Inc. White Paper: Ohio's Tax System Encourages Wealth and Prosperity

COLUMBUS, Ohio, Sept. 30 /PRNewswire/ -- An expansive package of tax reforms has made the Buckeye State more business friendly, according to "Enterprise Appalachia Tax Brief," the last in a series of five white papers in which editors of Inc. magazine explore the ideal selection criteria for choosing a business location. The reform package includes elimination of taxes on machinery and equipment, rock-bottom rates on gross receipts, no taxes on the first million in revenues and reduction in personal income tax.

(Logo:  http://photos.prnewswire.com/prnh/20071107/CLW113LOGO )

(Logo:  http://www.newscom.com/cgi-bin/prnh/20071107/CLW113LOGO )

Ohio's investment in greater wealth and prosperity for its citizens began in 2005, when the Ohio Business Roundtable, business executives and elected leaders collaborated to restructure the state's business tax policy. The goal: to make Ohio a more attractive location for starting, relocating and running a business. Ohio leaders phased in the resulting tax reforms over the next five years, despite a national recession that caused several other states to raise taxes.

"The cost of running a business in Ohio today is significantly less than it was in 2005," said former Ohio Tax Commissioner Thomas M. Zaino, J.D., CPA, now member in charge of the Columbus office of the McDonald Hopkins LLC law firm. "The most notable changes include the elimination of two very burdensome business taxes – the corporation franchise tax and the tangible personal property tax."

These taxes were replaced by a new, 0.26 percent Commercial Activity Tax (CAT), which applies only to in-state sales. "If a business were to ship 100 percent of its sales out of Ohio, it would pay zero CAT," Zaino said. "This increases Ohio's appeal to companies that export goods out of the state or country."

Because the CAT applies to receipts rather than profits, "A more profitable business does not incur higher taxes," said Howard Fleeter, Ph.D., a partner in the Columbus-based economic analysis and public policy research firm of Driscoll & Fleeter. Companies in states that tax profits incur a "success penalty" because efficiency and productivity gains trigger higher taxes.

"Another important change is a 16.8 percent reduction in the personal income tax, which is scheduled to grow into a 21 percent reduction for 2011," Zaino said. This benefits individual wage earners, unincorporated businesses and entities such as S corporations and limited liability corporations (LLCs), which are increasingly popular business structures for growing businesses.

Elimination of taxes on the first $1 million of gross receipts is another aspect of Ohio's business tax reform that makes the state particularly attractive to entrepreneurs in areas such as Enterprise Appalachia. Instead, businesses pay a minimal, flat fee of $150 on up to $1 million in sales.

Ohio businesses also pay no tax on capital investments, which frees up funds for investment in plants, equipment, inventory and personnel. Since enactment of this reform, Ohio has consistently led the nation in new capital investment projects, winning Site Selection magazine's Governor's cup each year from 2005 through 2009.

"The ideal location for starting a business delivers a perfect balance between access to resources and low overhead costs," said Ed Burghard, executive director of the Ohio Business Development Coalition . "Ohio has become known as the State of Perfect Balance because it combines a strategic central location and the capital, labor and knowledge resources needed for success with a work-life balance available nowhere else."

He noted that work-life balance is particularly evident in Ohio's 32 Appalachian counties, known for beautiful scenery and rich culture. "With low overhead costs, convenient access to supply chain and markets, skilled workers, an extensive knowledge base and access to capital and business support services, Ohio's Appalachian region has become hub of entrepreneurial activity," he said. "The added benefits of Ohio's business tax reforms make Enterprise Appalachia an unbeatable location for starting and growing a business."

About the Ohio Business Development Coalition

The Ohio Business Development Coalition is a nonprofit organization that provides marketing strategy and implementation to support Ohio's economic development efforts. For more information, visit www.ohiomeansbusiness.com. PWA-OBDC-093010

SOURCE Ohio Business Development Coalition