EDITORIAL: Uniform protection

Akron Beacon Journal (January 3, 2013)

State Reps. Cheryl Grossman and Michael Henne have the right idea. The Republican lawmakers want to bring uniformity to the municipal income tax in Ohio. They have in mind easing a burden on businesses, firms often facing multiple jurisdictions, rules and forms, the hassle diverting precious attention from first purposes.

In early November, Grossman and Henne unveiled proposed legislation. The bill reflects the input of the Ohio Society of CPAs, long an advocate for streamlining municipal tax codes. The proposal promises important strides forward. Grossman also has stressed that the legislation is a starting point, even after two years in the making.

That open-mindedness is constructive, especially in view of concerns raised by the Ohio Municipal League. Note the context: Cities have faced a rough time at the Statehouse. The current state budget slashes the Local Government Fund and makes other changes that have reduced the resources going to cities by more than $1 billion. With the new year, the state estate tax disappeared, costing cities $200 million a year.

Proponents have talked about taking a “revenue neutral” approach, ensuring no loss of resources for municipalities. That is a fair standard. Keep in mind that businesses and the rest of us gain from sound public services supported by local revenues.

One constructive contribution to the discussion arrived this week. Policy Matters Ohio offered, among other things, a reminder of what constitutes effective tax reform — cracking down on tax avoidance, guaranteeing a broad base and ensuring those most able to pay are doing so. Such steps help to keep tax rates lower for everyone.

The Cleveland-based think tank highlighted areas where the Grossman-Henne bill could be improved. For instance, the state long ago restricted the use of passive investment companies to avoid tax payments. Yet the practice continues at the municipal level. Unfortunately, the new legislation fails to address the loophole.

Policy Matters explains that the bill actually invites a new way to avoid taxes by barring cities from taxing the profits a company makes from products or services it ships to locations where it does not have sales agents. In other words, it eliminates the current “throwback” provision, curbing the revenue flow to cities.

The legislation also applies a generous definition of Ohio resident to snowbirds and others who live elsewhere for part of the year. Again, cities lose money. No question, reform of the municipal income tax is worthwhile. At the same time, it must be balanced and principled, the business climate aided without further harm to cities.