Court puts brakes on state’s plan to centralize business income tax collections

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By Rick Palsgrove
Southeast Editor

Ohio’s municipalities have temporarily halted the state’s efforts to place business income tax collection under the state’s centralized control rather than keeping it under local municipal control.

Municipal officials from around the state believe that control of business income tax collections are an important function of local governments.

According to Groveport City Administrator Marsha Hall, the Franklin County Court of Common Pleas issued a preliminary injunction regarding the centralized collection of business income tax portion of Ohio House Bill 49.

The injunction stays the original provision in the law requiring all municipalities to adopt legislation regarding the centralized collection of business income taxes by Jan. 31, 2018. A permanent injunction hearing is set for Feb. 12-13, 2018.

On Feb. 26, 2017, Groveport City Council approved a resolution opposing the state’s proposal.

“While Groveport was not one of the 137 municipalities (who brought forth the suit resulting in the injunction), we support the case and are willing to join if and when they need us to join,” said Hall. “The suit asserts violation of the Ohio Constitution’s Home Rule Amendment and seeks to halt the state from implementing centralized net profits filings through the Ohio Business Gateway.”

Groveport city officials see the state’s plan as a challenge to the concept of municipal local control.

“We know our businesses best,” said Hall. “There continues to be rumblings that this would be just the first phase of centralized collection until all collection municipal income taxes would be collected by the state. Income tax is by far the largest component of Groveport’s revenue. This revenue is what we use to provide such excellent services to our residents. It’s not something that we should willingly give up control. The only way to fight this lack of municipal control is to legally challenge the new law. For that reason alone, the injunction is good for Groveport.”

When asked what the financial impact of the state’s plan would be on Groveport, Hall said, “The impact would not be known until we saw a comparison of previous filings directly to the city versus future filing through the state’s system, taking into account how the state would handle questionable filings.”

Hall said the state’s plan would have no impact on the amount local businesses or businesses planning to come to Groveport would pay in income taxes.

Groveport’s Feb. 26 resolution cited these reasons for the its opposition to the state’s plan:

•the city perceives the proposal as “a clear attack” on the home rule powers granted to municipalities by the Ohio Constitution;

•the proposal would adversely affect municipalities with tax revenue from warehouses, distribution centers, and businesses providing online sales;

•municipalities have been hit with revenue losses due to reductions in the Local Government Fund, elimination of the estate tax, and the phase out of state reimbursement for revenue losses due to the repeal of the tangible personal property tax;

•municipalities can better ensure prompt and proper auditing of local tax returns; and

•that the municipal income tax is the largest revenue source for the city and helps provide for essential city services.

“Our biggest issues are whether the state will be able to track our businesses like we can, and if the state will be able to correctly divide payments between municipalities for those businesses who currently file in multiple locations, but under the new system would just file with one form to the state,” Hall said in an interview last year.

Under the state’s plan, it would set up a centralized system to collect business income taxes and then distribute tax receipts to the intended municipalities.

According to a information from the governor’s office, the business benefits of such a system are: uniformity and simplicity with one return, one place to file, one set of rules, and one audit rather than various sets of rules and filing requirements from various municipalities; and reduced cost of compliance, bookkeeping, paperwork and red tape.

The municipal benefits, according to the state would be: reduced administrative costs as the Ohio Department of

Taxation would retain only 1 percent of the collections as opposed to the 2.5 to 3 percent often charged to cities by third party administrators; increased compliance and collections through enhanced screening; and municipalities would retain control of tax rates and credits.

Groveport uses the city of Columbus for its business income tax collection.

“We have an excellent relationship with the city of Columbus taxation department and are able to discuss any tax related issues by just picking up the phone,” said Hall. “In our case we would save less than 0.25 percent for the administration cost (under the state plan).We pay the city of Columbus a little under 1.25 percent for administration and the state says they can do it for 1 percent. I believe our current system is excellent in tracking the revenue we are to be getting. I don’t have faith that the state can do as good of a job, much less a better job.”

In regards to the state screening and cross checking of tax returns, Hall said Groveport contracts with professional tax accountant and consultant firm Curtin and Associates LLC to perform this function.

“We do not believe that a state agency would provide as complete screening and cross checking as we currently have with Curtin,” said Hall.

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