By Jim Siegel
A bill designed to bring uniformity to Ohio’s complex system of municipal income taxes got a makeover that Ohio cities say is better but still reduces their revenue.
Business groups have strongly pushed for the bill, noting that about 600 Ohio municipalities use more than 300 different forms to collect local income taxes, adding cost and administrative burden for business owners. Rep. Cheryl Grossman, R-Grove City, a joint sponsor of the bill, said Ohio has “the most-complicated and unfriendly tax system in the entire nation.”
Michael Hartley of the Columbus Chamber said, “This is probably the most-important piece of legislation for businesses, particularly small businesses. We hear about it constantly.”
But fixing the problem is proving difficult. Rep. Peter Beck, R-Mason, chairman of the House Ways and Means Committee, said he held 200 hours of meetings this summer on House Bill 5 — and all sides still aren’t happy.
The Ohio Municipal League said it shares the goal of creating a tax system less burdensome for business owners, some of whom are now forced to file multiple tax returns, sometimes for meager amounts.
Though Grossman said the bill is as revenue-neutral as possible, Kent Scarrett, spokesman and lobbyist for the Municipal League, said some changes still would cost much-needed tax revenue for cities that have taken major state-funding hits and also have lost the estate tax.
The bill now includes a municipal Taxpayers Bill of Rights. Issues that appear to have been worked out include audits, the definition of a workday, penalty and interest uniformity, consolidated returns, filing dates and residency criteria.
“This is something we can move forward on that can benefit businesses and Ohio taxpayers,” Beck said.
A key dispute continues to be a requirement that all cities allow a net-operating-loss carry-forward period of five years — which lets companies use losses to reduce future tax liability. Scarrett said 170 Ohio cities, including Columbus, do not currently have a net-operating-loss provision, and 65 more are at less than five years.
Those cities have argued that the bill would cause them to lose revenue of as much as $2 million a year.
The bill would delay the required carry-forward until 2017 and then phase it in while a study committee looks at revenue impact. But Scarrett said that once it’s in place, it’s hard to fathom Republican lawmakers removing it, because that would be considered a tax increase.
“We would support status quo while the study committee is doing its work,” he said.
Business groups pushed to keep the net-operating-loss provision intact.
“It recognizes the cyclical nature of the business cycle,” said Chris Ferruso of the National Federation of Independent Business/Ohio. “We think that’s a great economic-development tool that’s been built into the bill.”
Cities also don’t like how the bill treats workers who spend only a few weeks in a particular city. Under current law, a worker is subject to a city’s tax once he or she works there for 13 days. The bill would increase that to 21 days, which Scarrett said is fine, but the cities oppose that it would not tax the first 20 days.
“We cannot afford to give away free days to these workers,” he said.
For more than 80 percent of Ohio businesses — those with annual gross revenue of less than $500,000 — the bill would require employers to file only in their home city, regardless of where they perform work.