Ohio city income tax issue in COVID-19 called unconstitutional, plan to change it ‘draconian’

Some officials say swift passage of two plans to change Ohio’s municipal income tax law for work-from-home employees could impact funding for public safety forces. FILE
Some officials say swift passage of two plans to change Ohio’s municipal income tax law for work-from-home employees could impact funding for public safety forces. FILE

Credit: FILE

Credit: FILE

Keeping Ohio’s municipal income tax law in the shifting COVID-19 work-from-home environment would bring a “draconian change” for city budgets across the state, one local leader said.

Repealing an emergency income tax measure approved to allow cities to continue collecting income taxes as they did pre-pandemic will drain up to $306 million annually from Ohio’s largest cities, including Dayton, one state group said.

HB 197 ― the income tax change approved in March ― keeps workers paying income taxes to the municipality in which their employer is located at a time when more jobs are being done from home.

Nan Whaley
Nan Whaley

Credit: FILE

Credit: FILE

But the emergency measure violates fundamental laws, said a state legislator who is seeking to reverse it.

“I don’t believe it’s constitutional to be able to tax someone that doesn’t step foot in your city,” said state Sen. Kristina Roegner, R-Hudson, the sponsor of SB 352.

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The repeal of HB-197 could dry up revenuescities have relied on for decades and, Dayton Mayor Nan Whaley said, risk “life and death services” that first responders provide.

It will also force cities to change their model of retaining and attracting businesses and jobs, city managers in Centerville and Kettering said.

Wayne Davis
Wayne Davis

Credit: FILE

Credit: FILE

“If you would have such a draconian change as this, you would have to change your economic development strategy,” Centerville’s Wayne Davis said. “Some cities are in a position where they’ve got to change the model.”

Whaley and Ohio Municipal League Executive Director Kent Scarrett said any shift from how income taxes are collected with the coronavirus emergency measure needs extensive debate.

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“The swift loss of that revenue,” Scarrett said, “coupled with the decreased revenues already from the joblessness and the unemployment levels” due to the coronavirus “would have a potentially devastating impact…on the delivery of services, especially on police and fire.”

Debate on tax issue

Cities have long talked in theory of working remotely being a future trend and the impact it may have on local budgets, Scarrett said.

“But now we’re here,” he added. “It just happened overnight almost.”

SB 352 was introduced earlier this year. A similar to proposal - HB 754 – has been introduced in the Ohio House of Representatives.

SB 352 has the support of the Buckeye Institute, a think tank aimed at advancing free-market public policy, according to its website.

Like Roegner, Buckeye Institute President and Chief Executive Officer Robert Alt called the March emergency measure unconstitutional.

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SB 352 would “terminate the corresponding Alice-in-Wonderland world where work actually performed at home is absurdly deemed to have been performed in an often higher-taxed office location instead,” according to a statement from the organization.

Aside from the Ohio Municipal League, proposals to repeal the March emergency measure are being questioned by the Greater Ohio Policy Center, a non-profit group that advocates for cities.

SB 352 and HB 754 are “short-sighted and mortally jeopardize Ohio’s economic competitiveness,” according to the GOPC.

Roegner said she does not think her legislation will be acted on this year, but plans to introduce again in 2021, when she does expect a vote.

Work from home impact

How the pandemic plays out may be a factor in what changes need to be made on the city income tax issue, said state Rep. Niraj Antani, a Miamisburg Republican who recently won election to the Ohio Senate’s 6th District seat.

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“I think when this pandemic is over we will see what happens and whether people go back to office work or how many stay working from home,” Antani said.

“I personally think it will be sort of a mixed bag. I think we will see many people return to office environments and some continue to work from home,” he added.

The work-from-home issue has hit Kettering in a way unlike most cities. In September, Synchrony Financial told the city it was vacating its space at the end of the year in favor of having employees work permanent from home.

The move is costing Kettering nearly 1,900 jobs and, City Manager Mark Schwieterman said, an annual payroll Synchrony said was about $120 million.

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“Cities like ours that have a higher daytime population than our resident count is an indication that we have built a system of infrastructure to support the businesses,” Schwieterman said.

“If there is a significant trend for work from home post-COVID, that is certainly cities of all sizes of all sizes are going to have to address,” he added.

Centerville’s Davis the city has done some preliminary research on the possible impact of SB 352 and HB 754, but hasn’t “dug in deep” yet because neither has been seriously debated by the General Assembly.

Davis noted that city officials, at this point, “think there’s the potential for it to be net neutral for us” because Centerville’s major employers are more service-industry oriented.

BY THE NUMBERS

•$306M: Amount Ohio’s six largest cities could lose annually if proposed bills for municipal income tax laws are passed.

•4.88M: Total Ohio employment in 2018.

•80: Percentage of Ohio businesses located in municipalities.

•70: Percentage of Ohio city budgets allocated to police and fire services

•42: Percent of the U.S. labor force working from home in June.

SOURCES: The Greater Ohio Policy Center, U.S. Census, Stanford University, the Ohio Municipal League.

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