House Bill 49 deserves another review

The state of Ohio should take another look at House Bill 49 after 22 municipalities from Northeast Ohio sued to stop the changes in the law from taking effect next month.

The cities say the amendments and enactments to House Bill 49 are in violation of the Municipal Home Rule Amendment of the Ohio Constitution.

The cities — Beachwood, Brecksville, Glenwillow, Lyndhurst, Moreland Hills, North Royalton, Orange, Pepper Pike, Richmond Heights, Shaker Heights, Strongsville and Westlake in Cuyahoga County; Willoughby in Lake County; Avon, Avon Lake, North Ridgeville, Oberlin, Sheffield Lake and Vermilion in Lorain County; Youngstown in Mahoning County; and Hudson in Summit County — joined the suit that was filed Dec. 12 in Lorain County Common Pleas Court.

In addition to the state, Joseph A. Testa, in his capacity as tax commissioner for Ohio, is named as a defendant.

The cities are right to be concerned that centralized collection of local net-profit taxes is another step closer to centralizing the withholding tax.

And now the cities are seeking a declaratory judgement, a temporary restraining order and preliminary and permanent injunctive relief from specific amendments and enactments the bill makes to the Ohio Revised Code.

The entities are not seeking financial damages.

The cities claim the amendments and enactments made changes to municipal tax provisions which limit or interfere with the municipalities’ “authority to administer, collect, audit and receive net profit taxes,” violating their right to self-govern.

The changes made to municipal tax provisions essentially affect how much of the taxes collected by municipalities are then transferred to the state.

Also, the filing argues these municipal tax provisions are not “general laws” and cannot replace local ordinances relating to these taxes.

According to the suit, the causes of action include: violation of home rule powers relating to local self-government; violation of home rule powers relating to police power; and a request for an injunction and restraining order against the bill going into effect.

If a judge doesn’t halt the changes, the new regulations will take effect Jan. 1, 2018, for businesses that choose to optin and file their net-profit municipal income taxes through the Ohio Business Gateway.

Tax collections will be distributed monthly with interest minus a 0.5 percent administration fee.

Businesses choosing to optin commit for one year with an automatic renewal unless cancelled by the taxpayer, according to a fact sheet provided by the Ohio Department of Taxation.

The state contends two sections of the Ohio Constitution give the state legal authority to supersede home rule. And the cities disagree. Steve Presley, finance director for Avon Lake, says House Bill 49 is a step in the wrong direction for municipalities.

Presley said, “We cannot afford to let them have control over what for many cities is the largest revenue source after property taxes. For these reasons, the city of Avon Lake joined in the lawsuit.”

And other plaintiff cities feel the same way.

Bill Logan, finance director for Avon, said the city was concerned centralized collection of local net-profit taxes would be another step closer to centralizing the withholding tax.

Logan said, “The city of Avon anyway, we get about $2.5 million per year from that net-profit income tax. The state in their house bill is proposing the centralized collection of income tax beginning in the 2018 tax year, making it more difficult to impose home rule. There are just some provisions that we don’t like.”

Testa responded that complying with Ohio’s municipal income tax system has been an excessive burden for businesses for too long.

He said that’s why Gov. John Kasich and more than 30 business associations pushed for this reform that allows businesses to choose whether to file only one municipal net profit tax return with the state or continue to file with each and every municipality in which they do business.

Testa adds, “This reform will reduce costs for business, make them more profitable and help them create more jobs. Nothing could be better for the municipalities and all Ohioans.”

However, Presley said in the case of Avon Lake, the city believes the Regional Income Tax Agency, also known as RITA, is doing a good job collecting net-profit taxes.

Presley said, “RITA’s cost of collections is under 2 percent. Instead, I see their (the state’s) actions as a money grab where they will continue to play political football with city revenues. Cities would have no say in how the state were to process the receipts or make local remittances to the cities.”

With such disagreement over the changes, the state should take another look at House Bill 49.