Ohio’s burdensome municipal income tax structure hinges on the meaning of “levy.”

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Buckingham, Doolittle & Burroughs, LLC

Much-needed simplification of Ohio’s overly burdensome municipal income tax structure hinges on the meaning of “levy.”

The 10th District Court of Appeals has heard oral arguments to decide the fate of Ohio’s efforts to reform municipal income tax for businesses and enact a centralized filing system. Last year, Ohio enacted H.B. 49, which allows businesses to elect to file a single municipal net profits return with the Ohio Tax Commissioner through the Ohio Business Gateway. Over 130 municipalities promptly mounted a challenge to centralized filing on the grounds that it unconstitutionally limited the municipalities’ power to tax under Ohio’s home rule. The trial court denied the challenge because the Ohio constitution allows the General Assembly to limit municipalities’ power to levy taxes, which the municipalities appealed to the 10th Appellate District.

At oral arguments, the Court focused on the meaning of the word “levy”—specifically whether its definition includes both “impose” and “collect” with respect to taxation. The cities contend that levy only includes “impose” and therefore the restriction on its ability to collect taxes is unconstitutional. The state countered with examples where “levying” taxes included collection. Although the cities are committed to preserving their autonomy, the cost-savings for both cities and businesses from administering the tax at the state level are undeniable.

Ohio Tax Commissioner Joe Testa estimates that a centralized filing system could save Ohio business owners up to $800 million per year. Further, municipalities would also benefit as the .5% administrative fee to be charged by the Department of Taxation for collecting the tax pales in comparison to the cost of municipalities administering and collecting taxes themselves.

A ruling that favors the State would significantly advance Ohio’s municipal income tax which has been harshly criticized. The Court is expected to render its decision in early 2019. In the meantime, businesses may still register for centralized collection.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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