Ohio House Bill 5 aims to simplify state's municipal tax systems

By MARC KOVAC @ohiocapitalblog C-N Capital Bureau Published:

COLUMBUS -- Republicans in the Ohio House have revamped long-debated legislation aimed at simplifying the state's municipal income tax systems, with renewed calls for uniform due dates, employer withholding requirements and audit procedures.

Reps. Cheryl Grossman, from suburban Columbus, and Mike Henne, from suburban Dayton, said the new version of House Bill 5 does not call for the centralized collection of municipal income taxes. Rather, it's an attempt to make it easier for businesses to file required forms and pay their municipal tax bills.

"Ohio has the unpleasant distinction of having the most complicated and unfriendly tax system in the entire nation," Grossman said. "No other state comes close to having more than 600 cities utilizing more than 300 different forms, deadlines and definitions for municipal income tax collection. Ohio is the only state in the nation where municipalities set their own rules and regulations."

Among other provisions, the legislation would synchronize filing extensions, penalties, due dates and code definitions for Ohio's various municipalities, replacing an existing system in which rules and requirements are different from city to city.

"The present system is a deterrent to businesses seeking to invest in Ohio," Grossman said of the need for the legislation. "For many small businesses, compliance costs exceed the amount of money owed."

Rep. Peter Beck, R-Mason, who serves as chairman of the House's Ways and Means Committee, said the substitute bill represents a compromise with business and municipal interests.

The latter, including the Ohio Municipal League, have voiced concern that the proposed law changes would lead to less control and reduced tax collections needed by local governments.

For example, the legislation calls for municipalities to allow five-year net operating loss carry forward periods, enabling businesses to reduce their future tax liabilities. The substitute bill delays the implementation of the provision and includes the creation of a study committee to review the issue and offer recommendations for changes.

Paul Vance, a city councilman in Orrville in Wayne County, said in an email message Wednesday the language remains problematic for communities like his.

"The purpose of any income tax structure should be to simply capture the economic activity of a given period," he wrote. "The NOL carryover stretches that period out ... so a loss can be applied even when there is a profit. It presents a different profile for income tax liability than what actually occurred."

He added, "For those of us who feel the best way to replace lost tax revenue is through economic development, this bill counteracts our efforts. Our community has experienced $200 million in new development in recent years. The benefits of income tax revenue from construction workers will be significantly reduced with this bill. If we work to have a positive economic climate and our companies recover from recessions, we don't benefit along with the company as their losses apply well into their periods of profitability."

The Ohio Chamber of Commerce, Ohio Society of Certified Public Accountants and the National Federation of Independent Business Ohio have all endorsed the substitute legislation.

Beck said he plans to hold two or three hearings per week through the next few weeks to accept testimony on the substitute bill.

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