A tax reform bill passed in the Ohio statehouse Wednesday has lots of city and town leaders riled up. The bill, HB 5, set out to reform local income taxes by adding some uniform regulations, including changing the system for companies that work in multiple municipalities. Right now, municipal income taxes are a patchwork, with different policies in over 600 municipalities around the state.
Groups in favor of the bill say Ohio’s tax system needs to be simplified—right now codes are different in every city or town with an income tax. Chris Kershner, the VP of Public Policy for the Dayton Area Chamber of Commerce, says HB 5 would make it “easier and less cumbersome for businesses to build or file their local tax returns.”
Some contracting companies that work in multiple cities or towns say the current system is unduly complicated.
“Contractors like landscapers are working in multiple municipalities, and having so much variety can have a negative impact. It’s an administrative headache for a lot of our members,” said Kevin Thompson, executive director Ohio Nursery and Landscape Association. “They may pay more in accountant fees to do the paperwork, or in postage, than they actually pay in taxes in some municipalities.”
Advocates also say HB 5 will streamline and help create jobs and eliminate competition between cities. But Oakwood mayor Bill Duncan thinks otherwise.
“Why would you want to relocate to a place or build a factory where all the roads cannot be repaired, or you don’t have adequate security in terms of police and fire protection because the municipal income sources that have funded those for over a hundred years have been drained away by the state and kept by the state of Ohio?”
Duncan points to years of cuts from the Local Government Fund of the state of Ohio, and loss of the estate tax. He and many other municipal leaders say their budgets are strained and they can’t—or don’t want to—make up the difference by raising local taxes.
Dozens of local leaders spoke at recent Senate Ways and Means Committee meetings on the topic. The city of Troy says it could lose $1 million, and Dayton is concerned about additional costs of more than $60,000 a year due to a requirement that taxpayers must be contacted by certified mail, rather than standard postage. The city of Kettering has calculated it would lose $225,000 per year because of changes that allow companies to deduct operating losses in future years, and another $50,000 due to changes for people working in the city only some of time. Springfield estimates a minimum of $650,000 in revenue losses each year.
The cuts are caused by a combination of elements in the bill: it requires tax assessments be sent by certified mail, turns patronage dividends into non-taxable income, and mandates a net operating loss carry forward of five years. That last change, which helps out businesses that start up with an operating loss by deducting their losses from future income taxes owed, could reduce tax income significantly for municipalities that currently have no carry forward policy or use a period shorter than five years.
The law also requires the hiring of a tax administrator with specific qualifications, and creates a statewide tax policy board that municipalities say is another layer of bureaucracy. It also eliminates “throwback” rules that allow cities and towns to tax sales completed in other states, which means internet and catalog sales could become exempt, and it allows companies not permanently located in a certain town to make money in that city or town for up to 20 days before being taxed. Duncan says this could create a situation in which contractors locate in townships with no income tax, and rarely have to pay income taxes in cities or towns.
“What started out as a uniformity bill two years ago has now turned into this grab bag of tax breaks for people that have a good lobbyist in Columbus,” Duncan said.
HB 5, which passed the Ohio House late last year, had been languishing in committee until just a few weeks ago; amendments and changes were being added to the bill as late as Tuesday night, and it could take a while for cities and administrators to sort out what it will all mean. The bill passed the Senate Wednesday afternoon with all but one Republican's vote. Only two Democrats voted in favor.
