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Toledo, Ohio & Lake Erie

The Press Newspaper

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Oregon and Northwood are joining many communities in Ohio that are opposed to a state proposal to transfer the collection or control of municipal net profit business taxes from local governments to the Ohio Department of Taxation. 
 
Ohio Gov. John Kasich has proposed in his 2017-18 budget a requirement for centralized collection of municipal net profit taxes by the Ohio Department of Taxation. If passed, it becomes effective on January 1, 2018.
 
The state believes centralization would go a long way to reduce business compliance costs and make Ohio’s municipal income tax system more competitive. Currently, each community with an income tax also administers a net profits tax on businesses and individuals that generate business income. The bill essentially centralizes the collection and administration of the municipal income tax on net profits and eliminates the “throwback” rule for most taxpayers. The “throwback” rule allows cities to tax the profit a company makes when it ships a product or service outside the city. It’s called “throwback” because it “throws back” the income to the home municipality. If the rule is eliminated, taxes will not be paid on those sales to municipalities.
 
Opponents say centralized collection of business taxes is not needed because businesses operating in Ohio already have the option to file local municipal business taxes through the Ohio Department of Taxation website “Ohio Business Gateway.” 
 
Oregon City Council this week is expected to consider a resolution in opposition to the state’s proposal. Northwood City Council planned to consider a similar resolution at their meeting last Thursday.
 
Ohio House Bill 5 was enacted to make municipal income taxes more uniform across communities in order to simplify calculation and filing and payment of net profit tax, notes Oregon’s draft resolution.
 
“Local income tax is the largest source of revenue for the City of Oregon, and for most municipalities in Ohio. Any disruption or interference with the current collection process will be harmful to financial operations,” states the resolution.
 
The provision that would eliminate a portion of the sales factor, known as “throwback,” would “substantially reduce reportable tax revenue to municipalities with warehouses, distribution centers, and any businesses providing online sales,” states the resolution.
 
Provisions in the proposal would hamper municipalities’ ability to audit and correct municipal income tax business returns and to equitably enforce the municipal income tax laws, according to the resolution.
 
The state proposal includes a 1 percent administrative fee that would be charged to local governments to transfer the administration of their net profits tax to the Ohio Department of Taxation.
 
"It’s a money grab,” Northwood City Administrator Bob Anderson said of the state plan. “I told the governor’s representative that we don’t trust the state. The administrative fee is 1 percent now, but will that be 2 percent the following year, then keep going up when the economy slows down and the state needs to balance its budget?”
 
In addition, he questions why the city would pay thousands in administrative fees to the state when Northwood has its own employees who administer municipal net profit taxes. 
 
“We’re doing just fine, thank you,” he said.
 
Oregon Councilman James Seaman agrees.
 
“There’s a lot of cracks in the state proposal,” said Seaman, who is also chairman of the Finance Committee. “The administrative fee is more than what our Finance Department costs us to collect the payroll income tax. The 1 percent administrative fee would cost Oregon nearly $200,000 per year. So we would have to pay an administrative fee and still have a tax department, more or less. We would keep the people in the department because there are going to be people in Oregon who will come up with questions that we have to help them with. And the state could raise that administrative fee as time went by. We’re working very smoothly and very efficiently with our own tax department. Our residents are very satisfied.”
 
Oregon City Administrator Mike Beazley said the proposal “is just one more way the state takes away money from local governments without adding any real service.”
 
“The dollars go to Columbus, then the cities would be charged a 1 percent service fee. We haven’t added any real value to the taxpayers.”
 
He said it is important to provide flexibility for businesses that have to work in more than one city.
 
“And we already have a form of centralized collection that’s available through the Ohio Business Gateway that cities can step up and participate in. They have a website you can access anywhere. It hasn’t worked very well. Some businesses have had a problem with it. They do need to fix it. But others can use local government officials for help and get a response. We have a workforce that’s ready to deal with their questions. The current system can indeed work well, but we have to continue to make it easier for businesses to file statewide, if that’s what their choice is. This state proposal for centralized collection would not give them a choice anymore. They would have to file the net profits though the state, and that’s not something that works for local governments, and I think would hurt us all long-term.” 
 
Oregon City Council President Dennis Walendzak said at a recent council meeting that he had talked to State Rep. Mike Sheehy, whose district includes Oregon, to express the city’s opposition in Columbus. 
 
“There’s a group of representatives who are on the same side as us. He’s going to try and carry our water for us,” said Walendzak.
 
 

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