Bill to reform Ohio’s municipal-tax code will help in many ways
The Columbus Dispatch (December 13, 2014)
A long-needed simplification of Ohio’s overly burdensome municipal-tax code is one of the best, most-revolutionary things to come out of the lame-duck session of the legislature.
It’s very welcome news for businesses, especially for small businesses that have been faced with filing multiple tax forms, often for negligible amounts, tied to each municipality that they do business in.
House Bill 5 is not just a convenience; it’s an important economic-development tool. Ohio currently has what’s been called the most-complex tax system of any state, with nearly 600 municipalities having the ability to levy taxes on businesses that do even a small amount of work within their jurisdiction. In other states that allow for local income taxes, typically only the largest cities will impose them. This creates a disincentive to locate and expand a business in Ohio that will have operations around the state.
The legislation was introduced by and worked on for four years by Reps. Cheryl Grossman, R-Grove City, and Michael Henne, R-Clayton.
It had the strong backing of a number of business groups, including the Ohio Society of CPAs, the National Federation of Independent Business/Ohio and the Columbus Chamber. It also had the support of Ohio Treasurer Josh Mandel, who last year called the existing tax system “an unnecessary maze of inconsistency, uncertainty and inefficiency.”
Lawmakers heard from business owners who described the current system as onerous. One business in Minster, a village in Auglaize County, had to pay an accountant $55 for each of 41 different income-tax returns it was obligated to file; one of those returns required the payment of a whopping 13 cents. Many other businesses have been forced to spend more on tax preparation than they owe in taxes.
This bill addresses these issues, along with related items that bring Ohio’s accounting and tax rules in line with standards in much of the rest of the country. For example, it increases from 12 days to 20 days the amount of time a worker can work in a city before having to pay taxes there.
It also phases in a requirement that cities allow businesses to deduct net operating losses over a five-year period, reducing future tax burden; more than 230 Ohio cities currently do not allow this or allow it for less than five years. The state and the federal governments, meanwhile, allow losses to be carried forward for 20 years.
The main opposition to these reforms came from smaller municipalities who fear a loss of revenue. But it’s a well-known truism that if government taxes and regulates an activity, there will be less of that activity.
The idea that there is a static amount of money that government “loses” when business-friendly policies are adopted misses the point that businesses expand or contract in response to all factors, including government intervention.
These common-sense reforms should be good news not just for business owners, but for all in the long run. When businesses are encouraged to expand, the result is more jobs and more tax revenue overall.