How the School Tax Burden Has Shifted Since 1991

Ohio Property Tax Burden Distribution, 2011

Ohio Property Tax Burden Distribution, 2011

The percentage of property tax revenues that support local schools in Ohio has shifted dramatically from the business community to homeowners and farmers over the last two decades, according to a study by the Education Tax Policy Institute in Columbus.

The study chronicles the change in Ohio’s tax rate structure from 1975 to 2011, including the phase out beginning in 2007 of the tax on the tangible personal property (TPP) of business and commercial property.  The TPP still applies to utilities, primarily electric, gas and telephone companies, at a reduced rate, but was otherwise completely phased out by 2010.

Property Tax Distribution, 1991

Property Tax Distribution, 1991

These changes in taxation of businesses have shifted the tax burden substantially from the business community to homeowners and agricultural interests.

The study finds that homeowners and agriculture shouldered 70 percent of the school funding burden in 2011, compared to 46 percent in 1991. ETPI researcher and study author Howard Fleeter writes:

…the primary reason for the shift is state tax policy changes that have entirely eliminated the business TPP tax and significantly reduced the assessment rate on Public Utility TPP.

That’s not to say it all happened after 2007.  Residential property had been appraising at a gradually faster rate than commercial property for a long time, and that accounts for part of the shift.  But it accelerated after 2007 with the phase out of the business TPP.

As part of the 2005 bill to phase out and eliminate the business TPP, schools were to be reimbursed 100 percent for the loss in revenue through 2011.  Part of this came from a new commercial activities tax (CAT,) which was phased in as the TPP was phased out.  Also known as a gross receipts tax, some 70 percent of what is collected is earmarked for distribution to schools.

But the CAT takes in substantially less than was collected through the TPP.  Consequently, Fleeter notes, in FY 2011 - the last year of full reimbursement - schools received over $1.1 billion in replacement funds; in 2013, the replacement amount was $510 million.  That replacement level has been frozen at $510 million through FY 2015, but could resume its decline after that, depending on what is decided for the next biennial state budget.




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