Cities seek to block needed reforms

Written on Dec 14, 2017

OSCPA staff report

A group of cities on Dec. 12 filed a second lawsuit in Lorain County requesting three causes of action to obstruct the improved system of centralized collection of municipal net profit taxes administered by the Ohio Department of Taxation.

This is in addition to a suit filed Nov. 16 in Franklin County which is broader, seeking 11 claims for relief to challenge the constitutionality of key municipal income tax reforms, not only in House Bill 49 passed in the summer, but also House Bill 5 passed in 2014.

And the cities’ efforts apparently are not limited to courtrooms: OSCPA member and former Ohio Tax Commissioner Tom Zaino said some municipalities are threatening to withhold economic development incentives to businesses that use the statewide filing system.

“It has come to my attention that several municipalities have begun forbidding taxpayers from using the statewide filing system as a condition of being offered economic development incentives,” said Zaino, who spoke on the topic this week at OSCPA’s Mega Tax Conference. “Further, at least one city is inappropriately attempting to renege on a pre-existing economic development contract if the taxpayer opts into the statewide filing system.”

Despite claims by some cities that they will suffer significant losses in income from the law change, Barb Benton, CAE, OSCPA’s vice president of government relations, pointed out that on average, the net profits tax makes up just 14% of a city’s total income tax revenue, and by the Ohio Municipal League’s own numbers, only 13% of net profits taxpayers file in more than three jurisdictions.

“So, we’re looking at likely over 85% of local businesses continuing to file net profits directly with cities,” Benton said. “The option of centralized filing is targeted at helping those companies who now face significant administrative costs – hiring in-house staff or outside professionals to prepare the tax paperwork and the sheer amount of time it takes away from the business to deal with this filing headache – to make doing business in our state less of an administrative burden.”

Of note, more than 250 Ohio cities already centrally file through a single large third party: the Regional Income Tax Agency (RITA), which is now effectively spending tax dollars to buy advertising criticizing the reforms. A number of other cities also centrally file through the Central Collection Agency (CCA). The administration fee for both agencies is higher than the 0.5% (one-half of one percent) the State of Ohio will charge.

“Cities need to realize that the business community in Ohio – a key segment of our state’s economy that provides jobs and therefore significant revenue to them - strongly advocated for the municipal income tax reforms that are now in place. We’re very pleased that state legislators and the Kasich Administration listened to what this major group of taxpayers had to say about the administrative morass they must deal with,” Benton said. “Further, we believe the Ohio courts will agree the enacted laws are constitutional. The Ohio Constitution clearly states that the General Assembly may limit the power of municipalities to levy taxes, and to restrict their power of taxation.” t.”

Related: Taxpayers to take a hit from city lawsuit


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  1. Another council member/CPA | Dec 15, 2017
    Michael...other countries are surviving that aren't governed by democratic republics, but that doesn't make there form of governance the best option available.  World history has proven that our form of government is the best that has ever existed, notwithstanding our failures.  Murder, rape and plunder work for some, but that doesn't make it right.
  2. Another council member/CPA | Dec 15, 2017
    Successful self governance requires a virtuous society and virtuous leadership.  It sounds like that might be / have been lacking in the municipality Michael helped to incorporate.  Michael didn't fail, the elected leadership failed to properly represent the people that elected them.  We have all hired bad employees and elected bad representatives.  Recognize the achievements as well as the failures for what they are and continue to strive for more achievements.
  3. Michael CPA | Dec 15, 2017
    We are not talking about the federal system. We are talking about Ohio. Michigan, Illinois, Indiana, Iowa, Kentucky are all surviving without 600 taxing municipalities. City taxation is only possible because the State permits it. The State has all rights to allow cities to tax and has the right to set the rules. The cities are outside their power base. I was involved in working to get a township incorporated. The main supporters promised no income tax, which was the number one issue with the citizens. The incorporation was approved and it was not long that the city mandated an income tax under powers provided to it by the State. The tax started out low but has increased 225% since. What do I now say to those citizens who listened to my support of the incorporation? I am ashamed that I promoted the incorporation under a false pretence. All the township got out of the incorporation was some traffic lights and a city council that fights within itself.
  4. Finance Director, Tax Administrator, CPA | Dec 15, 2017

    I agree and support the comments left by the council members, finance directors and concerned & who cares CPA.

    To Michael CPA - yes, we all have stories like yours that show things in a bad light from the other side (meaning bad CPAs and taxpayers).  However, your story points out the lack of awareness from the business owner that whatever type of benefit you give your employees, there is a cost that needs to be taken into consideration before offering the benefit to your employees.  It doesn't matter if it is a voluntary deduction or not, responsibility comes with the offering.  How would filing with only one entity have made your issue better?  It wouldn't have - the penalties would still have been there because of the type of errors the company was making.



  5. Another council member/CPA | Dec 15, 2017
    As to Michael CPA... point well taken.  The same is true regarding the administration of filing in multiple states, but yet we aren't claiming it would promote economic development in the United States if we moved to centralized filing and collection in Washington, DC.  The federalism on which our U.S. constitution was based was intended to prevent the accumulation of power at the federal level and to limit the federal government's ability to intervene with state governance, which would detract from the states' sovereign powers and authority to govern themselves.  In other words, it is unconstitutional.  Its all the same principle.
  6. Michael CPA | Dec 15, 2017

    My client owns a business in an unincorporated city. He hired a general manager who had just moved into an adjoining city, and who was penalized later for failing to pay estimated taxes. The general manager, who did not want to file estimated vouchers,  pressed the owner to withhold city tax. I advised the owner not to voluntary withhold because of the adninistrative costs. However other employees became aware of the general manager's request and so the owner gave in. Soon the owner was withholding for five cities, and paying the compliance costs. He hired a new employee and this added a sixth city. That employee worked just a few weeks and then quit. The general manager, who filed and paid the withholdings,  filed the sixth city's withholding reports,and discontinued any more withholding filings. The owner received a $50 penalty. He wanted me to handle the request for abatement, which I did. At year end he wanted to know why my fee for the annual payroll rax filings (W2s etc.) Went up. I cited the work needed to file separate W2s and reconciliation forms for the 6 cities. After that, he discontinued voluntary filings. Now the compliance costs fall on each of those employees and not the owner.  I have several more stories about dealing with cities.

  7. CPA who cares | Dec 15, 2017

    The only reason for this issue is to make tax return preparation easier for the CPA's and other tax preparation. 

    It will not benefit any municipality.  


  8. Another council member/CPA | Dec 15, 2017
    Central collection is simply the growing of the administrative state under the guise of trying to promote economic development.  It continues to be a sad state of affairs when the OSCPA pushes an agenda without recognizing the impact it has on the municipalities.  If there is such genius in the legislation, then why isn't somebody in Columbus suggesting that Washington, DC start a centralized collection agency to administer the filing and collection of state income taxes for businesses doing business in more than 1 state.  The administrative state is based on the notion that it can govern the people better than they can govern themselves.  God help us when the OSCPA fights for the administrative state claiming to be trying to help us.  Columbus's self-interest has been put ahead of the common good. 
  9. Michael Thomas | Dec 15, 2017

    As with many pieces of unique and far-reaching legislation, the need for technical corrections often arises.  In my legal and fiduciary roles in the City administration, I need to proceed toward resolution.   

    The Municipal Tax Reform Coalition and OSCPA are in a leadership position to collaborate with the affected municipalities and the General Assembly, its leadership, and relevant committees to work on the compromises needed to achieve the necessary technical corrections.


    Michael A. Thomas, CPA Director of Finance and Tax Administrator

    City of Rocky River

    21012 Hilliard Boulevard

    Rocky River, Ohio 44116

    Member Since 2005

  10. concerned cpa | Dec 15, 2017
    I to, do not believe a centralized filing system is necessary or the most efficient use of taxpayer dollars.  As stated in the article cities are still going to have to have an income tax department or use a third party for the thousands of returns not filed with the State of Ohio.  The amount of time savings is insignificant on the vast majority of businesses, which begs the question:  What's the real reason behind the tax grab?
  11. council member/cpa | Dec 15, 2017

    Obviously, the OSCPA does not want to air the opinions from the municipalities and/or CPA's who are elected officials in the communities opposing centralized collection by the State of Ohio. 

    Since the OSCPA memory is so short, where has a lot of the tax revenue that used to go to the municipalities gone?  Eliminated (franchise, personal property, and estate) or reduced (share of local government funds).  The municipalities are leery of the State's ability to "grab" tax revenues from the municipalities in whatever fashion is available.

    The question at hand is how does the OSCPA leadership expect to have critical services (police, fire, road maintenance, etc.) funded by the municipalities if earnings tax revenues are taken from us or reduced?  The OSCPA is located in Dublin, Ohio, which is one of the communities suing the State of Ohio.    

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