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Ohio Slips In Annual Tax Foundation Ranking

Ohio improved in some individual standings in an annual ranking of states’ business tax climates, but still slipped one slot overall to remain in the bottom five nationwide.

The Washington, D.C.-based Tax Foundation research group on Monday released its annual State Business Tax Climate Index, which placed Ohio 47th, down from 46th in 2007. This is the sixth consecutive year Ohio has placed in the bottom five of the index, though it has moved away from a No. 49 ranking in 2006.

The ranking is a combination of scores for states’ income, sales, property, corporate and unemployment insurance tax rates. Those are scored on a scale of zero to 10 for how conducive or hostile to business they are, and are weighted by importance in that order.

Ohio again fared best in the unemployment insurance tax category, but it slipped to No. 15 from No. 11 last year. The state drew the worst marks for its individual income tax rate, placing No. 47 when stacked against other states.

John Kohlstrand, a spokesman for the Ohio Department of Taxation, said the department is disappointed again in this year’s results, but not because of the state’s low ranking. Top tax officials have been largely critical of the annual report, notably when former Tax Commissioner William Wilkins in 2006 called the foundation’s annual ranking “bogus.”

The state has stood behind an analysis issued last year by the Education Tax Policy Institute that pokes holes in the foundation’s methodology and questions the sometimes erratic fluctuation in states’ rankings, including Ohio’s, over the years.

Despite the foundation’s low ranking of Ohio, it pointed to some changes in recent years as signs of progress. The state climbed to No. 33 in the foundation’s gauge of corporate tax rates, from 36th a year ago. The improvement came in the final stages of a five-year phase-in of Ohio’s commercial activity tax, which starting in April 2009 will replace other assessments, including the personal property tax and the state franchise tax.

The foundation said that while the full effect of the CAT won’t be known for at least another year, it expects Ohio’s rank for individual income taxes to improve as rates continue to fall through 2010, the result of 2005 legislation from the Taft administration that phased in a 20 percent cut over five years. Improvement in that ranking, however, could be muted by extensive local income tax rates, the foundation said.

Kohlstrand cited the CAT phase-in and income tax cuts as indications that the state’s tax burden on businesses continues to get lighter.

“We believe the tax burden in Ohio is around the middle of the pack because of tax reforms enacted by the Taft administration ... and embraced by the Strickland administration,” he said. “The feedback we get from the business community has largely been positive.”