Some Relief Coming for Loss of Medicaid Sales Tax Revenue

According to federal regulation, as of July 1, 2017, Ohio can no longer charge sales tax on Medicaid services.  The elimination of this tax is going to have a huge impact on the sales tax revenue base of counties and transit authorities in Ohio, as this sales tax made up 7.5% of annual county sales tax collections, on average.  However, the recently signed state budget includes some relief for counties and transit authorities.

The State of Ohio Budget includes an additional appropriation measure to establish a “Medicaid Local Sales Tax Transition Fund” and to appropriate $207 million for the purpose of mitigating the effects of the elimination of sales taxes on Medicaid transactions.  The amount provided to each county and transit authority  is calculated based on 2015 and 2016 sales tax collections (find the actual amount per entity in the chart below).

There is no specific appropriation for future years; however, there will be a calculation performed annually to determine the continuing impact of this lost revenue, and there is a potential for continued payments that will phase out over a number of years.

Steps for Counties and Transit Authorities to take:

1. On or before October 15, 2017, each county and transit authority that levies sales taxes must establish a “County and Transit Authority Medicaid Sales Tax Transition Fund.”
2. After establishing this fund, the county or transit authority’s board must pass a resolution to identify when and how much money can be transferred out of the fund and where the money may be transferred. There is no restriction from the state on the transfer of this money, so it may make the most sense to transfer these proceeds immediately to a fund of the county or transit authority that normally receives sales tax revenue.
3. Payments from the State of Ohio will be distributed on or before November 1, 2017 and between January 1, 2018 and February 1, 2018. Counties and transit authorities must deposit these payments into the County and Transit Authority Medicaid Sales Tax Transition Fund.

Clark Schaefer Hackett will be working with its county and transit authority clients to assist them with appropriately recording and reporting this revenue, but we’re happy to field questions from all county and transit authorities in Ohio.  Please e-mail or call Brian Mosier with questions ([email protected] or 614-318-1460).

Amount Per Entity Chart

Counties are listed first, then Transit Authorities