Lawsuit challenging business-tax collection thrown out

A lawsuit challenging the state’s new method of collecting business taxes has been dismissed.

Judge David Cain of Franklin County Common Pleas Court on Wednesday threw out the case that was filed by a coalition of more than 160 cities across the state.

The cities argued that a provision in the state’s two-year budget that gives business owners the option of filing net-profit income-tax returns with the Ohio Department of Taxation, instead of each municipality where they do business, is unconstitutional.

State officials say the move will save businesses time and money by streamlining the process of collecting more than $600 million in municipal income taxes paid by Ohio businesses each year.

But city officials say giving up the processing of tax returns will result in a loss of accountability and personalized customer service for businesses.

Under the new system, the state processes business-tax returns and then will distribute the money back to local governments, after charging a half-percentage-point fee for the service. The change went into effect Jan. 1.

The state constitution “makes it clear that the General Assembly has the power to pass laws to limit the power of municipalities to levy taxes,” Cain said.

The business community has pushed for the change for years.

“We are pleased that the court found this law to be constitutional. It’s an important ruling for business taxpayers in Ohio who for too long have had to deal with this costly, complex process for local tax on business income. This law gives business taxpayers the opportunity to save millions of dollars in the cost of complying with the fragmented municipal tax system,” said Joe Testa, Ohio’s tax commissioner, in a statement.

“Today’s ruling is a victory for the entire state economy because it will allow job-producing employers to operate more efficiently in a competitive national and international environment,” said Scott Wiley, president and CEO of the Ohio Society of CPAs, in a statement. The group has pushed for reform for years.

The attorney representing the cities, Gene Hollins, said he was not authorized to comment and others involved in the case could not be reached for comment.