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State wants to consolidate collection of city income taxes

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By Lawrence Budd, Staff Writer 10:14 PM Monday, January 30, 2012

Some state leaders want to end Ohio’s unique status as the only U.S. state where its municipalities still collect local income taxes.

But municipal leaders throughout Ohio are concerned that efforts to simplify the hundreds of different tax forms into a single universal form are part of a shift to consolidate collecting the taxes through one agency. Cities say this could impact its operating budgets and create hardships for its taxpayers.

Nearly 600 cities and villages in Ohio collect $4 billion annually in income taxes, about 70 percent of total revenues.

During a speech last week at the Ohio Tax Conference 2012, Ohio Tax Commissioner Joseph Testa said his agency could collect the municipal income taxes for “considerably less” than what local municipalities currently spend to handle the task.

Next month, state Rep. Cheryl Grossman, R-Grove City, will host a meeting to discuss creating a single form that all Ohio taxpayers and businesses can use to pay their municipal income taxes.

“There are hundreds of forms” to complete, she said. “My goal is to come up with a general form that would simplify this.”

Grossman would not discuss whether simplifying the paperwork is a step toward centralizing collection by regional agencies or the state itself. But the Ohio Municipal League said it is concerned Grossman’s proposal is moving in this direction and question whether the state can collect the taxes more effectively or efficiently.

Grossman will meet Feb. 9 with municipal officials about their concerns.

While willing to compromise on “revenue neutral’ aspects of simplifying the process, city officials said they worry the changes could affect individual taxpayers and its largest source of municipal income.

“Leave us alone. It’s working fine,” said Brad Townsend, West Carrollton’s city manager and a member of the Ohio Municipal League’s board.

Joining other U.S. states

Centralizing municipal income tax collection would bring Ohio in line with the rest of the country.

Only nine states collect municipal income taxes, and most of the municipalities are in Ohio, according to finance experts.

The number of U.S. cities collecting municipal income tax dropped by about half this year when Pennsylvania consolidated collection by 560 municipalities into 69 collection districts.

This leaves only about 700 of about 19,000 U.S. cities, towns and other municipal organizations collecting its own income tax, said Michael Pagano, a former professor at Miami University in Oxford and co-author of a report by the National League of Cities on cities and state fiscal structure.

Pagano, now dean of the College of Urban Planning and Public Affairs at the University of Illinois at Chicago, said more than 90 percent of all municipalities that collect municipal income taxes are in Ohio and Pennsylvania.”

In Ohio, 577 municipalities — 341 villages and 236 cities — levy an income tax. About 300 have contracts with regional authorities for collection. The Regional Income Tax Authority, with offices primarily in northeast Ohio, collects taxes for 207 communities, including Clayton and Riverside in Montgomery County; Cedarville, Fairborn and Yellow Springs in Greene County; Corwin, Maineville and Waynesville in Warren County; Oxford in Butler County, Pleasant Hill in Miami County; and South Charleston and Tremont City in Clark County.

Grossman said legislators are “not that far along in our discussions” on deciding if Ohio’s local income tax collections should be administered through Testa’s office or regional agencies.

Simplifying, if not consolidating, municipal income tax collections is a response to the Commonsense Initiative Group proposed by Gov. John Kasich in August 2010 to make Ohio more attractive to businesses.

Since last year, Grossman has been meeting with lawmakers and “interested parties,” including representatives from the Ohio Society of Certified Public Accountants.

“What we’ve been advocating, really for many years, is a simplification of this local income tax system,” said David Reape, a CPA and spokesman for the state group.

Under the current system, Reape said one road construction firm he represents reports income to about 100 different Ohio municipalities.

Reducing forms and consolidating collections should simplify tax issues for businesses operating in multiple Ohio cities. Supporters say centralizing collections should save expense.

The implications for local governments and residents will vary, according to experts.

Ohio lawmakers will have to weigh the costs and benefits, said Pagano, a fellow of the National Academy of Public Administration.

“It depends on whose costs you’re trying to save,” Pagano said.

Cities oppose losing collections

The Ohio Municipal League is leading opposition.

More than 100 cities and villages have passed resolutions to oppose any plans to prevent it from collecting the tax, according to the league. In the Miami Valley, cities and villages on record include Carlisle, Centerville, Clayton, Englewood, Franklin, Greenville, Hamilton, Huber Heights, Kettering, Lebanon, Mason, Miamisburg, Moraine, Oakwood, Piqua, Riverside, Springboro, Springfield, Tipp City, Trenton, Troy, Vandalia and West Carrollton.

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