The State of Ohio has over 540 municipalities that charge a municipal income tax. Each can have its own rates, rules, forms, deadlines and enforcement actions. No other state in the country allows as many taxing authorities. The state already collects county sales taxes and school district income so the idea of centralized collection isn’t unheard of.
The business community (as represented by the Ohio Society of CPA’s) has long lobbied for a simpler system than our current one, as they claim there are high administrative costs for working with such a complicated system when they have employees in several communities. It should be noted here that our own councilman Rich Corfman performs this very function of dealing with municipal income taxes in the various communities in our area through his job and says it’s not a problem, but our current administration is convinced otherwise.
In order to make Ohio a more business friendly state, various administration officials have been floating the idea of a centralized income tax collection system that would provide uniformity and simplicity for these businesses that have to deal with all these different municipalities.
In fact, Ohio Lieutenant Governor Mary Taylor was here in Orrville speaking to the Exchange Club this past spring. There, she floated the idea of centralized income tax collection and made a tongue-in-cheek comment to the effect she was hoping there weren’t any elected officials there. I was the first to speak up and said to forgive our skepticism, but these proposals don’t often bring the benefits that are touted, citing the Commercial Activities Tax as an example. (This was another “business friendly” tax scheme where manufacturers didn’t have to pay property tax on their machinery and equipment, but instead a much broader “commercial activity” tax base across all businesses (except financial institutions) is used at a low rate. The result has been less overall revenue with the unintended consequence of a spike in taxes for service businesses.)
The Ohio Society of CPA’s is the main force lobbying for municipal income tax reform and Governor Kasich seems to be the first one to really listen to them, ostensibly to be able to attract more businesses to the state. On December 19th, 2011, Orrville City Council passed a resolution stating our strong objection to the idea of Centralized Income Tax Collection as part of the package they propose, but there are other aspects as well. (I advocated we take a stance on some of the other aspects too, but in the interests of expediency, Council opted to speak to just Centralized Income Tax Collection at this time.)
Instituting a Net Operating Loss Carry-Over Provision. Orrville is 1 of 151 Ohio communities that doesn’t allow a business to carry over a net loss into the next year to defer their liability. The proposed reforms would require municipalities to allow a carry-over and would reduce their income tax collections.
Standardization of Enforcement. Every municipality has to enact laws regarding the collection and enforcement of their income tax, but their application and enforcement varies. Orrville only recently instituted a mandatory filing rule.
12-Day Occasional Presence Provision. Now, you can work in a community for only 12 days before you have to file income taxes for that community. Reforms would increase that time frame to as long as a few months.
Every community would say their current system is superior to the changes being proposed by Ohio Society of CPA’s for reasons such as the following:
- · It makes for bigger government.
- · Municipalities would have to wait for extended periods of time to get their revenues from the state. (Orrville collects daily now.)
- · Municipalities provide local service, which is far superior to speaking to someone from the State on the phone.
- · Last but certainly not least—the state will likely charge an administrative fee that would likely be more than it costs municipalities to administer the programs themselves.
I understand the Kasich administration wants to do everything it can to make it easier to do business in Ohio and that Ohio’s myriad income tax collection entities presents challenges for businesses. My view is it should pursue reform that builds on the strengths of the current system instead of tearing it down and creating a new set of problems.
There are a number of options the administration can pursue that are revenue neutral, utilize the considerable investment that has already been made in income tax collection and provide superior service to Ohio citizens.
First, as mentioned in the City of Orrville’s resolution, the state can enhance its own website for this purpose, the Ohio Business Gateway. This site has some capability now to electronically file, but is overly complicated and not considered as a viable option. The state should improve its existing electronic solution and utilize the investment that has already been made.
Second, municipalities are represented by an association known as Ohio Municipal League. They should be included in these discussions. The OML contends that conversations are taking place and legislation is being drafted by the Ohio Society of CPA’s even now. The Ohio Department of Taxation is engaged in double-speak, saying, “It’s a possibility that’s being explored,” but at the same time saying, “There’s no plan or timeline to discuss the issue…” There is a concern it could simply be attached to another bill and without the proper legislative review and opportunity for input.
Finally, municipalities need to do their part too and acknowledge the problem that exists. Instead of simply opposing any effort to change our outmoded system of 540 individual silos, municipalities should engage their elected representatives with suggestions for solutions that don’t draw scarce revenues away, but still streamline the process and show a willingness to partner with the administration on addressing our common issues. Otherwise, our current course will continue and we’ll have another failed scheme that fails to deliver for Ohio citizens.
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