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Ohio Tax Proposal Would Extend Sales Tax to Architectural Services

By Zachary Hart, Manager, State Relations


Ohio Governor John Kasich

A new tax proposal by Ohio Governor John Kasich (R) would lower individual income tax rates and introduce a 50% income deduction for small businesses; however, these cuts would be paid for by broadening the state sales tax to apply to services at a rate of 5%, down from the current rate of 5.5%. While architects and small firms would undoubtedly benefit from the income tax cuts and deduction, the sales tax on services is problematic for the architectural profession. If the tax plan is approved, architects may find themselves at a distinct disadvantage to out of state firms. Although the Ohio tax plan will require out of state firms to pay the sales tax, the ability of the Department of Taxation to collect the tax from those firms remains in question. Additionally, when taxing design services, the issue of tax pyramiding arises. The sales tax is collected by the person or entity that “enjoys” the service. Since architects routinely subcontract engineering design work, they will be forced to pay the sales tax on the work of each sub-consultant. This cost will be passed down to the building owner, who will pay for the sales tax of each sub-consultant in addition to the sales tax on the prime contract. Architects outside the state of Ohio will be at an advantage, because even if the state is able to collect the tax from them, their subcontracts will not be subject to the sales tax as long as they use consultants outside of Ohio. AIA Ohio is working alongside ACEC Ohio to oppose the detrimental unintended consequences of applying a sales tax to architectural services. AIA Ohio members should contact their state chapter to find out how to help.

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