By Rick Palsgrove
Some municipalities around the state, have questioned the state’s centralized collection of business income taxes, but state officials say the system is working as it should and municipalities are receiving all the money they are due.
Earlier this year the state took over the centralized collection of business income taxes through its Ohio Business Gateway. Under the state’s control, the centralized system collects business income taxes and then distributes tax receipts to the intended municipalities. Municipalities, seeking to maintain local control, fought the state’s plan in court, but the state prevailed.
State of Ohio viewpoint
According to the Ohio Department of Taxation, the Ohio Tax Commissioner is the administrator of this tax. Businesses that decide to “opt-in” to the streamlined municipal net profit tax system file one return, rather than with each municipality in which the taxpayer does business. The tax return can be filed electronically through the Ohio Business Gateway, either through key-entry or file upload.
“Businesses can choose to opt in to the program,” said Matthew Chafin, chief counsel for the Ohio Department of Taxation.
Chafin said there is no delay in the payments and all funds have been distributed on time. He said the statute requires a lag period where, for example, payments made in April are distributed on June 5.
“All the money goes back to the municipalities, including interest,” said Chafin.
According to the Ohio Department of Taxation, each municipality retains control over the tax rates and the award of tax credits and provides the taxpayer a certificate for each tax year stating the dollar amount of the credit the business is entitled to claim.
Tax collections are distributed monthly to the appropriate municipality by the Ohio Department of Taxation, with interest, minus a .5 percent administrative fee. Ohio Department of Taxation officials state this administrative fee is less costly for municipalities than a third-party administrator fee.
As of Aug. 5, the Ohio Department of Taxation has distributed more than $11 million to municipalities this year.
Chafin said the Ohio Tax Commissioner has traveled the state talking with business owners ranging from retail to manufacturing to service industries and that one of their top two requests is easier administration of municipal net profits.
“Say a company operates in 12 counties,” said Chafin. “The company has to identify all the municipalities in that area and could have 60 different tax filings. The cost of compliance for all these separate filings can cost more than the amount of tax owed.”
Chafin said about 3,000 businesses statewide have opted in to the state centralized income tax collection system.
“It’s extremely helpful to businesses,” said Chafin.
He said the system is similar to how school income taxes and sales taxes are administered.
Canal Winchester viewpoint
City of Canal Winchester Finance Director Amanda Jackson said the city of Columbus Income Tax Division currently administers and collects Canal Winchester’s taxes and remits them to the city on a monthly basis.
“This will change beginning Jan. 1, 2019 when the Regional Income Tax Agency will take over the administration and collection services on our behalf,” said Jackson.
She said currently there are 727 business accounts in Canal Winchester, according to the most recent report from the city of Columbus, but Canal Winchester does not have a number on how many of those businesses have opted to file with the state rather than locally.
“Tax revenues to date have not been hugely impacted by the centralization, although I do not think we have seen the true effect yet,” said Jackson. “We are taking this into consideration when budgeting for the future but, again, because the impact is still to be determined, we are continuing to be conservative in our estimates, just as we always have.”
Jackson said that, overall, Canal Winchester is and was not in favor of the centralization of income tax collections.
“We lose control over administering our income tax ordinance the way it was intended and it ultimately costs the city money by having to pay the state to administer it,” said Jackson. “The loss of local control over local tax revenue is concerning to us and will be something we continue to monitor and push back against.”