COLUMBUS — The Ohio House voted nearly along party lines on Wednesday to overhaul local income tax collection in cities across the state, a move sought by business organizations but fretted by cities that fear it will mean a loss of revenue.
Among numerous provisions, House Bill 5 redefines what constitutes income, caps how much a municipality may impose in penalties on overdue taxes, and broadens from 12 to 20 the number of days a “casual” entrant must be in a city before being liable for income taxation there.
“This bill is for the plumber who filed for an extension on his federal return, which automatically carried an extension on his state [return], yet he received 31 late notices from 35 different cities that cost him $50 a piece,” said one of the bill’s chief sponsors, Rep. Michael Henne (R., Clayton).
“This is for the home-improvement contractor who’s made no money over the last five years, hasn’t had to pay state and federal income tax, but has to pay city income tax four different years,” he said.
Among the more controversial provisions is one that allows businesses to spread a year’s net operating loss over a five-year period to offset future profits and tax liability. That provision would be phased in starting in 2017 while most of the other changes would take effect in 2015.
Roughly one-third of all state municipalities have no net operating-loss provision. About half of cities, including Toledo, specifically have a five-year carry-forward period compared with 20 years for the state and federal government.
While the net operating loss provision would not adversely affect Toledo, the city still opposes the bill.
“While we understand the need for uniformity across municipal tax code boundaries, there are many other implications from the proposed legislation in its current form that will adversely impact Toledo and cause us significant heartburn as we continue to feel the pinch from phasing out the state’s other revenue sharing streams such as local government funds and the estate tax,” spokesman Jen Sorgenfrei said.
Rep. Tom Letson (D., Warren) cited home rule as he challenged the Republican majority’s right to say, “We know what’s best for you. We’re in Columbus.”
“Somehow that doesn’t seem quite right,” he said.
The bill, which now goes to the Senate, would bar municipalities from enacting tax policies that differ from statewide standards.
Businesses and cities generally have agreed that the local tax code, forms, and deadlines should be simplified, particularly for businesses that have employees traveling from city to city and have to file multiple tax forms.
But local governments have objected to some of the changes, particularly the loss-carry-forward provision they say will have the net effect of reducing tax collections for some of them when they have not recovered from the last state budget cuts.
With that provision not set to take effect until more than three years from now, bill supporters said a special committee will have time to study its potential effects on cities in time to recommend adjustments before the law would take effect.
“This bill is not an easy bill,” said Rep. Ron Amstutz (R., Wooster). “It needs to be followed up with some hard work.”
The bill passed 56-39. All northwest Ohio Republicans in the chamber supported the bill while all local Democrats opposed it.
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