Ohio city pre­pares for pos­si­ble court loss against state

Many mu­nic­i­pal­i­ties worry about los­ing mil­lions of dol­lars.

Dayton Daily News - - LOCAL & STATE - By Doug Liv­ingston

Akron is up­dat­ing its tax code in case it loses a law­suit against the state.

City Coun­cil will take a week to con­sider ad­her­ing to a law the Ohio leg­is­la­ture passed in the two-year state bud­get last year. House Bill 49 called for a new staterun sys­tem for busi­nesses to re­port their prof­its. The state would tax the prof­its, tak­ing a cut for its trou­bles and send­ing the rest to places such as Akron where the money was made.

The move stream­lines the tax fil­ing process for busi­nesses in lo­ca­tions across the state.

“Over 600 mu­nic­i­pal­i­ties levy a net prof­its tax on busi­ness en­ti­ties, mean­ing that one busi­ness may be forced to file dozens, some­times hun­dreds, of net profit re­turns,” Ohio Tax Com­mis­sioner Joe Testa told the Ohio House last year. “... (I)t can cost a busi­ness more to pre­pare a net prof­its fil­ing than the ac­tual tax owed. Fur­ther­more, with vari­a­tions in how mu­nic­i­pal­i­ties in­ter­pret and en­force mu­nic­i­pal in­come tax law, busi­nesses are sub­ject to chang­ing rules and en­force­ment prac­tices ...

“(And) busi­nesses like to have tax pre­dictabil­ity.”

But Akron and 136 other cities and vil­lages su­ing Testa and the state are con­cerned about los­ing mil­lions of dol­lars in lo­cal in­come taxes and the abil­ity to au­dit busi­nesses to en­sure they pay their fair tax share.

Akron joined the law­suit in Novem­ber af­ter a Franklin County judge granted a tem­po­rary stay against the Ohio Depart­ment of Tax­a­tion’s new sys­tem, which was sup­posed to come on­line last sum­mer. The judge could lift that in­junc­tion at an up­com­ing hear­ing.

In the mean­time, Akron must pre­pare for the worst. Should the state pre­vail, the city could fall out of com­pli­ance. So Mayor Dan Hor­ri­gan is up­dat­ing the lo­cal tax code, just in case.

Cen­tral to the law­suit, aside from the loss of lo­cal rev­enue and ac­count­abil­ity, is the le­gal con­cept of home rule. It’s a term used when states claim fed­eral over­reach or when cities and states fight over whose pub­lic poli­cies come first.

Lo­cal govern­ments cite home rule when states strike down or chal­lenge lo­cal rules like the use of cer­tain firearms in densely pop­u­lated cities or how many res­i­dents pri­vate con­trac­tors must em­ploy on lo­cally funded road and sewer projects.

HB 49, which cov­ers “state pro­grams,” does not re­quire busi­nesses to use the new cen­tral­ized fil­ing sys­tem, which has the sup­port of the Ohio Cham­ber of Com­merce and is fea­tured on the Ohio Depart­ment of Tax­a­tion’s web­site. But city ad­min­is­tra­tors say Ohio Gov. John Ka­sich and law­mak­ers are over­reach­ing by in­sert­ing them­selves in a lo­cal mat­ter.

“It’s an­other at­tack on home rule. And they are at­tack­ing us where it hurts,” said Diane Miller-Daw­son, Akron’s fi­nance di­rec­tor.

The Ohio Con­sti­tu­tion and state laws al­low lo­cal govern­ments to levy taxes; other­wise po­lice sta­tions and schools would go with­out. The con­sti­tu­tion, how­ever, also al­lows the Ohio Gen­eral As­sem­bly to pass laws that limit lo­cal tax­a­tion.

Pulling out of the re­ces­sion, state law­mak­ers shared less in­come tax with cities and lo­cal govern­ments, in­stead putting $2 bil­lion in Ohio’s empty rainy-day fund. With fewer in­come tax dol­lars re­turn­ing from the state­house, law­mak­ers con­tinue to dic­tate what lo­cal govern­ments can and can­not tax.

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