Budget director: Centralized collection would save businesses, cities money

Written on Feb 02, 2017

State budget is a plus for businessOSCPA staff report

Centralized collection of municipal income taxes in Ohio would not only improve the state’s business climate but it would save money for cities.

That was the testimony of Timothy Keen, director of the Ohio Office of Budget and Management on Wednesday before the House Finance and Appropriations Committee. Keen, an appointee of Gov. John Kasich, offered the first testimony on the governor’s biennial budget proposal, which was released Jan. 30.

Keen pointed to Ohio’s success in collecting other taxes for local entities.

“The state has collected the sales tax on behalf of the counties and the transit authorities since the late 60s or early 70s … and not one dime has ever not found its way back to where it’s supposed to go,” he said. “We have collected the school district income tax since … the early 80s and the school districts get all their money. So we can easily bring our efficiencies and economies of scale to bear and provide for the business community of this state a reduced burden, collect these dollars, send them right to where they belong and save the locals some money to boot. So, I’m not certain what the concern is.”

That statement was part of Keen’s response to Rep. John Patterson, D-Jefferson, who asked him to allay fears of his constituent municipalities about losing local control.

Keen said in addition to making compliance easier for taxpayers and businesses, cities would benefit from $9 million in cost savings statewide, according to the Ohio Department of Taxation.

“The economies of scale (in the budget proposal) are significant, and they can bring those to bear through collections, through public information, through audit that can be of benefit to all the recipients of this,” Keen said.

The proposal spells out major reforms to Ohio’s burdensome municipal income tax system and other types of state taxation, several of which were recommended last year by OSCPA’s Ohio Tax Reform Task Force. The group worked for more than a year developing recommendations after state leaders asked for guidance on how to make Ohio’s tax structure more competitive. OSCPA presented its recommendations to the Ohio Legislature in June, and Ohio Tax Commissioner Joe Testa met with the task force in September at OSCPA’s offices to learn more.

The budget contains provisions that will impact other Ohio taxes, education, economic development and more, including these ideas endorsed by OSCPA:

  • Elimination of the throwback rule used by a number of Ohio municipalities.
  • No increase in the Commercial Activity Tax rate for Ohio businesses.
  • Shrinking the number of income tax brackets from 9 to 5.

Also included were an income tax cut, a sales tax increase, and an expanded list of services to be taxed. Details were included in this week's Member Alert.

Keen said in forecasting the budget, his office assumed moderate economic growth in Ohio in the coming years. Growth here has lagged, he said, possibly because a strong dollar has hurt manufacturing and because Ohio has become an energy producing state and has been affected by a drop in energy prices. On the plus side, he said, the state’s unemployment rate “is very close to what is estimated to be full employment,” slow population growth and retirements will help keep it that way and wages are expected to “increase faster than they have been.”

Read the Administration’s summary of the budget bill package released Jan. 30.

4 comments

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  1. Harlita R. Tomlinson, CPA | Feb 03, 2017

    As a member of OSCPA and a tax commissioner for a self-collecting municipality.  This is a major threat to future sustainability of the City.  This means that my community will loose $1,000,000 in revenue (the cost for the state to collect).  I may loose personnel, business auditors, that are trained and know how to properly collect for my community.  The state will not audit to know when new businesses enter my City and they will not be able to verify transient service related businesses to know when they are earning money in my community. 

    This is not a state matter.  Businesses are now mobile.  Businesses are no longer defined by brick and mortar facilities.  Taxes are a sensitive issue and the state should do what it has done in the past, remain silent.

    I know I am only one of eleven self collecting communities, but the fact that the state will be a better collector is just political rhetoric.  In my opinion, the state is once again balancing its failed financial planning on the back of local communities.  A complete disrespect of those that are doing their job as financial public servants well.

  2. Edward Hattenbach | Feb 03, 2017

    As a member of the OSCPA and a council member in Southwestern Ohio, I have these points that need to be considered.

    Where is there a benefit to the municipalities?  There is none.  The administration of tax collections is still a responsibility of the local communities.  That cost does not go away.  Additionally, the State of Ohio will not process the municipal tax returns for free.

    The Ohio Department of Taxation is operating at a bare bones minimum.  To get matters resolved on a reasonably timely basis is not a priority with this department.  Communications are poor.  It is amazing to see the number of assessments that come from Columbus that are totally baseless and lack any documentation.  To try to get somebody to answer these takes well over six months.  I have spoken with our finance department and have been made aware the payments are periodically held by the OBG because of internal problems.  Municipalities need access to their cash flows without interference from another agency.  Think about how much money has been taken away from municipalities by changes in the Ohio State tax structure.

    The OBG exists for processing municipal tax payments.  You cannot remit RITA community taxes via the OBG.  Another fault with centralized collection.

    Finally, we have had the school district income tax for a number of years.  One would expect that the IT1040 and SD100 would be combined in order save time on processing one tax return.

  3. Allen R. Houk, CPA, CMA | Feb 02, 2017

    I applaud the move to centralized collection:

    1. The savings to business and individual filers to reduce the cost of multiple municipal filings and the elimination of incorrect penalty assessments that are too time consuming to fight will benefit all.

    2. Municipal employees want to complain about potential cash flow issues, but have no answers when I present them evidence of checks written to RITA that are not cleared by the bank for 15 to 30 days.

    3. My municipality pays RITA 2% of its income tax collections, so 1% would save our local $ 250,000/year.

  4. Debra Miller, CPA, CGMA | Feb 02, 2017

    Why local governments are CONCERNED about centralized collection from a CPA who works at a local government:

    1. Cash flow - the state has had problems getting the school districts and local government funds from Ohio Business gateway to each entity in a timely fashion. 

    2. Trustworthiness - the state has reduced or eliminated several of the funding sources for local governments that the state had control of collecting.  The state does not have a good reputation when it comes to working with local governments. 

    3. State balancing its budget by taking again from local governments - the state again is having troubles balancing its budget - it now wants to take a portion (1% now but the state can change that whenever it wants) of municipal income taxes.  It states that local governments would save money - but only by laying off personnel who currently work in this area.

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