Bill seeks to simplify maze of city taxes

The Cincinnati Enquirer (March 20, 2013)

Municipalities worry proposal will cost them

Paul Kostyu

COLUMBUS — Blake Seylhouwer is pulling his commercial cleaning services out of some communities because the mish mash of municipal taxes costs his company more than having the extra business.

House Bill 5 is intended to help Seylhouwer and other businesses that operate in multiple communities by reducing where they have to pay taxes, simplifying the forms they use and standardizing definitions and deductions, among other provisions.

Southwest Ohio’s four counties alone have 53 municipal tax plans that will be affected should HB 5 become law. Townships don’t assess income taxes but can receive them through a cooperative agreement with a city or cities involving a Joint Economic Development District or Zone.

For Cincinnati, the proposed changes would cost the city $5.2 million a year, according to city Tax Commissioner Teresa Gilligan. Sharonville Tax Commissioner Martha Funk said a conservative estimate has her city losing $280,000 annually of its $21 million budget.

Funk said, for example, she expects a decrease in tax collections if businesses can spread net operating losses over more years.

And HB 5 eliminates the so-called “throwback” provision that currently allows communities where a business is located to collect income taxes for sales made in other communities.

Funk said eliminating that provision will costs some cities millions of dollars. She said Sharonville is likely to lose more because it’s more of a business-oriented community than a bedroom community.

Seylhouwer, the president of Fairfax-based Jani-King of Cincinnati, told The Enquirer not long ago he considered expanding by buying a franchise in the Dayton area, but opted not to because doing so would add even more complexity to filing the paperwork for taxes.

And now he says he made a mistake moving from Texas to Ohio.

“That’s a hard reality,” Seylhouwer said. “Had I known 10 years ago how complicated the local income tax system was here in Ohio, I can say without a shadow of a doubt I would never have purchased or invested in the business I now own here.”

Seylhouwer said Kentucky’s municipal tax code “isn’t any simpler.” He just got a notice from Campbell County asking him to list the communities there in which he does business.

Forces arguing over details

The legislation pits the Ohio Municipal League, which represents communities, against the Municipal Tax Reform Coalition, which includes heavy hitters such as the Ohio Chamber of Commerce, National Federation of Independent Business-Ohio, the Ohio Manufacturers’ Association and 22 others. The coalition includes the Ohio Newspaper Association of which The Enquirer is a member.

Ohio’s cities and villages take in $4 billion a year in municipal taxes. Many communities will lose money and a few might add money to their city coffers under HB 5.

Already faced with reduced budgets because of the elimination of the estate tax and cuts in local government funds from the state, municipalities fear this will crush them and the services they can provide their residents.

“You put it all together and it’s a financial tsunami,” said Kent M. Scarrett, a lobbyist for the Ohio Municipal League.

Gilligan told The Enquirer the loss puts more pressure on a city budget that needs an influx of money instead of a cut in revenue.

Susan J. Cave, executive director of the municipal league, said the trickle-down effect of all the cuts will play out on “those services that cities have been providing over the years – safety forces, surfacing streets, road construction and other capital improvements.”

HB 5 supporters say thousands of businesses likely will benefit from a more simplified way to file taxes where their employees work and live. In theory, businesses will spend less on accountants and can use the money to reinvest in their companies, including adding more employees. They would still file forms with individual communities, but the forms would be the same. Municipalities do not lose the ability to set their own rates.

“It simplifies the burden on the employee for where they will owe tax,” said Daniel Navin of the Ohio Chamber of Commerce. “It simplifies the burden on the employer for withholding purposes.”

Seylhouwer will still have to pay taxes in multiple municipalities, but perhaps not in as many as he does now. And the changes might let him reduce his taxes in some places because his net operating losses could be spread over five years.

He and his accountant won’t have to spend as much time collecting financial documents or figuring out which community wants what because all the forms will be the same. As result, he said, he should be able to save money to reinvest in his company.

Ohio is the only state that allows every municipality to establish its own tax rates, forms and rules about income and deductions, according to Amy Mignogna, director of tax policy for the Ohio Society of CPAs.

That drives accountants batty and frustrates businesses.

'Craziness exists' in filing requirements

Coalition members say reform is needed because now a contractor, for example, who does work in Franklin, Indian Hill, Springboro, Norwood and Montgomery must file municipal tax forms in all five cities even if he may be in each for a small part of a day.

“Craziness exists,” said Chris Ferruso, a lobbyist for NFIB-Ohio. He said he knows of one small business that had to file 41 municipal tax forms, many costing more to do than the tax liability, which in some cases was as little as 50 cents.

Cave said she doesn’t have a problem with uniformity but wants “responsible uniformity. We want uniformity that will cost the municipalities the least amount possible, and provide them with an adequate way of administering the tax.”

The first municipal tax was levied in the 1940s. Now 600 communities across Ohio with 300 forms collect the tax, according to the CPA organization. Each has its own definition of what is taxed, rates, filing requirements, deadlines and reciprocity amounts. It’s an accounting nightmare, Mignogna said.

But Funk said the number of forms cited by Mignogna is misleading because state law since 2004 has required municipalities to accept any tax form “even if it’s written on a napkin as long as it contains the information we need.”

In October, state Reps. Cheryl L. Grossman, R-Grove City, and Michael Henne, R-Clayton, introduced House Bill 601 as a municipal tax reform package. That measure died when the legislative session ended in December. They reintroduced a modified package on Jan. 30 and it is ranked as one of House Republicans’ priority bills, which all but guarantees its passage in some form.