Tax impact: 80% who work in Dayton live outside of the city

Changes in work-from-home tax law could have major impact on Dayton city budget



More than 8 in 10 people who work in Dayton live in other communities, which is why the city stands to lose millions of dollars in revenue in coming years due to changes in work-from-home tax law, according to an internal city staff analysis obtained by this newspaper.

This study and another one by an outside group confirmed that the city could be looking at a loss of $8 million to $15 million in annual income tax revenue because of the shift to remote work, Dayton City Manager Shelley Dickstein said a recent community meeting.

“We anticipate over the next three years losing $35 million in income tax due to work-from-home scenarios,” she said.

The city plans to use $36 million in federal rescue funds as revenue replacement to avoid significant disruption to the police, fire, road, park and other services that city income taxes help pay for, Dickstein said.

Starting in early 2020, people who shifted from in-office work to work-from-home arrangements continued to pay city income taxes to the jurisdiction where their office was located. But the state budget bill passed this year says in 2022, people will pay income taxes based on where they actually work, not the address of their employer’s building.

The law also says Ohioans can seek refunds of 2021 city income taxes withheld by a city where they didn’t actually work.

About 83,580 people work in Dayton, but about 82% of those workers reside outside of its municipal boundaries, according to a financial analysis by staff with the city’s department of procurement, management and budget.

Many people shifted to working at home during the pandemic, and a significant number of those employees are not expected to return to the office for the foreseeable future — possibly ever.

Income taxes account for more than two-thirds of Dayton’s general fund budget, and the city could lose between $7 million to $22 million annually because of work-from-home changes, according to the staff analysis.

The analysis estimates that the city would lose more than $14 million annually if employees worked remotely about 20% of the time.

Kent Scarrett, executive director of the Ohio Municipal League, said the tax rules for people who work a hybrid schedule (some at home, some at their company office), will be based on whether they work more than 20 days in a particular city. He said tracking those hybrid situations is an employer’s responsibility in the case of larger companies, and could be messy.

Dayton’s projected earnings tax losses will be partially offset by anticipated new tax revenue from Dayton residents who telecommute and whose offices are outside of the city.

Dayton (population 137,645) has about 50,440 employed residents, the analysis says, and about 71% work in other communities.

City leadership recently revealed a draft spending plan for the $138 million in federal rescue funds it has been awarded, and more than a quarter of the funding ($36 million) will be put toward revenue replacement.

Dayton Mayor Nan Whaley recently told current members of the city commission and an incoming member that work-from-home income losses are a very big challenge that federal rescue funds do not solve.

“While the ARPA (rescue) money solves it for a few years, sorry commissioners — this is going to be a key issue for you all in 2024,” she said.

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