Taxpayers to take a hit from city lawsuit

Written on Nov 30, 2017

OSCPA staff report

It’s an open question as to whether a lawsuit by a group of Ohio cities will succeed in obstructing needed tax reform in Ohio. But there is no doubt the action will cost taxpayers plenty of money at the state and local level.

A group of more than 100 Ohio cities on Nov. 16 filed a civil lawsuit in the Franklin County Court of Common Pleas challenging the constitutionality of key municipal income tax reforms, not only in House Bill 49 passed in the summer, but also House Bill 5 passed in 2014.

In the latest episode of OSCPA Spotlight, Society Tax Policy Director Greg Saul said though OSCPA had heard a suit was coming, he was surprised at the number of claims for relief it contained.

“There are a lot of things in here,” Saul said. “It’s going to take up a lot of time and resources ... the lawsuit does not ask for compensatory damages, so if that money runs out on the city side, the law firm is probably going to have to go back and ask for more taxpayer money from the cities. And taxpayers also are going to be footing the bill on the state side ... So when it’s all said and done, it’s probably going to be millions of dollars of costs to the state of Ohio and to the cities, all of which will come out of taxpayers’ pockets.”

The suit names the State of Ohio, Ohio Tax Commissioner Joe Testa, Ohio Treasurer Josh Mandel and Director of the Ohio Office of Budget and Management Tim Keen as defendants, and asserts violation of the Ohio Constitution’s Home Rule Amendment as the primary argument for seeking the repeal of hard-won reforms to the most burdensome municipal income tax structure in America.

It also seeks an immediate preliminary and permanent injunction to halt all work by the State of Ohio to implement centralized net profits filings through the Ohio Business Gateway along with other state-administered municipal tax operations.

Saul said the suit has the potential to cause additional harm by forcing businesses to continue paying the compliance costs they were footing under the previous inefficient system of separately filing and paying in each municipality where the business had net profits.

The new centralized collection system is “intended to help taxpayers who file in numerous cities to cut down on their compliance costs,” Saul said. “And in fact, the Ohio Department of Taxation said that if every eligible business opted into this system, it would save the business community $800 million in compliance costs.”

Watch this episode above now for more information, and you can read the cities’ full complaint for declaratory and injunctive relief here.

6 comments

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  1. Steve H, Atty, CPA | Dec 04, 2017

    The true "cost" to businesses doing business in Ohio, and ultimately to their customers, of complying with the myriad of varying Ohio municipal net profits taxes is utterly ridiculous. As we all know, it's not the actual tax dollars that are the primary problem, although those dollars clearly present a competitive disadvantage when a business compares doing business in Ohio versus some other state. It's the fact that there are over 600 municipalities, each with its own tax ordinance and regulations, with which a business must comply - not only by filing an annual tax return but also by making quarterly estimates and in most cases filing an extension request. The municipal income tax provisions contained in both  H.B. 49 and H.B. 5 were not aimed at limiting any municipality's taxing authority, but were simply attempting to reduce the cost of doing business in Ohio by streamlining the tax compliance process. Anyone that doesn't see that has clearly never worked for a medium to large company conducting a statewide business in Ohio and witnessed the absurd amount of time and effort that has to be invested to simply comply with the various municipal net profits taxes across the state.

  2. Don | Dec 04, 2017
    It will be interesting to see how this plays out. I feel the state is overstepping on this issue and their ultimate goal is to mandate the filing through the state and get their hands in the pockets of the localities. I would personally rather deal with the local tax administrators. It is my experience that it is much less time consuming to resolve any issues at the local level than with the state. If there is really a concern of taxpayer money being spent on legal fees, the state could drop the matter and save taxpayers the legal fees they are so concerned about.
  3. Coun cil member/cpa | Dec 01, 2017

    If any of the comments made above were from a member of a municipality, there might be some credibility.  Sadly, this pompous commentary by the OSCPA is getting ridiculous.  There is never an opinion presented here from a city administrator, council member, etc. 

    We have yet to see what dollars are being allegedly lost.  It is better to deal with facts vs opinions.

  4. Greg Saul | Dec 01, 2017

    Joe,

    As of January 1, 2017, the statewide standard 5-year NOL started phasing in for municipalities at 50% for five years.  Therefore, 50% of losses first incurred in tax years beginning in or after 2017 may be used to offset income in TYs 2018 – 2022. In or after TY 2023, 100% of NOL carryforwards may be used.

  5. Carol Fidler Kayes, CPA | Dec 01, 2017
    The main objection by the cities seems to be that the state will retain a small amount of the funds collected to pay the costs and the cities want all of the money.  So they are willing to pay a lot more  in legal fees than what the centralized system would cost them.  And the cost to businesses for compliance also mean that money is not available for more productive uses.  What does this say about the leaders in our cities?  We should remember this when it comes time to re-elect them or vote them out of office.
  6. Joe | Nov 30, 2017
    Yes the reform that was passed did improve the system but it only touched on the tip of the problems. Other area to name a few are the net income requirement should be set at threshold, Cities should accept e-filed returns or faxes, the number of work days should be expanded to 45 to 60 days. NOL should be allowed for all cities a with standard period of carryover to name a few.   

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