EDITORIAL: Municipal-tax fix is needed

The Columbus Dispatch (February 11, 2013)

Cities should adopt common forms and definitions to ease compliance

Ohio’s businesses operating in more than one city need a break from the state’s crazy-quilt system of municipal income taxes. House Bill 5, introduced recently by Republican Reps. Cheryl Grossman of Grove City and Mike Henne of Clayton, would provide relief without compromising cities’ home rule.

An earlier effort to deal with the problem went further, proposing a centralized system for collecting municipal income taxes.

That raised the ire of the Ohio Municipal League, whose members are loathe to surrender any control over a revenue source that, for many cities and villages, represents 70 percent of their budgets.

But the municipal group also opposed House Bill 601, Grossman’s and Henne’s effort last year, even though it did not call for centralized collection. The bill died at the end of the legislative session.

The new version, like H.B. 601, calls for simplification and standardization of local income-tax codes without going to centralized collection.

Backers of H.B. 5 point to several further changes from H.B. 601, changes they say were made to address some of the other concerns of cities and villages.

The new measure’s low bill number — generally reserved for high-priority items — indicates how important legislative leaders believe the issue is to Ohio’s economic development.

The problem lies in Ohio’s strong home-rule tradition. The state is one of only 10 that allow cities and villages to assess income taxes.

On top of that, 600 taxing jurisdictions use 300 different income-tax forms and employ different legal definitions for basic concepts such as business income and residency.

Companies that have employees or do business in multiple jurisdictions not only have to keep track of how many hours were worked in what jurisdiction, they may have to file under different terms in each one.

It makes Ohio, in Grossman’s words, “by far the most challenging state in the nation on how that’s done.”

Testimony last year highlighted horror stories, such as a Minster business that had to pay an accountant $55 for each of 41 different income-tax returns it was obligated to file.

This included one with a bottom line of 13 cents.

Many businesses are forced to spend more on tax preparation than they owe in taxes.

That’s unreasonable.

The Ohio Society of CPAs is leading a coalition of groups supporting municipal-tax reform, a group that includes 22 organizations representing thousands of business owners.

They know time and resources spent complying with an overly complex tax structure could be better spent expanding business and creating more employment.

A simpler tax structure and healthier economy would benefit everyone — including the municipal tax collector.