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Coin-Operated Laundry Owners Face Tax Conundrum
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For years, coin-operated laundromat users have been excluded from a sales tax. But if Governor John Kasich’s proposed state budget passes, that will change. WOSU reports the governor’s proposition has created a conundrum for most of the state’s laundry owners.
It’s a familiar sound in laundromats: dollar bills being fed into coin exchange machines, then quarters come plinking out.
Nearly every self-service laundromat in Ohio requires coins to operate the washers and dryers.
A basic wash costs about $2; it’s about the same to use a dryer.
The cost for a trip to the laundromat is pretty straight forward. But the transaction could get a little more complicated if Governor Kasich’s budget passes. Kasich wants to start charging coin-op users a sales tax.
That means in Franklin County, a $2 wash in the future would cost $2.11.
That has laundromat owners wondering how they’ll fairly collect the tax.
Kalpan Patel is the general manager of Sunlight Cleaners on Henderson Road. Patel said there’s only one way he can think of to collect the sales tax from customers.
“We have to raise each machine by a quarter.”
That’s because coin-operated machines do not take dimes, nickels or pennies. Using this example, raising a $2 machine by a quarter is an increase of more than double the proposed sales tax.
Ohio Coin Laundry Association president Duane King said some machine fees are at capacity. If that’s the case, King says owners face costly upgrades or they’ll have to absorb the sales tax.
“If they don’t upgrade the machine and [they] start absorbing that, well it’s actually a tax on gross receipts for owner/operator of the establishment,” King said.
In Iowa, coin-operated laundry users have been charged a sales tax for years. And as King mentioned, many owners absorb the cost. That’s the case for Daryl Johnson, who is president of the Iowa Self-Service Laundry Association, and a laundromat owner.
“We looked at the sales tax as a gross receipts tax; that there wasn’t going to be any real legitimate way of collecting it from the customers except by doing periodic price increases,” Johnson said. “And it’s just uncollectable. There is absolutely no way to properly collect that sales tax.”
And Johnson said the market cannot always absorb price increases to account for the sales tax. He said the reality is: “The only way that this tax gets paid, is out of the profits of the coin-operated laundromat.”
Some laundromat owners are moving toward machines that accept credit or debit cards. But this is a tiny segment, only about two percent nationally. These readers could easily charge a sales tax, but they cost tens of thousands of dollars. And Johnson said in the long run, Iowa business owners who go this route generally lose customers because they’ll choose $2 a load over one that costs $2.14.
“Business A has the ability to collect the tax; business B doesn’t. Business B gets the business. Even though business owner A has invested in all this equipment to be able to accept credit cards, set the system up,” Johnson said. “The reality of it is, it’s going to cost more for the customer to do the exact same load of wash, they’re going to the other store.”
Back in Ohio, Ohio Tax Commissioner Joe Testa said there are methods in place for coin-operated vendors such as soda and candy machines, which are taxable. Testa says coin-operated laundromats would adopt similar tactics. And he rejects the notion that businesses essentially would pay a gross receipt tax.
“I don’t think it’s all that complicated. Again, they take, they have some kind of record-keeping mechanism now for their collections now, it’s just a matter of that service then becomes taxable at whatever the local rate is,” Testa said.
The Ohio Coin Laundry Association has hired a lobbyist to fight the proposed sales tax.
Sunlight Cleaners owner Kalpan Patel called the proposal unfair for people who cannot afford their own washer and dryer. And Patel expects it to cost him money.
“It’s not a luxury to have clean clothes. It’s a necessity. It is what it is. They just have to come here, and that’s what they’re using. And if they get taxed on it then it’s going to hurt everybody. It’s going to hurt them personally, and it’s going to hurt business owners because we’re going to lose some revenue on top of that,” Patel said.
Iowa Self-Service Laundry Association president Daryl Johnson predicts some Ohio coin-op owners will be forced to close. And he warned the quality of the stores will decline.
“[In] the state of Iowa there’s a lot of operators that don’t have attendants, can’t afford attendants And you walk into a bordering state, laundromat, they have free wi-fi, they have full-time attendants, they have all of these other offerings, it’s because the cash-flow and the revenue is there to be able to support improving the wash experience for the customers.”
The Ohio legislature is currently holding hearings on the governor’s budget proposal including taxes on services. A budget must be signed by Kasich by June 30.