With the release of the non-partisan Tax Foundation’s 2015 Business Tax Climate report, a massive spotlight is being shined on the imperative for further, major reform in Ohio. Unfortunately, what shows up under the glaring light at the moment is not pretty. Ohio ranks an uninspiring 44th in the nation.

It is important to note that this ranking does not focus only on rates. It attempts to examine qualitatively the complexity and interaction of the multiplicity of different taxes that impact businesses in the state. Consequently, while Ohio has been making steady improvement with respect to the lowering of the state income tax rates, the overarching tax system still runs afoul of a variety of sound tax principles such as: fairness, simplicity, and transparency. These violations are a major contributor to the fact that Ohio has, for decades, had more sluggish economic growth than the nation as a whole.

The report essentially analyzes five different types of taxes that states levy on businesses: 1) corporate income, 2) income, 3) sales, 4) unemployment compensation, and 5) property.

In Ohio’s case, two taxes stand out as particularly bad. First, Ohio is one of only 10 states that levy a local tax on both personal and business income. As we have stated previously in Forbes and the Columbus Dispatch, this tax is the most byzantine and absurd tax in the entire nation. It penalizes individuals and, especially, small, start-up businesses. It can make contractors file literally hundreds of W-2s, often spending more in filing costs than the amount actually owed in tax liability. It also does not include standard reciprocal credits between cities where work is performed and cities that act as a place of residence. This frequently leads to the fundamentally unfair situation where an individual is taxed twice on the income that they earn. Additionally, there are no standard net-operating loss carryforwards. These are indispensable for new businesses that might struggle turning a profit in their first few years of existence. Indeed, Ohio ranks poorly in measures of health for entrepreneurial businesses. According to a recent study by the University of Nebraska, Ohio ranked 42 out of the 50 states in its entrepreneurial index.

A watered down package of municipal income tax reform appears to be potentially ready to move in the post-election lame duck session. Even if it passes, the marginal improvements it contains will still not level the playing field for Ohio when compared to the 40 states that do not levy this form of tax. Rather, Ohioans will still be subjected to a municipal income tax that is not fair, not simple, and not transparent.

The second tax which hurts Ohio’s ranking in the study is the Commercial Activities Tax or CAT. This tax was implemented in the mid-2000s as part of a package that was designed to lower the personal income tax rate and to phase-out the particularly burdensome tangible personal property tax. That tax typically hit Ohio’s manufacturing sector hard. However, in order to alleviate that burden, the CAT shifted the burden from large-scale manufacturers to all businesses in the state. As a gross receipt tax, the CAT is levied irrespective of the profitability of a business. This means that many high volume businesses that have low profit margins are particularly negatively impacted. They pay the tax whether they make a profit or not. The Tax Foundation report also points out that while the CAT acts in lieu of a corporate income tax, it is still applied to limited liability companies and pass-through entities that are usually taxed through the income tax as well. This can severely limit their ability to experience growth.

Overall, Ohio needs to have a large-scale discussion over its whole tax system. While reducing, flattening, and eventually eliminating the state income tax is a worthy goal, other Gordian knots will have to be untied as well in order for Ohio to reap the benefits of a truly sound, tax system. The new Tax Foundation study should be mandatory reading for all Ohio policymakers. The ability of Ohio to finally shed its half-century of underperformance in job growth hangs in the balance.