- Associated Press - Tuesday, July 28, 2015

July 28—Leaders of Laketran are introducing a legislative proposal that, if adopted, could increase the state’s tax funding for mass transit a little more than 12-fold without levying a new tax or shuffling the funds of existing line items.

Since March, Laketran Executive Director Ray Jurkowski has championed an effort to urge state lawmakers to preemptively direct tax revenue from online and catalog purchases to fill a multi-billion-dollar hole that is estimated across the state’s 62 transit agencies — his included. At Laketran’s latest committee of the whole trustee meeting July 27, details and funding projections of that proposal were fleshed out in a report and presentation by analysts of a national finance advisory firm tapped to help this effort.

“I personally don’t believe there is another revenue source, or combination of revenue sources that have the potential punch that this proposal would have,” Jurkowski said at the meeting. “I can’t see them raising motor vehicle registration fees, rental (car) fees, license fees, property tax fees high enough to produce the kind of revenue that this tax could potentially produce.”

At State level

The Ohio Department of Taxation made a new estimate on how much state tax revenue it loses on an annual basis to remote sales — aproximately doubling its previously estimated figure. The state expects to lose out on $713 million of online revenue in fiscal year 2015, and $788 million in fiscal year 2016, said department spokesman Gary Gudmundson.

Laketran’s proposal centers around what proponents frame as “closing a tax loophole” — that is the state’s online use tax.

Ohio consumers are responsible for documenting and paying state and local sales tax on purchases made to a retailer that lacks a physical location in the state, but very little of that actually happens.

Federal legislation

Federal lawmakers have tried passing legislation to pin that tax-collection

responsibility on online retailers, but not much has been done on that front since 2013. Coincidentally, federal lawmakers also haven’t made much progress to permanently fix the US Highway Trust Fund’s revenue hole, which also allocates money to mass transit projects.

Recommendations

Despite all of this, Jurkowski’s focus is on state-level lawmakers, recommending two pieces of legislation:

—Establish a “Quick-Through-Nexus” law that requires out-of-state retailers to pay sales tax if their Ohio-based affiliates solicit more than $10,000 in annual sales to Ohio residents. The law was started in 2008 by New York State lawmakers and since then, 15 states have implemented the law and 13 others have a established similar policies, according to PFM’s report.

—Establish a State Transportation Infrastructure Fund, or STIF. Under the Laketran proposal, all of the e-commerce sales tax, which would normally flow into the state’s general revenue fund, will be directed to go to this newly established fund. One half of the fund’s revenue would go to serving local transit agencies and another half would serve road and bridge projects. Although no other state has a precise fund like this, other states, like Indiana and Virginia, have established transit and/or transportation infrastructure funds with dedicated revenue sources, according to the PFM report. In Ohio, lawmakers merely appropriate transit funding every two years from its general fund.

Expert reports

Experts from PFM’s Cleveland and Chicago office are conducting the study and Laketran has budgeted $25,000 for its completion. Laketran provided The News-Herald a draft of the report July 24.

Although the report isn’t finished, Jurkowski and other Laketran leaders didn’t want to wait any longer to announce their findings. Jurkowski and Laketran Trustee President Brian Falkowski said they’re hoping to rally support for the proposal among state lawmakers, local elected officials and other transit bodies like Cleveland’s Regional Transit Authority.

The urgency is sparked because any day Amazon is expected to document to the state its first installment of online sales tax, Jurkowski said. Gudmundson said he could comment on any timeline to Amazon’s remittance because it is “confidential taxpayer information.” Back in May, the nation’s largest online retailer promised to start collecting sales tax from Ohio consumers beginning June 1 as plans proceed to build three data centers in the state.

“When everyone sees the size of that pot that Amazon is going to be producing that you saw up here right now, there’s going to be a feeding frenzy on how to use that revenue,” Jurkowski said at the meeting. “If I don’t get this out in the public purview and into the hands of our state legislators, I am afraid we’re going to lose this potential solution to the infrastructure problem.”

Who stands to gain, and how much?

Laketran is one of only eight transit agencies that right now directly benefit from sales tax because most other transit agencies don’t have a fixed sales tax that generates dedicated revenue.

Projections on how much Amazon will generate in sales tax revenue vary and are unclear. The PFM report, which was started several weeks before Amazon’s announcement, estimates that Amazon alone could generate $119 million its first full year, with $96 million of that going to the state. Those figures nearly double to $230 million and $186 million if other online purchases in the state are sales-tax enforced.

Over a 10-year period, the STIF would be expected to grow to $1.6-billion. With bond financing, the report shows transit agencies could tackle an estimated $1.1-billion shortfall to preserve their current railcar, urban bus or rural bus capital expenses by 2025. Despite covering that shortfall, the authors estimate another $3.7 billion is needed for operating and capital funding to meet future transit demand by 2025 and establish a demand-response service in the 27 Ohio counties that lack transit service presently

The authors stress in the report that their estimates are conservative. They mention if they were to apply the methodology used in a widely cited 2009 study from the University of Tennessee, their $1.6-billion figure would actually grow to $5.9 billion by 2025.

Jurkowski said he first wanted the trustee board’s blessing before he began asking lawmakers and stakeholders to get on board with the proposal. Most shared positive comments and a couple trustees shared a degree of skepticism on whether enough lawmakers would take this on.

Despite that the state has the 14th highest number of transit riders, according to ODOT, the state has a poor reputation in funding transit agencies.

In 2012, 38 other states dedicated more funding to transit per capita than Ohio did out of its general revenue fund, according to a 2014 study by the American Association of State Highway and Transportation Officials.

That year and since, Ohio lawmakers have allocated $7.3 million out of its general revenue fund for transit agencies, with additional revenue from flexed federal highway dollars. An ODOT study earlier this year recommended the state increase its contribution to mass transit from 3 percent to 10 percent.

Gov. John Kasich added an extra $1 million to the annual mass transit allocation in the latest two-year budget proposal, but by the time it got passed at the end of June, that money was stripped out with other spending cuts.

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(c)2015 The News-Herald (Willoughby, Ohio)

Visit The News-Herald (Willoughby, Ohio) at www.news-herald.com

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