EDITORIAL: Time to finish the job

The Columbus Dispatch (October 1, 2014)

Lawmakers finally should bring uniformity to city income taxes

In April, when the Ohio Senate had been sitting on a House-passed bill to simplify Ohio’s thicket of municipal income taxes for more than four months with nary a hearing, The Dispatch opined that it was understandable for senators to take some time to understand this contentious issue.

Now, nearly six months later, House Bill 5 has had only two Senate hearings and is down to the last chance for passage before it expires along with the 130th General Assembly, the rushed few weeks of lame-duck session after the November election and before the end of the year. Jamming in this much-needed reform with the usual rush of lame-duck bills is unfortunate, but letting Ohio start another new year without it would be worse.

Senate leadership should push this bill through, to free Ohio businesses from an unnecessary burden.

Ohio is the only state in the union that allows any and every municipality to impose income tax on its own terms and with its own forms, regardless of the immense hassle it imposes on businesses that operate in more than one jurisdiction. As a result, the state has more than 600 income-taxing jurisdictions, using more than 300 forms. This requires businesses to spend far too much time and money simply following the rules.

Simplifying and standardizing the system clearly would make Ohio more attractive to businesses, but efforts to do so, including a similar bill in an earlier legislature, have faced stiff opposition from municipalities, because standardized forms and tax rules would mean some of them would see lowered revenues as a result.

But this short-term sacrifice likely would lead to long-term gain for everyone, when businesses become aware that Ohio no longer will force them to spend more money complying with all the income-tax regimes than some of them owe in taxes.

Opposition to the bill has been led by the Ohio Municipal League. The measure is backed by a group called the Municipal Tax Reform Coalition, with support from the Ohio Chamber of Commerce.

The two sides spent hours over the summer in interested-party meetings, wrangling over compromises to address the municipalities’ concerns. But the bill passed by the House in November already included a number of concessions by the bill’s sponsors, including in two key areas of contention.

The bill originally would have allowed businesses to spread out losses over 20 years, thus lowering their taxable revenue in good years as well as in years when they suffered losses. This is the current federal-tax standard. In the House, the bill was amended to require that cities allow a so-called “net operating loss carryforward period” of only five years.

The original bill also would have allowed employees to work up to 30 days in a given year in any municipality before the employer would be required to withhold income tax. The House-passed version shortens that threshold to 20 days.

The minutiae of tax policy and accounting methods is complex, but the issue is clear: Ohio has an unreasonably complicated income-tax structure, the worst in the nation.

Changing it will cost some cities and villages some revenue in the short term. But simplifying it will enhance Ohio’s ability to attract and keep businesses, which will leave municipalities — and their job-seeking residents — better off in the long run.