Society: Centralized net profits collection reduces compliance costs

OSCPA staff report

Centralized collection of business net profits tax as proposed in House Bill 49 would save costs and still allow cities to retain direct control of 86% of their income tax revenue.

That was the testimony March 7 of Megan Durst, CPA, chair of OSCPA’s State and Local Tax Committee.

“The centralized collection proposal in HB 49 applies solely to the business net profits tax, estimated by the Ohio Department of Taxation (ODT) to produce on average just 14% of total municipal income tax collections,” Durst told the House Ways & Means Committee. “As a result, the typical municipality would retain direct control over the remaining 86% of their income tax revenue, usually derived from employee withholding.”

Speaking on behalf of OSCPA, Durst said Gov. Kasich’s budget proposal will simplify the filing process by allowing businesses file and pay once online through the Ohio Business Gateway.

“While the amount of tax they owe will not change, centralized collection will significantly cut down on the paperwork burden, allowing business owners to devote the significant time and money now spent on compliance with multiple different cities instead to growing their business,” she said. “Further, having the ODT administer the net profits tax for cities and villages will ensure consistency and predictability of treatment.”

Later in the week, Tax Commissioner Joe Testa told the House Ways & Means Committee that centralized collection of the municipal net profits tax would save cities more than $9 million annually in local administrative costs. He also shared a study of how the change would impact 96 Ohio cities; all but four would pay less under HB 49.

Under the plan, the Ohio Department of Taxation would administer the taxes for a 1% fee. The commissioner told OSCPA he hoped the department could eventually reduce the cost further.

Numerous legislators have indicated they are hearing plenty of concerns from Ohio cities and villages, but not much from area businesses. They need to hear directly from Ohio businesses about their current filing challenges to better understand the filing and payment challenges they face. The time to speak up is NOW to help this hotly debated issue move forward. It’s easy to contact your state representative and state senator by phone, letter, email or in person. For additional assistance, contact the OSCPA government relations team at 800-686-2727.

9 comments

Leave a comment
  1. Jim Matuszak | Mar 19, 2017

    The first sentence of this article highlights the problem with this bill.  The fact that it doesn't explicitly say that cities will lose control of 14% of their revenues but rather states that cities will retain control of 86% of their income tax revenue is like Obama trying to explain the benefits of the ACA.  Its an attempt to deflect the readers' attention from the whole truth.  Its a pretty sad day when a society that requires objectivity, trustworthiness, etc. from its members will promote a bill without adhering to its own conditions. 

    Roger is right about record keeping requirements - they won't change.

    The municipalities shouldn't be expected to be willing to relinquish control over their collections of taxes any more than the state should be willing to relinquish its control over the collection of its taxes to the federal government.  Columbus...keep your hands out of the pockets of the municipalities.

    Perhaps we should broaden the understanding of the matching of revenues with expenses from a timing concern (i.e., accrual accounting for better management and reporting of financial matters) to include a matching of the parties responsible for the collection of revenues and the spending of the revenues.  It would promote better management / prevent poorer management of financial matters by municipalities.

  2. Roger | Mar 17, 2017
    Those proposing that DOT administer the municipal net profits tax under the guise of efficiency and compliance cost reduction don't really understand the processes and costs required to be in compliance with multicity tax reporting.  Filing the returns whether to the state or to numerous municipalities represent, from my experience, less than 10% of the total cost.  Most of the cost is incurred in the recordkeeping required to develop the numbers that go on the returns.  This whole narrative about a single point for filing sounds good but really its about control and who has it.     
  3. Debra | Mar 17, 2017

    There has to be balance between the needs of businesses and the needs of a community.  The municipalities just did a major overhaul of their tax ordinances so there are VERY, FEW differences in the taxes ordinances including adding to the detriment of cities a net profit carry forward.  So, the comments about the administrative nightmares are from the past filings not current filings with the new overhaul.

    At what point will the business community and their partners be satisfied?  I assume that is when they pay nothing.  So, who is suppose to pay for the services and infrastructure that a community needs?

     

  4. Harlita Tomlnson | Mar 17, 2017

    I am strongly opposed to HB 49.  The lobbying efforts by the OSCPA are misguided.  The tax code was unified for all municipalities collecting municipal taxes in 2015 and took effect in 2016.  All municipalities now have the same tax code.  In 2005, the Ohio Business Gateway was established to simplify compliance and all municipalities accept filing via that gateway.  So, it is simply not true, an alternate reality, that compliance has not been addressed in past legislation.  Please do not believe the hype.  It is also very discouraging to believe that all tax officials do their jobs horribly.  What I know as a Tax Commissioner this will cost my community dearly.  It will effect our ability to attract new business and to negotiate incentives.  Yes, I know it is hard to believe, but some of us are doing our job and doing it well and professionally.  From my perspective, there are far more CPAs that do not know how to properly file municipal income tax, even when all the laws are the same, then there are horrible tax collectors.  If you do not like tax collection, then provide your own safety, put out your own fire, do not worry about what your neighbor is doing with his or her property, clean and plow your own street, and rely on good Samaritans to get you to the hospital when tragedy strikes.

  5. Jay Barnes | Mar 17, 2017
    I don't understand the big push for centralized collection. It will not streamline compliance. HB 49 will require the filing of net profit returns via the Ohio Business Gateway.  Keep in mind, business have the option to file their net profit returns via the Gateway now. Taking away filing options will only increase municipal tax compliance costs. Nothing in HB 49 changes the number of municipal tax returns I have to file, just how I file. As a member of the OSCPA, this is one fight we are wasting valuable lobbying resources on. 
  6. Lynn | Mar 17, 2017

    Municipal income taxes in Ohio make this state a laughing stock.  The cities do a deplorable job of handling this, however, the thought of giving it to the state is scary, based on the poor way the state administers its system.

    If I were a business looking for a new location, the state of Ohio would be low on my list, due in large part to the tax system disaster.  Having had experience in other states, I speak from personal experience.

  7. Edward Hattenbach | Mar 17, 2017

    There is nothing acceptable to the municipalities in this proposed legislation.  The additional costs and restricted access to needed revenues will create havoc to many communities.  The normal cash flow will be constricted to quarterly allotments coming from the ODT.  Almost every community tax and finance department head with whom I have spoken is opposed to the centralized process.  The enforcement of municipal tax ordinances will still be borne by the communities.  This cost will not go away.

    Folks, please think about what services you will lose with the additional costs that your community will incur.  Will you have the snow removed as in previous years, leaves and trash picked up without an additional cost, police and fire services curtailed?  This is an issue that exists should municipalities have cope with the centralized collection.

    Think about it.  Ohio has one of the best business climates across the US, and this is in spite of the "administrative nightmares" and abhorrent collection process.

  8. Steven A. Hinshaw | Mar 16, 2017
    I strongly urge OSCPA members to step forward to testify as proponents of the municipal tax reform provisions in the current budget bill (HB 49). As a tax practitioner that's worked for various large Ohio-based companies over the past 40+ years, I’ve seen first-hand the administrative nightmare that complying with Ohio's 600+ municipal income tax ordinances can be. That alone can’t help but be a competitive disadvantage for the state, even before the ultimate tax liabilities, if any, are factored into the equation.
  9. Jim | Mar 16, 2017

    Talk about missing the forest through the trees. The entire process of collecting Ohio's local income taxes is abhorrent.

    Leave a comment