Ohio's new tax commissioner charts course for Ohio.

Stepping up to the post of Ohio Tax Commissioner is Richard Levin, a man who started his career with the Ohio Department of Taxation (ODT) in 1971. He faces challenges in maintaining the momentum of tax reform enacted in 2005, along with following stringent spending priorities and restrictions. Top that with a department using more than two dozen different computer programs, and you have a man steering into choppy waters.

Catalyst editorial staff sat down with Levin to discuss what he sees as the major issues facing Ohio and the Department of Taxation over the next few years.

Q: What do you see as Ohio's strength, both in terms of our tax structure and the state's overall business climate?

Ohio's tax structure is in a transition phase right now that will result in a stronger tax system and improved business climate. The tax reform enacted in the 2005 budget bill (H.B. 66} had four major elements to be phased in over 4-5 years:

1. Gradual repeal of the tangible personal property tax (TPPT) on inventories and machinery.

2. Gradual repeal of the corporation franchise tax on corporate profits.

3. A 21% reduction across the board in the state personal income tax.

4. Gradual phase-in of the commercial activities tax (CAT) to replace some of the revenue lost from the other reductions.

When Governor Strickland took office midway through this tax reform process, he made a clear and conscious decision to follow through with the tax reduction and reform package. The goal is to improve the tax system and Ohio's economy. Also, taxpayers, especially business taxpayers, are looking for predictably and stability in the tax system. By continuing and building on the most sweeping tax reform in three decades, we hope to deliver that stable and predictable tax system.

Although these sweeping tax reforms and reductions are expected to bolster economic growth in the long-term, their short-term impact will be costly to the pending state bi-annual budget. It means there will be almost no revenue growth; revenue will be virtually flat. So the state government will have to tighten its belt and constrain spending programs.

Q: what are your reactions to the recent Tax Foundation study which ranked Ohio as third worst in tax rates?

I agree with Gov. Taft's tax commissioner, who said the results are bogus. I'm quite familiar with that study because my background is in tax research. The study doesn't represent impartial research in that the Tax Foundation will not explain how they derived their figures. Explaining the methodology is a basic aspect of competent research.

I wrote an article in June 2006 on how Ohio ranks in taxation compared to other states. According to the latest figures from the U.S. Census Bureau (2004), Ohio ranks 20th in taxes per capita, and 12th in taxes as a percentage of income.

I used the same methodology as the Federation of Tax Administrators, which is the organization of all 50 state revenues agencies. That shows you how far off the Tax Foundation statistics really are, because they ranked Ohio third.

Q: What are your ideas on how Ohio's tax structure can be improved and be used as a tool to expand Ohio's economic development?

How the structure can improve is to continue the reforms in HB 66 and that's exactly what the governor's budget does. It repeals the TPPT and the corporate franchise tax, lowers the personal income tax rate and phases in the CAT.

Q: What is the department's view on tax reform, especially CAT carve outs?

The department's view on tax reform is to have the broadest possible base and the lowest possible rate. The CAT was designed on the basis of being a broad-based, low-rate tax. When the tax is fully in place, the rate will be an extremely low .26% (just over one-quarter of 1%). Remember that the corporation franchise tax rate was 8.5%. Creating a carve-out or exemption puts pressure to increase rates on every other business that is part of the base. As a result, the department and myself as commissioner will generally oppose carve outs because we want to keep the rate as low as possible.

Q: Tax simplification is a subject that gets a lot of talk but, unfortunately, little action. What are some areas where Ohio can improve in regards to tax simplification?

The Governor's budget offers significant tax simplification in regards to real estate budget offers significant tax simplification in regards to real estate tax relief for senior citizens. In HB 119, the governor proposes a dramatic expansion and simplification of the homestead exemption property tax relief program. The program triples the number of senior citizen homeowners who would receive property tax relief. Disabled and senior citizen homeowners in Ohio would receive an exemption of $25,000 from the market value of their house. The current law provides some property tax relief for seniors, but it's based on a complex formula with three brackets, each with an alternative. The proposed program is much simpler while also providing more relief.

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The other beneficial aspect of the program is that it builds on an existing administrative structure. The homestead exemption, while being greatly improved, would continue to be administered by the county auditors at the local level rather than creating an additional state bureaucracy.

Q: Governor Strickland has announced several different priorities; however, there is a new 3.5% cap on spending and a promise not to raise taxes. Do you see a way to pay for all of the priorities under that cap without raising taxes? When do you think it would be necessary to raise taxes?

The state budget that the governor proposed keeps spending way below the 3.5% cap. Over the two year span, spending increases an average of 2.2% per year. That's the lowest spending growth in a state budget in 42 years. The budget also includes the governor priorities and the Turnaround Ohio measures.

Q: How would you like to see the department work with CPAs and The Ohio Society? Are there any priorities or issues you'd like to tackle in cooperation with the CPA profession?

I believe in communication and an open door policy. The Ohio Society and its membership are extremely important to those of us in the ODT. I expect that we will be talking often. The CPAs are the ones who of course must understand the tax laws and work with our Department, so they are a key and absolutely essential constituency group for us. The priority of the administration is to continue the five-year phase in of the H.B. 66 tax reforms that were enacted in 2005. Since the CPAs support that plan we are on the same page.

Q: How are things proceeding with the State Tax and Accounting Revenue System (STARS) initiative?

The tax department currently runs 27 different computer systems and stores over 10 million taxpayer accounts and information within those systems. The 27 systems are "silos" which are not integrated. As part of the Department of Taxation's proposed biannual budget, the governor approved us going forward with the STARS initiative that would integrate those systems, creating major efficiencies and vastly improving productivity and customer service. We will be asking the general assembly for authority to go forward. Whenever we get far enough along with legislative approval then we hope to submit a request for proposals.

Q: How have you seen the department change and evolve since you left in 1991?

The biggest change I've seen is the huge improvement in the department's use of technology. When I left the ODT I was deputy commissioner. I had a computer on my desk, but I didn't know what to do with the darn thing. Windows hadn't been invented yet and it wasn't very user friendly, to put it mildly.

The employees are also more professional and better trained. I've been really impressed with the caliber of the staff itself.

Q: What interested you about returning to public service as tax commissioner? How does it compare to private practice?

I've had an interesting, full circle career. After I graduated from college, I came here and started at an entry level position in the tax department. I moved up and served as deputy commissioner for about nine years. After about 20 years in the public sector, I moved to the private sector. I had a small business and experienced the challenges of trying to make a living day after day, getting and satisfying clients, and completing projects on time. I can see the world from both sides, from both the private sector side and the public sector.

It's interesting to come full circle and use the skills I gained in both places to try and make the tax department a better, well managed place and promote good tax reform.

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Sandra L. Spieker is editor for The Ohio Society of CPAs' Catalyst: The Leading Edge of Ohio Business. She can be reached at sspieker@ohio-cpa.com or 800.686.2727, ext.321.