Dayton officials still insist that the city could suffer large revenue losses due to work-from-home changes, but income tax collections actually rose in the first six months of 2022.
Officials say the strong growth in earnings tax receipts was a welcome surprise, but telework remains a big revenue threat, and there are signs that trouble may still lie ahead.
“Year to date, through June of 2022, income tax collections is the big story,” said Monica Jones, Dayton’s director of procurement, management and budget.
Since early 2021, Dayton officials have worried about work-from-home changes stemming from the COVID-19 pandemic —that people who formerly worked in the city and paid Dayton’s 2.5% city income tax would now pay local tax to the city where they live instead.
City officials said that could result in a large loss of income tax revenue, possibly between $8 million to $20 million annually.
But in the first half of this year, income tax collections were up nearly $6 million from 2021 (+8%). So far, the city’s warnings that telework would take a big bite out of its income tax revenues have not proven correct.
Through the end of June, Dayton took in $80.4 million in income tax revenue in 2022, compared to $74.5 million in 2021, $67.2 million in 2020 and $69.1 million in 2019.
Collections have exceeded the city’s original budget projections by about $11 million.
“This is due to continued strong performance, particularly in the business profits category,” Jones said.
Withholdings tax revenues climbed more than 5%, and business profit tax revenues shot up more than 37%.
Withholdings is a tax on income earned by employees of a business. Business profits is the tax on income earned by a business in a municipality.
But Jones said the work-from-home financial threat is still very real. Many people who used to work in Dayton now work from their homes in other communities, which means they owe income taxes to those municipalities instead.
Some people have hybrid work schedules, where they split their time between the office and their homes. Ohio law requires employers withhold and pay taxes to municipalities if their employees work in those communities for more than 20 days in a calendar year.
The city believes many employers are still figuring out how to track, report and withhold wages of employees who work from home 21 or more days, Jones said.
Also, earnings tax revenue actually decreased year-over-year in both May and June, and it’s unclear if that was just a blip or the beginning of a new trend.
Dayton this year also has issued $2.6 million in refunds, which is about twice as much money as it paid out last year.
The financial impact of work-from-home might happen in phases as employers get their workers on a more consistent remote schedule and they also figure more reliable ways to track and withhold taxes of remote employees, Jones said.
The large increase in refunds could be an early warning sign of future trouble, said Dayton City Manager Shelley Dickstein.
More than half of refunds the city processed and approved in June were related to work-from home requests. Just 11% of refunds in January were work-from-home related.
Dickstein said it’s still too early to know if Dayton might lose $8 million, $12 million or $20 million in revenue.
The city early last year estimated that between 30% and 40% of its employment base was working from home.
But much has changed since then, including the widespread rollout of COVID vaccines and falling case numbers. Some people have returned to the office.
But come fall and winter, there could be a COVID resurgence as people spend more time indoors, in closer proximity to each other. New variants also could lead to additional waves of cases.
Employers may respond by switching again to remote work or hybrid work models.