How Did We Get Here? – The Road to subHB 5

NOTE: The following list is heavily inspired by–and liberally integrates several excerpts from–Donald W Smith’s January 9, 2013 presentation to the Municipal Finance Officers Association (MFOA). This presentation, given in response to HB 601, provides a quick snapshot of events spanning from the rumored consideration of State collection of municipal income tax up through the introduction of uniformity legislation. For the sake of relevancy, we’ve updated the timeline with information regarding subHB5.

Click here to download the outline of the presentation as it was originally delivered.

HB 5 was co-sponsored by Reps. Cheryl Grossman & Michael Henne on January 30, 2013 before the 130th General Assembly. The bill would result in a number of significant changes to the municipal income tax for every taxing jurisdiction in the State of OH. What brought us to this point?

  • Shortly after Gov. Kasich was elected governor, the OSCPA presented his administration with “Ohio Budget Advisory Task Force Report” In it were a number of recommendations, including one to: “Study the feasibility of requiring centralized administration and collection of municipal income taxes, such as through a piggyback tax on the State of Ohio return[1].”
  • In January 2011, the Governor appointed Lt. Governor Mary Taylor to the newly created Common Sense Initiative, shortly thereafter she was reported to say that, “…centralizing collections would be “a great step forward in helping ease the burden” on businesses that cross jurisdictional lines or have multiple returns in different municipalities.[2]
  • By August 2011, the Cleveland Plain Dealer was reporting that a spokesperson for Tax Commissioner Joe Testa’s office said that, “The concern with the municipal income tax is it’s so widespread and so varied from city to town to village that it’s a burden on business taxpayers who are functioning in many different locales.[3]
  • Dan Navin, Asst. V.P., Tax and Economic Policy with the Ohio Chamber of Commerce official said, “The cost of compliance is frankly becoming a competitive disadvantage.[4]
    • Note: SBA Office of Advocacy reported that Ohio is the Top 10 (#8) for attractiveness to small businesses.[5]
    • The response from the OML and municipalities throughout the state was loud and clear—“leave municipal tax collection alone!”
  • With strong encouragement from the OSCPA and the Ohio Chamber of Commerce, Rep. Cheryl Grossman took up the challenge “municipal tax uniformity.”
    • Early in 2012 she assembled an “Interested Party” committee with Rep. Michael Henne that included representatives from the OSCPA, NFIB, Ohio Chamber of Commerce, OML and Tax Administrators from several municipalities.
    • In a parallel universe, Rep. Peter Beck, Chairman of House Ways and Means committee announced that he would be holding a series of IP meetings across the state.
  • Grossman opened the first meeting of her committee by stating, unequivocally, that “centralized collection was off the table.” (By the way, Beck did the same thing…)
    • Rather, she set the goal of clarifying definitions of taxable income, establishing uniform due dates and filing requirements and, in general, simplifying the process of filing municipal income taxes in the State of Ohio.
  • This committee met regularly throughout 2012 and appeared to be make headway on a number of substantive issues, like:
    • Due dates
    • Thresholds for filing, paying, refunding tax
    • Clearer definitions for:
    • Qualifying wages
    • Residency
    • The definition of a day
    • Treatment of Pass-through entities and consolidated returns
    • Taxpayer bill of rights issues
  • It continued to wrangle over:
    • NOL (OSCPA wanted 15 yrs, OML wanted 0)
    • 12-day rule (OSCPA wanted 30 consecutive, OML wanted no change)
  • It appeared that no legislation would be forthcoming in 2012
  • Then, in late August, Crain’s Business reported that Grossman was, “…drafting for…introduction legislation that would create a uniform municipal income tax code that all Ohio municipalities assessing a tax would follow..would end a situation that can be expensive and frustrating for businesses. [and]…would create a single, statewide definition of taxable income for municipal taxes, set a uniform schedule for employers to make withholding payments and create a generic income tax form.[6]
  • And, on October 30th, Grossman & Henne introduced HB 601—a 129 page document that surprised many on the IP committee and shocked municipalities across the state.
  • At the end of the 129th General Assembly, HB 601 was still held in committee and so became a dead issue for the 130th General Assembly.
  • On January 30, 2013, Grossman & Henne reintroduced HB 601 as HB 5 to the 130th General Assembly, albeit with minor changes across its 141 pages.
  • Over the next several months, HB 5 was examined by the House Ways and Means Committee. Testimony was heard from both sides of the issue. Several proposed substitutes were presented, including one drafted by proponents and one drafted by municipalities.
  • On October 23, 2013, a hybrid substitute bill was introduced. Though several aspects that made the original bill onerous were eliminated, the new compromise bill–subHB5–was (and is) far from perfect. Even after receiving an omnibus amendment, municipalities still have much to lose if it passes both the House and the Senate.
  • The House Ways and Means Committee voted on November 6, 2013 to pass subHB5 to the House floor.
  • The Ohio House of Representatives voted on November 13, 2013 to pass subHB5 (56-41)–despite continued concerns from municipalities. It was then handed off to the Senate, where review of the bill was assigned to the Senate Finance Committee on November 19, 2013.

[1] OSCPA The Ohio Society of CPAs Ohio Budget Advisory Task Force Report, v. 2.0, June 2010, pg. 9

[2] Cleveland Plain Dealer: “Kasich administration starting push to move local income tax collection to Columbus”, August 30, 2011

[3] Ibid

[4] Ibid

[6] Crain’s Cleveland Business: “Cities could get uniform tax code”, August 20, 2012