By Rick Palsgrove
Groveport city officials, as well as some other 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. “As of today, we have 113 businesses that have checked the box for Groveport (as being a municipality that they do business in).”
Chafin said there is no delay in the payments made to Groveport 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. He said in April the state handled estimated income taxes for 16 Groveport businesses and for 15 in June.
“For Groveport, we have distributed over $102,000 of their tax dollars to them this year,” said Chafin. “All the money goes back to the municipalities, including interest.”
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.
According to the city of Groveport’s August 2018 Income Tax Revenue Report, the city’s income tax revenues of $11.5 million collected were down 5 percent compared to the same time in 2017. City officials have noted the two month lag time for disbursements.
“We believe the state’s centralized collection is partly to blame, but we don’t yet know the extent,” said Groveport Finance Director Jeff Green recently of the city of Groveport’s decrease in income tax revenues for this year.
Green said this belief is based on:
•The city’s perhaps coincidental decrease in tax revenue at the same time the centralized collection system was going into place.
•Conversations with surrounding municipalities, including the city of Columbus, who currently collects Groveport’s income tax, about their similar decreases in tax revenue.
•Information from the Regional Income Tax Authority (RITA) and Cleveland’s Central Collection Agency (who he said also approached the city about taking over income tax collection for the Groveport) and expert testimony from representatives of CCA to the state legislature.
•Information from the Ohio Municipal League from communities statewide who question whether or not there was a lag in the disbursement of taxes collected through the gateway.
“We don’t dispute the state’s figures relating to the amount disbursed to the city so far for 2018,” said Green. “According to our records, through August we have received $86,972 with another $20,000 (=/-) estimated for September. Some of this is income tax from utilities that the state has always collected on our behalf. At the same time, our September income tax collections report from the city of Columbus indicates we are now only 2.01 percent below our collections this time last year and we hope to close that gap through the end of the year with increased seasonal hiring at the warehouses.”
Green said that at no time has the city made a declaration that the state is solely to blame for decreased tax revenue.
“This year has been unusual and, like most Ohio communities, we have been monitoring the situation to determine whether this is a temporary blip or a trend going forward,” said Green. “For the record, we have done the same when income tax collections have significantly exceeded projections.”