduce taxes overall by $5.7 billion.

However, the proposal also calls for about $5.2 billion in tax increases. Therefore, the net result is a cut of only $523 million.

The Commercial Activity Tax (CAT) levied against gross receipts (regardless of profitability of a company) would be increased from .26 percent to .32 percent. The proposed budget would also increase state sales tax from 5.75 percent to 6.25 percent.

The most burdensome part of the budget for some in the construction industry would be the expansion of sales tax which would now cover management consulting services. This would affect, among others, construction management, value engineering and project consulting services.

Because of this potential new tax on these types of services, the President of Government Relations with the Associated General Contractors of Ohio testified in front of the Ohio House Ways and Means Committee on the proposal. She indicated that this would put Ohio businesses, including construction companies, at a competitive disadvantage with those from other states as it will increase the costs of their services and products. Even business-to-business transactions, which many constructions companies offer, would be affected by this new proposal.

At this stage, Gov. Kasich’s proposed budget is probably not in its final form. Changes may be in the works based on the testimony already given and the lobbying efforts by the groups affected most. Nonetheless, Ohio construction companies should take note of Gov. Kasich’s proposed changes.

The article “Governor’s tax cuts are painful in other areas” from Crain’s Cleveland Business sets forth a good summary of the proposal, its strengths and weaknesses. The article can be read here.