The commercial activities tax was created in 2005 as a .25-percent tax on the gross receipts of all Ohio businesses, and the money it brings in go to the general revenue fund, schools and local governments.

Three years ago, the Ohio Supreme Court ruled that the tax can be levied on grocers, though the Ohio constitution prohibits sales taxes on food.

In this case, the court will decide if the CAT can be assessed on motor fuel.

Anthony Ehler argued for Beaver Excavating Company, which filed a suit that was joined by truckers, builders and contractors. Ehler noted that in 1947, voters approved a constitutional amendment requiring taxes on motor vehicle owners and operators – including license and tags fees and gasoline – to go to transportation. So Ehler said because CAT revenues don’t go exclusively to roads, lawmakers couldn’t decide to assess the CAT on gasoline sales.

“Only as the tax applies to sales of motor vehicle fuel,” Ehler argued. “All the rest of the CAT is fine.

“This is an as-applied challenge. So as applied to the privilege of selling motor vehicle fuel, those funds need to be dedicated. It’s either that or they could exempt them and increase the motor fuel tax. That’s their prerogative.”

But Ehler told Justice Terrence O’Donnell that while depending on the ruling some taxpayers could be entitled to refunds, he said that’s not why his side filed this lawsuit.

Ehler: “We brought the case to make sure that the monies raised were devoted to roads.”
O’Donnell: “That’s precisely the issue I want to ask you about. The levy of the CAT isn’t unconstitutional, is it?”
Ehler: “Absolutely the levy of CAT is unconstitutional.”
O’Donnell: “I thought it was the expenditure of money –”
Ehler: “Not at all.”

Ehler said because the way the CAT revenues are spent is unconstitutional, then so is the assessment of the tax.

Stephen Carney argued for the state tax commissioner, and cited the conclusion the court handed down in its 2009 ruling against the grocers.

“The CAT is on the privilege of doing business – as the court said in Grocers. It’s measured by all your gross receipts, regardless of whether they’re food, widgets, motor fuel, toilet paper – doesn’t matter what you sell,” Carney said.

And Carney said if the law is not read this way, anyone who does any business involving gasoline could claim they are exempt from the CAT and other taxes.

“A taxpayer could say ‘my employment is driving a truck of gas around, so therefore my employment tax relates to gas.’ Or ‘I sell cars, so that relates to operating using…’ – their test could literally break down the entire CAT and the entire sales tax system, whereas our way is very straightforward. If you talk about gas or operating cars, you’re triggered.”

The decision could only affect the $140 million a year that comes into the state from the CAT on gasoline sales – and not the $.28 gasoline tax, which last year brought in nearly $1.8 billion to the Ohio Department of Transportation and local agencies for road construction and repair.

The high court also heard arguments on whether revenues from a fee increase levied by the Bureau of Motor Vehicles is unconstitutional, since that money also went to purposes not related to roads.

But there’s plenty of disagreement over whether to hike the tax.

Communities around Ohio were stunned earlier this year when ODOT announced a $1.6 billion hole in its construction budget, and that it would have to delay many major projects for years.

Some people – including a few state lawmakers – have speculated that the time has come around again to revisit raising the gas tax, which funds ODOT.

Republican Rep. Rex Damschroder of Fremont in northwest Ohio is in that group, saying he doesn’t like higher taxes, but this is something to consider.

“Before I drive my new car – and a new car is 30, 40, 50-thousand dollars – and I have the choice of paying a little bit more in gas tax and driving it on a good road as compared to driving that new car on a pothole-filled road, I’m certainly one person that would be in favor of paying a little bit more for a better highway.

“If you don’t like it, you don’t have to drive a car.”

But one former state lawmaker says that won’t work because of the math problem ODOT is dealing with. Former representative Gene Krebs of southwest Ohio is now with the transportation think tank Greater Ohio.

He says as the state’s road projects that are growing bigger and more expensive, more fuel-efficient cars is leading to a decline in gas tax revenue. And he says that formula is creating a drop of 7 percent in ODOT’s purchasing power each year.

“That is equal to two pennies of gas tax. So we would have to raise the gas tax two pennies a year, year after year after year, just to maintain the status quo. If you want to go ahead and start fixing a lot of these bridges and overpasses that have hit their 50-year, 60-year edge of their lifespan, you’re now talking 9 pennies a year for decades,” Krebs says.

Damschroder notes that electric cars pose a unique problem, in that they don’t generate any gas tax revenue. But the most damage to roads is done by heavy vehicles such as semi. Some cities and countries have explored a “use tax” based on how often a driver uses a road, gauged from an electronic tracker in the car – but that idea makes both Krebs and Damschroder uncomfortable.

Many people then turn to the Ohio Turnpike – the Kasich administration is still studying whether to lease it for a big lump sum or privatize it in other ways.

Damschroder lives along the Turnpike, and he’s very upset about the idea that money from that toll road being used throughout the state.

“I’m going to propose that we amend, and I’m sure the legislature’s really going to jump on this, maybe putting some tolls in Cincinnati on the bridges down there, and in Columbus on the bypass around, and have half of those fees sent up to northern Ohio to help us out with our roads.

“And then all of a sudden it’s got to get a little clearer to these other legislators – this just is not fair.”

Gene Krebs says that facetious proposal shows just how desperate the situation is.

“We are all out of our pleasant solutions – all the solutions we have are ugly solutions.”

ODOT says it saved $200 million by trimming its payroll by 400 positions, by making some budgeting policy changes, and finding cost efficiencies in projects.

And the agency is also rolling forward with its plans to offer sponsorship opportunities at some of Ohio’s 104 rest areas – the agency is hoping to raise $30 million to $50 million dollars with that idea.