Ohio Community Associations Dodge a Sales Tax Bullet
On February 12, 2013, a new budget and tax reform plan known as House Bill 59 was introduced. Under the proposal, Ohio’s sales tax rate would have been lowered from 5.5% to 5%. To make up for the lost revenue resulting from the lowered tax rate, all service transactions would have been taxable unless specifically “exempted” under the law. If passed, the new law would have taken effect on September 1, 2013. As all board members are well aware, most maintenance fee dollars are expended for services and as such, this proposed legislation could have had a significant negative impact on all community associations. Our office contacted innumerable legislators seeking “exempt” status for our non-profit community association clients.
Under current Ohio law, the general rule is that ALL sales of services are exempt from taxation. The only way a particular service is subject to taxation is if current law specifically states that it is. For example, current law specifically mandates that landscaping services are subject to taxation. In other words, if an association pays $200 for landscaping services, the association must also pay $11 (5.5% of $200) in sales tax to the State of Ohio. That being said, other costs of services, such as legal, management, and accounting fees, are not presently subject to sales taxation.
If House Bill 59 would have passed, the general rule would be reversed. More specifically, ALL sales of services would have been subject to taxation unless the law provided for a specific exemption. Examples of services that would have been exempt from taxation include medical, daycare, and educational/tutoring. Unfortunately, services most often sought by community associations, such as those rendered by a management company, an attorney, accountant, plumber, or painter, just to name a few, would not have been exempted from taxation. As such, associations would have been required to pay sales tax on more services than they are presently accustomed to. Depending on the price of the services, the overall negative effect to the association may have been significant
House Bill 59, if passed, would have had a negative effect on community associations by requiring associations to pay a sales tax on services that are currently exempt from taxation. Fortunately, the law faced significant opposition from numerous service groups across Ohio and as a result, amendments were recently introduced that drastically alter the severe impact of House Bill 59 and limit any additional sales taxes. Ohio community associations have dodged a tax bullet. A special thank you goes out to the select group of board members who have relationships with some Ohio legislators that were called upon to join our firm’s efforts against this proposed legislation.