A bill introduced in the Statehouse last month to make income tax regulations uniform statewide could cost the city of Springfield about $500,000 a year.
However proponents of HB 601 say the bill is needed for Ohio to compete with other states for jobs and that complying with different tax rules is costly for businesses.
Ohio is one of 10 states that permit local communities to collect income taxes. Under the existing system, tax policies vary widely across cities and villages, from due dates to what income or profits cities tax. The bill wouldn’t change the tax rates, but make how cities define income and other regulations uniform.
Both Springfield and New Carlisle joined a regional group of 40 city managers, called the Southwest Ohio Collaboration/Consensus Project, to create an alternate plan aimed at helping businesses save time and money without hurting the finances of cities and villages.
The bill recently introduced would hurt the finances of cities and villages, including Springfield, Beckdahl said.
“It could significantly impact what we’ve done,” Beckdahl said.
Daniel Navin, the Ohio Chamber of Commerce’s assistant vice president of tax and economic policy, said the bill would help Ohio compete with other states that already have uniform tax regulations, like Indiana and Kentucky.
“This is a competitive issue for businesses and local communities across the state,” Navin said. “We’ve got the problem and we’ve got to address it so we can attract companies to come here because the word is getting out that Ohio has a competitive obstacle in its tax code and we’ve got to address it and we’ve got to address it forth rightly and we’ve got to address it sensibly.”
The city has seen growth in income tax revenue over the past few years. It expects to collect about $29.9 million in 2012, a 5 percent increase from 2011. It’s projecting to collect $30.9 million in 2013, another 3.5 percent growth, but the changes to income tax regulations could cost the city.
Income taxes make up approximately more than 71 percent of the city’s general fund revenue.
Urbana Finance Director Lee Williams estimated the Champaign County city could lose up to $100,00 per year with the changes. Urbana currently generates about $5 million per year in income taxes, which is about 36 percent of its general fund.
New Carlisle Tax Administrator Michael Voelkl said he’s somewhat concerned the bill could affect income tax revenue. The city currently generates about $1 million in income tax revenue a year.
The bill has been supported by several members of the Municipal Income Tax Uniformity Coalition, including the Ohio Society of CPAs and the Ohio Chamber of Commerce.
Navin of the Ohio chamber said the group is sensitive to municipalities that might lose revenue from the changes and has made some compromises, but believes it’s a two-way street.
“There are businesses out there who are probably going to have to pay more municipal income tax in one or more jurisdictions,” Navin said. “For us, municipal tax revenue-neutrality is not addressing every single city that’s going to lose revenue on any particular issue. If that were the case, we’re not going to change the system. We’re more interested in establishing uniformity in the system and at the same time, address general or problematic issues with respect to revenue.”
On Nov. 1, the Greater Springfield Chamber of Commerce sent an e-mail to its members supporting the bill. The e-mail also asked them to sign the Ohio Chamber’s petition of support.
On Nov. 9, the chamber sent another e-mail, this time asking members to reconsider supporting it because the bill would too greatly affect local municipalities, including Springfield. McDorman was unaware of any local businesses that had signed the petition.
“We certainly want to work in concert with our city and moving the community forward,” McDorman said. “We don’t want to hurt them. However, we do as a chamber want to support the uniformity of the municipal tax of the state of Ohio.”
Amy Mignogna, director of tax policy for the Ohio CPAs, said municipal income tax reform has been an issue for more than 20 years.
“It’s been the No. 1 issue we hear from members,” Mignogna said.
She said the cost of compliance is often more than the tax liability for businesses in some cases. The organization also wants wants uniform definitions, rules and regulations to increase efficiency in Ohio.
With the proposed bill, several taxation rules would be different than current rules in cities across Ohio.
Springfield, for instance, offers no years of net operating loss carry forward; HB 601 would allow five years. City Manager Jim Bodenmiller said it’s too tough to estimate how much this could affect the city because it has never done it that way and “we don’t have anything to go back and reference.”
As it currently stands, if a person works 12 days in Springfield, he or she must set up a withholding account with the city. However, HB 601 would change the rule from 12 days to 21 days.
“It doesn’t exclude those folks from paying income taxes to us, but it makes it more difficult to collect and know which people owe us in that situation,” Beckdahl said.
“It would be virtually impossible,” Bodenmiller said.
The bill wouldn’t change income tax rates or tax credits for residents who live in the city but work elsewhere. If the bill isn’t passed before the end of the year, it will expire and will have to be reintroduced next year.
“The question is whether the bill, which has been introduced, will stand or whether they’ll go back to try to work something out that is revenue-neutral … The real problem is the people pushing the bill are people who aren’t taking into account the effect on local communities,” Mayor Warren Copeland said.