EDITORIAL: Some pain, more gain

Standardizing city income taxes would ease compliance burdens

The Columbus Dispatch (April 9, 2014)

Nobody says the job before the Ohio Senate is easy: The House took more than two years to pass a bill to standardize Ohio’s crazy-quilt of city-income-tax regimes, and the Senate wants to take its time, too.

The issue merits thorough consideration, but it shouldn’t be on the back burner. Ohio businesses need relief, and the state needs a saner system to better attract new businesses and jobs. The Senate should make every effort to pass House Bill 5 before the year ends.

Although the House approved the bill in November, the measure has yet to have its first Senate hearing. Two narrow windows of time remain for consideration — a few weeks in May, after the spring recess and before the campaign season, and after the November election, in the lame-duck session.

Sen. Scott Oelslager, R-Canton, chairman of the finance committee, said he doesn’t expect to take up the bill in May. It’s entirely possible that senators would rather avoid the sticky issue before the November election. But advocates for and against the bill agree, with good reason, that the lame-duck session alone — when multiple measures typically are rushed through the General Assembly — hardly is adequate for sorting out this issue.

Both sides also agree on the problem: Ohio has more than 600 taxing jurisdictions, employing more than 300 different forms. It’s easy to imagine the nightmare facing companies, large and small, that do business in multiple communities. Complying with all those different rules is time-consuming and expensive — in some cases, it costs more to get the forms filled out right than the business owes in taxes.

No other state allows such a free-for-all in local income taxes, and it isn’t hard to imagine that it turns some businesses off. So Ohio businesses and municipalities alike would benefit from a simplified system for local income taxes.

The problem, and the reason the legislature hasn’t managed to pass a bill despite years of trying, is that any standardization is going to cut revenue for some cities in the short term.

A chief dispute is over how much time cities should have to give businesses to spread out losses over multiple years. The more years losses can be spread out, the more a business’s profit, and therefore a city’s tax revenue, is reduced.

The federal and state governments allow a 20-year period, but most Ohio cities and villages allow five years or less, and some don’t allow it at all. The current bill calls for a five-year period for all, and for those cities that don’t allow it, the bill provides a six-year phase-in period.

Another point of contention is how many days someone can work in a municipality before becoming subject to its income tax. The issue is important for businesses whose workers move around multiple sites.

There most likely is more room for compromise on these and the other issues that divide the cities and the business groups, but the fact remains that standardization of such a fragmented system can’t happen without changes to most of those systems, and some of those changes will cost some cities money.

But it is a short-term pain that will be offset by long-term gains across the state, when Ohio sheds the business-killing burden of its income-tax maze. This reform shouldn’t wait another year.