Phase Out of TPP in Ohio and the Commercial Activity Tax

5. Phase Out of TPP in Ohio and the Commercial Activity Tax

In 2006, Ohio began a three-year phase out of its non-utility TPP taxes – the phase out of utility TPP taxes began in the following year ¹⁴ (Mughan & Propheter 2017; Collins 2015). TPP taxes were replaced by the Commercial Activity Tax (CAT), ¹⁵ a graduated, commercial gross receipts tax imposed on corporations (Mughan & Propheter 2017; Collins 2015; Tax Foundation 2015). The phase out of TPP taxes in Ohio occurred in three stages: (1) the state exempted new manufacturing machinery and equipment purchased on or after January 1, 2015; (2) for existing businesses, the assessment ratio was reduced by 25 percent in each of four years, starting in 2006 and ending in 2009 ¹⁶ (TPP was assessed at 25 percent of the value prior to the phase out); and (3) the phase out for telecommunications property took place over a longer period of time, starting in 2006 and ending in 2011 (Errecart, Gerrish, & Drenkard 2012; Collins 2015). The revenue from the newly created tax was allocated in three ways: 

1. the general revenue fund (GRF); 
2. reimbursement funds for school districts; and 
3. funds for lo cal governments (Collins 2015).  

Nevertheless, the CAT only generated about half of the funds needed to reimburse school districts and local governments and, as a result, the state had to use GRF to supplement the reimbursement payments (Ohio Department of Taxation 2015; Collins 2015). In 2013, Ohio made subsequent changes to the reimbursement formula and the distribution of CAT revenue (Collins 2015). As a result, local governments and schools lost about 50 percent of reimbursement funds while the allocation to the GRF was almost doubled (Collin 2015; Mughan & Propheter 2017).