Fiscal Note & Local Impact Statement
127 th General Assembly of Ohio
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BILL: |
DATE: |
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STATUS: |
SPONSOR: |
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LOCAL IMPACT
STATEMENT REQUIRED: |
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STATE FUND |
FY 2008 |
FY 2009 |
FUTURE YEARS |
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General
Revenue Fund (GRF) |
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Revenues |
- 0 - |
- 0 - |
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Expenditures |
- 0 - |
Potential increase due to
the vendor compensation program |
Potential increase due to
the vendor compensation program |
·
Changes
to the sourcing rules have no fiscal impact on the General Revenue Fund.
·
The
bill authorizes the Tax Commissioner to devise and implement a plan to
compensate vendors that are required to convert back to origin-based sourcing
for intrastate transactions. Thus, the
bill potentially increases GRF expenditures.
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LOCAL
GOVERNMENT |
FY 2008 |
FY 2009 |
FUTURE YEARS |
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Counties and Transit
Authorities |
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Revenues |
Potential gain or loss |
Potential gain or loss |
Potential gain or loss |
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Expenditures |
- 0 - |
- 0 - |
- 0 - |
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Note: For most local governments, the fiscal year is the calendar year. The school district fiscal year is July 1 through June 30.
·
The
repeal of destination-based sourcing for intrastate sales does not generally
change total tax collections under the county permissive and transit authority
sales taxes, although it potentially redistributes sales tax collections
between counties. Overall, the fiscal
impact on all counties is expected to be minimal.
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Repeal of destination-based sourcing for
intrastate sales
Ohio's sales and use tax
sourcing rules have been amended occasionally over the preceding several years
in an effort to conform Ohio's rules to the sourcing rules of the multi-state
Streamlined Sales and Use Tax Agreement (SSUTA).
Until recently, the SSUTA
required destination-based sourcing, where a sale generally occurs where the
customer receives the goods or services.
Under origin-based sourcing, a sale generally occurs where the vendor is
located or the order is received. In
December 2007, the SSUTA was amended to permit member states with local taxing
jurisdictions (such as Ohio) to apply origin-based sourcing to transactions
occurring within the state (i.e., when a sale is made by a vendor in the same
state where the purchaser receives the property or service). It appears the new SSUTA amendment does not
apply to inter-state transactions, i.e., destination-based sourcing will continue
to apply to those sales.
Vendors with delivery sales
below $30 million were allowed to continue sourcing sales under the
origin-based sourcing system through December 31, 2007 (H.B. 294, 126th General
Assembly, and H.B. 119, 127th General Assembly). Beginning in January 2008, vendors with annual delivery sales of
$500,000 or less were permitted to apply origin-based sourcing to taxable sales
if the Tax Commissioner made a finding that the SSUTA permitted the
continuation. The bill authorizes
vendors, regardless of the size of their delivery sales, that had not yet
converted to destination-based sourcing to continue to use origin-based
sourcing. Thus, the bill reverses
previous sourcing rules for taxable sales where both the customer and the
seller are located in Ohio. More
specifically, the bill requires all vendors to revert back to using
origin-based sourcing for all intrastate sales beginning January 1, 2010. Under continuing SSUTA rules, for sales by
an out-of-state seller to an Ohio customer, destination-based sourcing rules
(and Ohio use tax laws) would continue to apply. For sales by an Ohio seller to an out-of-state buyer,
destination-based sourcing rules would continue to apply.
Under the bill, the Tax
Commissioner is authorized to devise and implement a plan to compensate vendors
that had adopted destination-based sourcing under prior enactments and are
required to convert back to origin-based sourcing for intrastate transactions.
Repeal of the county compensation program
Under current law, counties
with a 2000 census population of less than 75,000 people (designated
"impacted counties") that incur sales tax revenue losses of at least
4% due to the implementation of destination-based sourcing are entitled to
compensation from the General Revenue Fund.
The compensation is paid from sales and use tax revenue received by
other counties ("windfall counties") experiencing revenue gains from
the conversion.
The Tax Commissioner must
determine the amount of sales tax revenue collected in a county in accordance
with the destination-based sourcing law and compare that amount to the revenue
the county would have received if the origin-based sourcing law had
applied. If a county is an impacted
county and the amount the county would have received under origin-based
sourcing is at least 4% greater than the amount it actually received under
destination-based sourcing, the county is entitled to compensation in such an
amount that it would receive 98% of the estimated revenue it would have
received under origin-based sourcing.
If the Commissioner determines that a county collected more taxes under
the destination-based sourcing law than it would have collected if taxes had
been paid under the origin-based sourcing law, the county's monthly sales and
use tax disbursement is reduced.
Based on information
provided by the Tax Department, several counties had losses due to the change
to destination-based sourcing for sales, and Holmes County was the only county
that received compensation under current law.
The bill terminates the compensation for impacted counties, the required
offsets for windfall counties, and all related vendor-reporting requirements
effective May 1, 2009.
Fiscal effect
The overall fiscal effect of
the bill on state and local government revenues is expected to be minimal. The bill does not generally change total
sales tax collections, although it potentially redistributes sales tax
collections between counties. The bill
would affect counties differently based on the relative number of vendors with
delivery sales within the county, the net inter-county flows of delivery sales
and associated tax collections, and the number of vendors with delivery sales
who revert to origin-based sourcing.
The fiscal impact of the bill on each county would depend on all those
variables.
Depending on the number of
vendors who revert to origin-based sourcing, the bill might increase revenue
from the local permissive and additional sales taxes to certain counties (including impacted counties), which previously
had losses from destination-based sourcing.
Conversely, the bill might reduce revenues from certain windfall
counties that had gains from destination-based sourcing.
LSC assumes that for certain
counties that had losses from destination-based sourcing, the bill would reduce
or eliminate the revenue loss. For
another group of counties, the bill may reduce or eliminate the gain from
destination-based sourcing. For the last
group of counties, the bill may have no effect on tax revenues. LSC is unable to determine the impact of the
bill on each individual county. Also,
LSC assumes that elimination of the county compensation program would not
adversely impact Holmes County as the revenue gain from the bill may offset
compensation received under current law.
Vendors that were required
by law to adopt in previous years destination-based sourcing for delivery sales
were paid about $110,000 under a prior vendor compensation program. The plan to implement a new compensation program for
vendors that are required by the bill to convert back to origin-based sourcing
may increase GRF expenditures. LSC assumes that the
compensation will be paid from the General Revenue Fund. The timing and the size of the potential increase in GRF
expenditures are uncertain.
LSC fiscal staff: Jean J. Botomogno, Senior Economist