Under Taft plan, haircuts, other services could be taxed

COLUMBUS, Ohio (AP) - People getting their hair cut, buying real estate and using other professional services could start paying sales taxes, under a proposal announced Wednesday by Gov. Bob Taft.

About 500,000 of the poor also would stop paying state income taxes, if lawmakers agree with Taft's plans to help balance Ohio's next two-year budget, beginning July 1.

The state's poor economic condition stems from sagging revenue and "from a tax system that fails to reflect the realities of today's economy," the governor said in his fifth State of the State speech.

"The sales tax was established in the 1930s, the personal income tax in the 1970s, long before the advent of our modern economy," he said.

Over the last 65 years, Ohio's economy "has changed dramatically from a goods-based economy to a more service economy, so you really need to look at services," said Tom Zaino, state tax commissioner.

Neither Taft nor Zaino would give any details on specific services being considered.

Estimates of the budget deficit have run as high as $4 billion.

However, Taft has not said how big the gap will be.

Taft's proposal also includes lowering business taxes while eliminating some exemptions, and increasing the gasoline tax to fund more road construction.

Taft first looked at taxing professional services such as accounting and legal services in the spring of 2001 when putting together the current two-year budget.

Potential revenue from the taxes was estimated in 1997 at $2.6 billion. The Ohio Department of Taxation left such estimates out of its most recent budget documents but estimated the taxes could bring in hundreds of millions of dollars.

Services that could be taxed could include professions such as funeral homes and barbershops, businesses that are unlikely to leave the state to avoid the tax, said Dan Navin of the Ohio Chamber of Commerce.

The business group is concerned that Taft will decrease the number of exemptions available to businesses while not decreasing the overall tax rate enough, said Navin, the chamber's tax expert.

Bob Fletcher, a lobbyist for the Ohio Association for Realtors, said he's worried that a move in other states to tax realtors could come to Ohio.

"The real estate industry is one of the few bright spots in this economy. It held its own and has done OK," he said. "Why in the heck would you want to go after that?"

Few Ohioans are currently exempt from paying income taxes, although many pay the tax and then get it back in refunds, said Scott Pullins, chairman of the Ohio Taxpayers Association.

"If you're looking at raising the sales tax to some degree, you need to do something to help low-income folks," Pullins added. "They'll be hit, so adjusting the income tax is the best way to do it."

(Copyright 2003 by The Associated Press. All Rights Reserved.)