Hearings soon on bill to simplify municipal income taxes

The Columbus Dispatch (April 16, 2013)

Jim Siegel

As thousands of Ohioans filed their taxes yesterday, a coalition of business groups continued its push to make the state’s system of municipal income taxes easier and less costly for businesses to navigate.

Jack Buschur, president of Buschur Electric in Minster, held up a stack of 43 W-2 forms that he filed last year. In the fourth quarter of 2012, he said, his company sent out 36 tax returns, 21 of which were for less than $10. Each costs him $100 to $150 to prepare, he said.

“It’s rather ridiculous that we’re spending this kind of money and getting very little accomplished,” he said.

Hearings on the bill are expected to restart next week on House Bill 5, which is designed to make municipal tax laws uniform across the state. Supporters, including a coalition of business leaders, say Ohio’s patchwork system of municipal income tax laws is the most confusing in the nation.

But the bill continues to face opposition from municipal leaders, who say it will cost cities money and change when cities are permitted to start levying an income tax, and on whom.

Mark Cobetto, a CPA and tax shareholder with Schneider Downs & Co. in Columbus, said the bill would simplify tax filings and replace “nuisance type of compliance.”

“The waste of time in researching hundreds of different municipality rules, and the response time ... it flusters taxpayers,” he said. “We also think (the bill) addresses issues of fundamental fairness.”

He pointed to requiring each municipality to have a net operating loss carry-forward period of five years — which allows it to reduce future tax liability — and uniform interest and penalty rates. “Some municipalities have exorbitant rates, and they use it as a ‘gotcha’ game,” Cobetto said.

Though most municipalities already allow for net five-year operating loss carry-forward, 174 do not, including Columbus. Those cities, the Municipal League says, could suffer significant revenue loss.

Melinda Frank, the Columbus city tax administrator, said cities don’t have much problem with the uniformity proposals, but the bill would cost Columbus tax revenue. While some portions of the bill have changed since it was introduced last year, that revenue loss remains a concern, she said.

“There is tax reform in the bill, not just uniformity language,” she said. “That has the majority of the negative revenue impact.”

The bill would extend from 12 to 20 days the minimum working days needed before a company would have to withhold for employees in a particular city; count as a “day” only the city where the worker spends the most time during a workday; and create a common definition of a resident.

The bill also would eliminate a “throwback rule” that affects the ability of a city to tax Internet sales and certain other sales made outside the city.

“One of the goals of the bill was to simplify things and it truly doesn’t do that,” Frank said, adding that she hopes for additional changes, such as splitting tax reforms from uniformity efforts. “It’s difficult to put the two together, especially when it means revenues are going to be negatively impacted.”

Rep. Cheryl Grossman, R-Grove City, a lead sponsor of the bill, said she will try to limit as much as possible the negative revenue impact on cities.

“This issue is about making Ohio more competitive with other states,” she said.