Muni tax reform in Supreme Court’s hands

OSCPA staff report

The fate of municipal income tax reform now lies with the Ohio Supreme Court after justices heard oral arguments about two related cases on May 13.

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As at the appeals level, cities argued that reforms enacted by the Legislature violate the “Home Rule” provision of Ohio’s constitution, and that taking over the collection and administration of municipal net profits taxes  would result in less revenue for many cities.

But Ohio Solicitor General Benjamin Flowers, representing the Ohio Department of Taxation, refuted the argument based in part upon findings submitted by The Ohio Society of CPAs.

“The system is not designed to harm municipalities,” Flowers said. “It’s designed to make Ohio a more business friendly climate so that companies can do business here without being weighted down by these inefficiencies – inefficiencies that cause them to spend hundreds of dollars to file taxes that may have a zero-dollar return or a 50-cent return.

“That’s what the evidence showed when the general assembly looked into this,” Flowers said. “I refer, your honors, to the amicus brief filed by The Ohio Society of CPAs and other groups that explain the problems that came with the preexisting system.”

The Ohio Department of Taxation previously estimated that centralized administration of the net profits tax could save all taxpayers as much as $800 million per year in compliance costs, but the provision itself only nets cities $750 million in revenue annually.

Cities were appealing an earlier appeals court ruling upholding OSCPA-supported reforms in 2014’s House Bill 5, and in 2017 law changes eliminating the sales throwback rule and a centralized filing and payment option for the municipal net profits tax. The position of the State of Ohio – supported by OSCPA – is that the Legislature is within its rights to allow taxpayers to opt-in to file municipal net profits taxes with the state department of taxation.

Two main issues in dispute are whether the term “levy” also applies to the administration (collection) of the tax, and whether the ODT’s 0.5% administrative fee is really a “cost offset” rather than a tax.

Because of social distancing guidelines, Wednesday’s session was held via videoconference. A recording is available on The Ohio Channel. OSCPA Tax Policy Director Greg Saul, Esq., CAE, said a decision is likely to be rendered in autumn 2020. He added he’s confident the laws are constitutional and the state will prevail.

For more information on this important issue, contact the OSCPA government relations team.

5 comments

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  1. David Corbets, CPA | May 18, 2020
    Mr. Jesko is 100% correct. The system is seriously flawed. Ever since the reform passed all we have heard from cities and other tax authorities is continuous whining. I seriously question the legality of the methodology behind assessing interest and penalties. When you receive W-2 forms with city withholdings in 50 or more communities something is wrong.That , fortunately was curtailed somewhat with the passage of HB 5.
  2. J Ditmars CPA | May 17, 2020
    i wish they would eliminate the current city tax structure in Ohio in favor if a statewide or universal city tax it could make doing business in Ohio much simpler.
  3. Howard A. Jesko | May 17, 2020
       I have been a CPA for 50 years and spend more time preparing Ohio city tax returns, especially RITA, than often the federal and state combined.  A number of cities that still have their own tax department have much simpler returns than RITA.  another complaint is the many RITA notices that need to be answered, often for bogus interest and penalties.  Most other states have not city tax returns to file, or are fairly simple.    
  4. H Morgan | May 15, 2020

    Having  prepared Ohio city income tax returns for more than 45 years i find them to be the most complex and inefficient use of taxpayer and professional service time. In many cases it takes me more time to prepare them than the federal or Ohio tax returns. Their rules are often byzantine and totally different than other cities. A measure of consistency and uniformity is required.

     


  5. V. Puthoff | May 14, 2020
    Thank you OSCPA, hope the Supreme Court uses the "common sense" approach in that the present model costs taxpayers additional dollars in tax preparation fees which in most cases would yield NO additional revenue to the municipalities.

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