September 21, 2020 Print

The Buckeye Institute, a longtime partner of Atlas Network, is spearheading research that could jumpstart Ohio’s post COVID-19 economy. In their May 28 policy memo, “Suspending the CAT Will Help Ohio's Economy”,  Buckeye determined that suspending Ohio’s commercial activities tax (CAT) for the upcoming fiscal year would help struggling businesses survive economic strife caused by the COVID-19 crisis. Temporarily removing the CAT can help reignite Ohio’s economy after the recent shutdown and would increase the efficiency and bandwidth of businesses by eliminating the unnecessary tax.  

Ohio’s CAT adds a gross receipt tax to each level of commercial activity. In their memo, The Buckeye Institute applies the CAT to the production of a loaf of bread. “To sell a simple loaf of bread, for example, the state adds a gross receipts tax when the farmer sells wheat to the mill, then again when the miller sells flour to the baker, and when the baker sells bread to the grocer, and yet again when the grocer finally sells the bread to the consumer” Thus, the CAT increases the overhead cost of production and distribution of every product in Ohio.

It is clear that the CAT hinders efficient economic action by bogging down businesses with an extra, hard-hitting tax, especially during a pandemic. “In the current COVID-related economic downturn, many businesses are no longer profitable, but will still face liability under the CAT,” explained Rea S. Hederman Jr., Executive Director of the Economic Research Center and Vice President of Policy at the Buckeye Institute. “Suspending the CAT would accelerate Ohio's economic recovery as businesses will be able to use the saved money to either boost payroll numbers or invest more. The research and analysis stemming from The Buckeye Institute’s CAT policy report became the basis of Buckeye’s COVID response policy solutions to, at the very least, strongly recommend the suspension of the CAT” continued Hederman.

The Buckeye Institute argues that suspending the CAT, and overtime replacing it with a consumption based tax will increase the ability of “high and low-profit businesses” to bargain on a fair playing field in the free market. Currently, the CAT generally harms businesses that have large amounts of sales but low-profit margins the most. “ Grocery stores and other retail businesses are a perfect example of this program. Cincinnati, Ohio-based Kroger will have a larger CAT bill due to its gross sales than some finance and insurance companies. This situation”, continued Hederman, “is bad public policy and illustrates how a tax system can favor or alternately penalize one kind of business over another. Moving to a more efficient consumption tax will treat all business types the same.”

Ohio is one of five states that imposes a commercial activities tax. According to the May Policy Memo, the Buckeye Institute predicts that suspending the CAT will drastically increase Ohio’s standings from 42nd in the Tax Foundation's corporate rankings. Hederman says, “eliminating the CAT would move Ohio into a tie for the best state in terms of corporate taxation. Suspending the CAT will not be nearly as good of a policy reform since it would not be permanent, but it would at least move Ohio in the right direction.”

If implemented, the Buckeye Institute’s policy recommendation will directly impact all 11+ million citizens of Ohio by increasing jobs, minimizing the tax burden, and increasing overall economic growth. 

Atlas Network supported this project with a grant.