March 23, 2013
LIMA — Creating tax uniformity and reducing cities’ tax revenue are two different things.
City and village officials are speaking out about the Municipal Income Tax Uniformity bill in the Ohio House, saying it has more to do with rewarding special interests than creating a simpler tax code in the state.
Proponents of the bill say House Bill 5 would make Ohio’s municipal income tax system simple, fair, predictable, and more cost-effective for businesses.
In recent years, the Ohio Legislature has passed several bills creating a simpler municipal tax system and creating more uniformity. The Ohio Municipal League, which represents Ohio cities and villages, has not opposed those previous efforts, but the league opposes House Bill 5, said Kent Scarrett, league spokesman.
“We’ve been supportive of previous bills, and been working partners with the bill sponsors in the past. There are a number of areas we agreed to in this bill,” Scarrett said. “There are good things and bad things in the bill. But the bad things are real bad.”
House Bill 5 would require municipalities to repeal their existing income tax ordinances and adopt the state code; if they don’t, the state would no longer allow them to collect the tax. Income taxes represent on average 70 percent of cities and village’s revenue; in Lima, the income tax provides about two-thirds of the revenue.
The bill’s chief sponsor, State Rep. Cheryl Grossman, R-Grove City, said Ohio has the most complicated local municipal tax system in the nation, with more than 600 municipalities using more than 300 different tax forms, which increases costs of compliance and causes some businesses to relocate outside of the state.
“The current patchwork that exists, with nearly 300 different forms being utilized by nearly 600 cities, is time consuming, burdensome and expensive for employers and employees. Ohio is the most difficult state in the nation with the current lack of uniformity,” Grossman said in February during sponsor testimony at the House Ways and Means Committee.
Scarrett said the notion of such a complicated system just isn’t true. A generic income tax filing form exists and municipalities are required to accept it if it is filed. Also, two central tax collection agencies in Ohio already handle half the taxing municipalities in the state.
Ohio’s system looks different from every other state in the nation by design. Ohio’s constitution grants municipalities home rule, and the ability to levy an income tax. It is the reason cities are strong in Ohio and can provide services that lead to a desirable quality of life, Lima Mayor David Berger said.
Berger, who sits on the Municipal League’s board, visited The Lima News this week with Scarrett to talk about the bill.
“We do see and agree that there are opportunities for more uniformity,” Berger said. “But there are things in House Bill 5 that have nothing to do with uniformity. They have everything to do with rewarding special interests. It’s a complex issue, and one that people aren’t paying attention to. But it will affect the bottom line and the devil is in the details.”
Many of the points in the bill will lead to reduced revenue. Because communities cannot raise income tax beyond a certain point without voter approval, the end result most likely won’t be higher taxes, but reduced services, Berger said.
House Bill 5 has received the support of numerous associations and business groups, including the Ohio Society of CPAs, Ohio Chamber of Commerce, Associated General Contractors of Ohio, National Federation of Independent Business, Associated Builders and Contractors, Ohio Home Builders Association, Ohio Manufacturers’ Association, Ohio Restaurant Association, Ohio State Medical Association, Ohio Insurance Institute, Ohio Trucking Association, Ohio Realtors Association, Ohio Contractors Association, Ohio State Bar Association, and Ohio Produce Growers & Marketers Association.
Berger said he considers that list when he contemplates one of the bill’s provisions, extending what is called the occasional entry rule from the current 12 days to 20 days.
The rule says that people working a community for fewer than 12 days a year don’t owe income tax. On the 13th (nonconsecutive) day, however the person owes tax, including for the previous 12. The law is already uniform for all Ohio communities, but this bill would change the law to 20 days, and make the first 20 days free of taxation, which would reduce income taxes for all sorts of people, but also reduce cities’ coffers, Berger said.
The move would come as municipalities have already lost hundreds of millions of dollars from the state’s cuts to local government funding and elimination of the estate tax and tangible personal property tax.
The league has drafted its own language achieving some of what House Bill 5 seeks to, but in a revenue-neutral way. It is generating some interest in the Senate, Scarrett said, but at the moment, no bill exists in the Senate.
House Bill 5 would be administered by a board of seven tax administrators from around the state. They would meet quarterly, have no staff and not be compensated, Lima Finance Director Steve Cleaves said.
“This thing’s like a half-baked pie,” Cleaves said. “Beyond the policy issues, it has serious problems. That board is charged with enforcement action. They meet once a quarter for a day? It’s designed to fail.”