• A Review of Ohio Senate Bill 282
  • April 28, 2014 | Author: Timothy K. Spencer
  • Law Firm: Weltman, Weinberg & Reis Co., L.P.A. - Brooklyn Heights Office
  • The 130th Ohio General Assembly's focus on reworking the ability of Ohio municipalities to regulate and implement income tax measures tailored to their own unique characteristics grew with the introduction of yet another bill that aims to disrupt how a municipality collects local income tax.1 Senator Kris Jordan (R-Delaware) introduced a bill titled Senate Bill 282 (the "Bill"), which aims to prohibit a municipality from collecting income tax on certain types of compensation and profits. Ultimately, the Bill aims to eliminate the current ability of Ohio municipalities to levy income tax on nonresidents' compensation for personal services or net profits from sole proprietorships. While consequences of the Bill might be to lure into Ohio service-oriented businesses and encourage the creation of sole proprietorships, many argue that the resultant decrease in realized income tax revenue will only hinder municipalities from offering what is already viewed as struggling public services.

    Senate Bill 282's Provisions

    Perhaps most significantly, the Bill proposes to prohibit a municipality from collecting income tax on sources of income that are currently subject to income tax should the municipality so choose. The Bill would prohibit a municipality from collecting income tax on compensation paid to employees engaged in certain transit authority positions;2 certain persons employed at United States Air Force Bases who are not domiciled in the municipality in which the Air Force Base is located;3 and persons who provide personal services performed for a political subdivision on property owned by the political subdivision, unless the person(s) performing the services is/are domiciled in that municipality. Additionally, taxpayers with a net profit from a business or profession operated as a sole proprietorship are exempt from paying income tax into the municipalities into which their business(es) have a taxable situs.4 The Bill makes clear, though, that residents of a municipality may continue to be taxed as the current law permits.5

    The Bill is not without opposition. As with House Bill 5, opponents of the Bill highlight the potential pitfalls of losing portions of a municipality's income revenue. In a time when so many municipalities are struggling to provide its residents public services, even slight losses of tax revenue may prove problematic. Perhaps worse for Ohio's municipalities is the loss of some autonomy to structure the best income tax system suitable for each respective municipality, as the Bill would cause at least some municipalities to rework both their budgets and their income tax system.

    While somewhat inferential, the benefits to the Bill speak directly to a prevailing desire of Ohio legislatures to attract foreign businesses to Ohio. The elimination of a municipality's ability to tax an individual or business solely because the individual or business renders a service in that municipality should ease some of the confusion and complication involved in filing local income taxes in Ohio.6 It is hoped that the elimination of these barrier-like tax statutes in Ohio will create incentive for foreign companies to establish themselves inside Ohio. Were that to happen, the new revenue created by the influx of foreign companies into Ohio would, it is hoped, offset the loss of autonomy and revenue from the Bill.

    Conclusion

    The introduction of the Bill into the Senate is yet another step by Ohio legislatures to simplify the local income tax field in hopes of encouraging foreign business to enter into Ohio. Assuming this ultimate end is achieved, while the influx of foreign businesses into Ohio would certainly increase revenue realized by Ohio municipalities as a whole, exactly which municipalities would actually realize the increased revenue is uncertain. For that reason, those who oppose the Bill do so because of the Bill's likely negative impact on many municipalities' realized income tax revenue and the loss of autonomy that all Ohio municipalities will certainly feel. In the end, though, only time will tell if these measures serve a net gain or a net loss for Ohio's municipalities.

     

    1 Greg R. Lawson, Greg R. Lawson commentary: Municipal tax system is punishing for Ohio's businesses, THE COLUMBUS DISPATCH, April 17, 2014, http://www.dispatch.com/content/stories/editorials/2014/04/17/municipal-tax-system-is-punishing-for-ohios-businesses.html.
    2 S.B. No. 282, 130th Gen. Assem., Reg. Sess (Ohio 2014).
    3 S.B. No. 282, 130th Gen. Assem., Reg. Sess (Ohio 2014).
    4 S.B. No. 282, 130th Gen. Assem., Reg. Sess (Ohio 2014).
    5 S.B. No. 282, 130th Gen. Assem., Reg. Sess (Ohio 2014).
    6 Jim Siegel, Ohio House Oks municipal income-tax bill opposed by cities, THE COLUMBUS DISPATCH, Nov. 14, 2013, http://www.dispatch.com/content/stories/local/2013/11/13/ohio-house-approves-local-tax-changes.html.