Ohio House passes municipal income tax reform

A bill that would drastically change how cities and towns levy municipal income taxes passed the Ohio House on Wednesday, despite objections from local officials who say the bill will result in millions of lost revenue.

House Bill 5 aims to streamline municipal income tax structure, which allows municipalities to collect tax from Ohioans who work more than 12 days within their borders regardless of where they live. Small business owners have complained about the system and the burden of tracking and withholding taxes for more than 600 Ohio municipalities with an income tax.

The bill passed the House largely along party lines, 56-41, and now goes to the Senate. Republican Reps. Richard Adams of Troy, Jim Butler of Oakwood, Ross McGregor of Springfield and Lou Blessing, III, of Colerain Twp., voted no with the Democrats.

The bill’s joint sponsor Rep. Michael Henne, R-Clayton, said Wednesday the bill solves the problem experienced by the plumber who files a state and federal tax extension yet receives 35 late notices from cities seeking income taxes and 35 late fees that probably exceed the total tax bill.

“All businesses want is a tax that’s simple to comply with and predictable,” Henne said.

Local officials and others across Ohio oppose two major changes in the bill — allowing businesses to apply losses to future tax bills for five years and increasing the threshold for tax collection from 12 to 20 days. City officials said they will lose revenue that pays for police, fire and other public services: an estimated $2 million in Dayton, $750,000 in Springfield and $477,000 in Xenia, for example.

The bill creates a study committee to review the legislation’s impact on municipality revenue and recommend future changes, which Henne said acts as a safeguard for municipalities’ concerns.

Rep. Fred Strahorn, D-Dayton, questioned Republicans’ claims the business-friendly tax changes would boost the economy, saying demand, not taxes, drives business growth. Strahorn said infrastructure, supported by tax dollars, is more attractive to new companies than lower taxes.

“America’s governments have always been a partner with America’s businesses,” Strahorn said. “And if, we continue to erode the ability of government to do its part of that relationship, we’re not helping business by doing that.”

Democrats failed to amend the bill to allow municipalities to set the time during which losses can be carried forward and eliminate a provision that could cause taxpayers with pass-through entities such as Limited Liability Companies to pay no taxes.

About the Author