Cities sue state over tax collection

Seven cities in Lorain County as well as 15 other municipalities across the state are suing the state over House Bill 49.

Seven cities in Lorain County as well as 15 other municipalities across the state are suing the state over House Bill 49.

The suit, filed Dec. 12 in Lorain County Common Pleas Court, names Elyria, Avon, Avon Lake, Beachwood, Brecksville, Glenwillow, Hudson, Moreland Hills, North Ridgeville, North Royalton, Oberlin, Orange, Pepper Pike, Richmond Heights, Shaker Heights, Sheffield Lake, Strongsville, Vermilion, Westlake, Willoughby and Youngstown as plaintiffs.

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

According to the filing, the municipalities 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 claim is these amendments and enactments are in violation of the Municipal Home Rule Amendment of the Ohio Constitution.

According to the filing, 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 locally.

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

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

The suit lists three causes of action: 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.

The new regulations as part of House Bill 49 are set to take effect Jan. 1, 2018, for businesses that choose to opt-in and file their netprofit 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 opt-in 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.

In response to the filing, Testa released the following statement:

“Complying with Ohio’s municipal income tax system has been an excessive burden for businesses for too long. That’s why Governor Kasich and more than 30 statewide 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 the do business.

“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.”

Bill Logan, finance director for the city of Avon, said in response to the filing, the city was concerned centralized collection of local netprofit taxes would be another step closer to centralizing the withholding tax.

“The city of Avon anyway, we get about $2.5 million per year from that netprofit income tax,” Logan said. “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.”

Steve Presley, finance director for the city of Avon Lake, wrote in an email the city believes the Regional Income Tax Agency, also known as RITA, is doing a good job at collecting netprofit taxes and lack confidence in the state of Ohio, calling their actions a step in the wrong direction for municipalities.

“We do not have confidence in the state doing as good a job collecting municipal income taxes as RITA,” Presley wrote. “Nor do we believe that they will be able to do it at the same or a lower cost . ... ”