HB5 Sponsor Holds Out Possibility of State Funds to Address Shortfalls

The Hannah Report (November 14, 2014)

Reps. Cheryl Grossman (R-Grove City) and Mike Henne (R-Clayton) took their case for passage of their municipal tax reform bill, HB5, to the Senate Ways and Means Committee Thursday, where they outlined the history of the issue and provided an overview of the bill which attempts to simplify the state's "complicated municipal tax system" and reduce the compliance burden on businesses while helping to make Ohio more competitive, thus strengthening the state's economy.

As supporters press to get the bill passed by year's end, Henne offered a possibility that, if a study committee finds cities will experience revenue shortfalls resulting from the imposition of a five-year, Net-Operating-Loss (NOL) carry-forward -- one of the more contentious sections of the bill -- "the General Assembly could address the revenue shortfalls, if necessary, in the budget bill."

As Henne explained, this would follow the May 1, 2015 publishing of the results of the Net Operating Loss Review Committee created in the bill. Henne added, that "the committee would be charged to review and analyze city tax data from 2011, 2012, and 2013 in order to estimate the real impact the NOL carry-forward provision may have on cities in 2017 and in the future." He pointed out that the deadline for a report is "during the next biennial budget process."

In answer to a question from former Senate Ways and Means Chairman Sen. Tim Schaffer (R-Lancaster) that he has been told by his mayor that as soon as the NOL provision becomes law, Lancaster will lose $1 million, Henne pointed out that the effective date of the NOL has been delayed one year and won't go into effect until 2017 -- after the study committee has issued its report, "leaving plenty of time" to adjust the law as needed. 

Former Tax Commissioner Tom Zaino pointed out later in the hearing that that would even be delayed further because the taxes are not submitted until 2018.

Grossman, who opened the day's testimony, stressed her previous role as mayor of Grove City, saying she understands "that a predictable revenue stream is important to municipalities as we strive to create a uniform municipal income tax code." 

She also pointed out that the 33-members of the Ohio Municipal Tax Reform Coalition represent over 353,000 employers in the state "and thousands of individual taxpayers." 

She told the committee the group has been working on the proposals for nearly four years, calling the process inclusive and one that has seen any number of compromises.   

Turning to the theme of economic development, Grossman said, "The lack of uniformity has been a deterrent to businesses seeking to invest in Ohio." She also noted companies that have left the state "specifically because of our municipal income tax system."

Grossman also stressed that the bill has been designed to ensure no tax revenue increases, meaning, "there will be a revenue loss to some municipalities. However, there is also opportunity for revenue gain based on the number of companies and taxpayers who currently are non-compliant with paying municipal income tax" -- a point she returned to several times during her testimony. She said the bill preserves municipal home rule by continuing current law that allows cities to increase "their rates up to a rate of 1 percent and decrease their credit without a vote of the people." She closed by stressing the bill does not call for a centralized collection system.

Following the sponsors' testimony, the committee heard a reprise of the panel of that had testified earlier in the year before the Senate Finance Committee: Zaino, speaking for the coalition; Daniel Navin, assistant vice president of tax and economic policy for the Ohio Chamber of Commerce; Chris Ferruso of the NFIB/Ohio; and Andrea Ashley, representing both the Associated General Contractors of Ohio and the Ohio Contractors Association.

While all supporters of HB5, all had additional suggestions for ways the bill could be further improved.

Democrats pressed witnesses with Sen. Charleta Tavares (D-Columbus) asking how supporters can be so sure of the impact on businesses but question the cities' estimates of revenue losses. "The study should be about both cities and businesses." Tavares also asked how they can make the claim the system is uniform and simplified when there are so many exceptions.

During the afternoon session of the committee, Sen. Capri Cafaro (D-Hubbard) asked businesswoman Lisa Crosley of Dayton, who provided indepth testimony about the challenges her company faces in preparing upwards of 59 municipal tax returns yearly as well as the challenge for her employees to pay their taxes, whether provisions such as the NOL and the "throwback" are necessary to accomplish the simplifying and reduction in compliance burden. Crosley said that while she hopes she never has to use the NOL, it does affect the simplification aspect in that cities have very different parameters, if the offer an NOL at all.

Cafaro had also wondered earlier whether the predictions on revenue gains for the cities were "equally as speculative" as for the results of the NOL.

Also testifying in the afternoon was Albert Macre, a CPA and assistant professor of accounting at the Franciscan University in Steubenville. He suggested all municipalities be required to allow for NOLs.

Opponents have their chance next Tuesday, Nov. 18 when the bill will be heard again. Ways and Means Chairman Sen. Bob Peterson (R-Sabrina) added that all testimony will then be heard on Wednesday, Nov. 19, which is also the deadline for any amendments. Committee members will have the Thanksgiving break to mull those proposed changes with the committee returning the first week of December.