Municipal Tax Reform Bill Sent to Governor – OML Legislative Bulletin

Posted on: December 12th, 2014

“Am. Sub. HB5 cleared the final legislative hurdle this week when on Tuesday the Ohio House of Representatives voted 60-32 to support the changes made by the Ohio Senate, sending it to Governor Kasich for his approval. On Wednesday, OML Executive Director Sue Cave sent Governor Kasich a letter urging him to use his constitutionally provided authority and VETO this destructive and one-sided attempt at reforming certain provisions of the municipal income tax. A copy of the letter can be found HERE.

As many of our members are well aware of the issues municipalities confronted as the bill worked it’s away through the two legislative bodies, we are disappointed to inform our members that many of our concerns were not addressed, with the legislature choosing to retain reform treatments that are projected to have deep and significant financial impacts on municipal budgets across the state. Below are a few of the top items that we anticipate will result in the most consequential impact on the ability of cities and villages to generate revenue in support of basic services. The list includes but, by no means is limited to:

  • All 600+ Ohio municipalities that have an income tax must provide businesses and individuals with a 5 year Net Operating Loss Carry Forward deferment plan. The bill does afford municipalities with a cumbersome and difficult to implement 5 year, 50% phase-in proposal, affording municipalities some time to adjust to the significant revenue loss that those currently not providing a 5 year NOL carry forward are certain to be saddled with.
  • Employers will no longer be required to withhold tax revenue obligations for the first 20 days on “occasional entrant worker” employees, whose primary place of employment is outside of the boundaries where work is performed and clarifies that employees whose wages are withheld in a municipality where work was not performed, that those wages are refundable. The bill also excludes businesses located in unincorporated areas or townships from any withholding requirements for their employees, regardless of days spent in a municipality.
  • Applies the 20 free day occasional entrant provision to non employee compensation resulting in taxpayers with compensation other than qualifying wages now will receive the benefit of 20 free days of no municipal tax withholding in every city and village work is performed.
  • The language that was inserted by the Ohio House to liberalize the treatment of offsets and language allowing taxpayers to apply a “loss” in multiple municipalities remained as passed by the House.
  • Supplemental Executive Retirement Plans (SERPS) treatment that bars municipalities from taxing this “golden parachute” which is treated as a nonqualified deferred compensation plan allowing taxation at the state and federal levels was preserved by the Ohio Senate.
  • After a 5 year period, taxpayers will retain authority over tax administrator’s discretion in deciding the proper administrative procedures and factors to be considered, when submitting consolidated filings.
  • Changed the ‘written determination’ language back to ‘assessment’, requiring certified mail be used for correspondences between municipal tax offices and taxpayers, for all assessments or written findings.

These are only a few examples of the changes made to the municipal income tax administration, via Am. Sub. HB5. The Legislative Service Commission (LSC) has compiled several documents that give a comprehensive analysis of all the changes made and new treatments initiated through HB5. The first document is the LSC Fiscal Note & Local Impact Statement, explaining to legislators how the potential revenue impact to Ohio municipalities could be in the millions of dollars, can be found at http://www.lsc.state.oh.us/fiscal/fiscalnotes/130ga/hb0005sp.pdf. A synopsis of the amendments adopted by the Ohio Senate Ways and Means Committee here http://www.lsc.state.oh.us/synopsis130/h0005-130.pdf, while the complete analysis for the total bill can be found here http://www.lsc.state.oh.us/analyses130/h0005-rs-130.pdf and the final version of the full text of the bill here http://www.legislature.state.oh.us/bills.cfm?ID=130HB5.

The legislation does not go into effect until January 1, 2016, with some estimated tax provisions beginning in 2015.Next year, the league will be sponsoring a number of training programs for municipal officials, including tax and finance staff, in an effort for local officials to become acquainted with the challenges presented in the new law and how municipalities can effectively administer the tax with the new restrictions.”

Click here to read the December 12, 2014 edition of the OML Legislative Bulletin in its entirety.