Ohio residents are accustomed to the complexities of complying with municipal income taxes (or at least their tax preparers are). A resident of Ohio may be subject to more than one municipal-level taxing authority depending on where they live, where they work and other factors. Ohio Representative Cheryl Grossman (R–Grove City) authored a recent article in the Plain Dealer in which she pointed out that the state of municipal income taxes in Ohio is grossly out of line with other states and is hurting Ohio businesses.
According to Grossman:
Ohio has the most complicated and illogical local income tax system in the United States of America. Only ten states in the country have a municipal tax at all. Ohio is the only state in the nation where municipalities set their own rules and regulations, with almost 600 different municipalities utilizing about 300 different forms to collect local income tax on an annual basis. The next closest state with the highest number of forms is Pennsylvania, with a total of three forms for the entire state. This is a huge burden on both Ohio employers and employees, as some individuals who work/travel in several cities may fill out as many as 25 - 40 or more W-2 forms each year. A small business should not have to pay $150 to prepare and file a tax bill that is less than $5, or in some cases $0.00. This is inefficient, not business friendly, and comes with a high cost of compliance. It is time for a change.
To this effect, Representative Grossman has co-sponsored H.B. 5. According to the most recently issued analysis on the bill, H.B. 5 would, among other things:
- Require municipal corporations levying an income tax as of January 1, 2015, and that intend to continue levying the tax thereafter, to amend or repeal and re-enact their existing income tax ordinances in a form to comply with the bill's limitations;
- Create the Municipal Tax Policy Board, composed of seven governor-appointed municipal tax administrators, to create rules, prescribe forms and other documents, provide instructional materials to taxpayers, and take other actions concerning the state-wide administration and enforcement of municipal income taxes;
- Establish a uniform tax base applicable to all municipal corporations levying an income tax by further defining the types of income that municipal corporations must tax and the types they may not tax; and
- Prohibit municipal corporations from taxing pass-through entities (such as partnerships, S-corporations, and limited liability companies) at the entity level.
These are only a small handful of the numerous changes that would be effected by the 141-page bill if it were adopted as introduced. Most changes impose uniformity in the application of municipal tax laws to a taxpayer and also limit what and how a municipality may tax. Needless to say, if enacted, this bill would cause significant changes to the current municipal tax structure and effectively overhaul the taxes imposed by municipal authorities.
Click here to read Representative Cheryl Grossman’s guest article published in the Plain Dealer.
Click here to read the text of H.B. 5 as it was introduced.