Tackling Ohio’s Tough Municipal Tax Issues

If you’re the type to procrastinate, you might be thinking endlessly (or maybe, not at all!) about filing your federal return before the deadline. You’re wondering what credits you get and what deductions you can claim and hoping that there’s a refund in your future. Your federal return may have the most money on the line, but don’t forget about your state and local returns, too. Although it may be easy to think of local returns as small, their demands on your time are anything but.

Each year, taxpayers across Ohio spend countless hours – and pay their CPAs thousands of dollars – to sort out the mess that is their local tax returns. Because of the patchwork nature of Ohio’s municipal tax system, compliance with local tax laws is a complicated business and a burden on Ohio taxpayers.

The system is complicated because of the way that it’s sprung up, with each municipality passing its own tax laws. The complications arise from the fact that different municipalities define taxable income differently. Some tax those who live within their limits and others tax those who work there. They also have differing definitions of nexus, the minimum connection that taxpayers need to have to a jurisdiction to be subject to its laws. People who work in multiple municipalities, say plumbers who work in multiple towns or attorneys who practice in multiple courts, are asked to calculate the number of days (or even hours!) that they worked in each municipality, and remit taxes to those locales accordingly.

For many taxpayers, the cost of complying with the current system exceeds the taxes due. Complying with these laws can be nearly impossible for even the best-intentioned of taxpayers.

Paying taxes will never be fun, but it shouldn’t be difficult. The Municipal Tax Reform Coalition, a group of 25 organizations from across Ohio, is working to make Ohio’s system more taxpayer-friendly. This group, with whom Rea is affiliated through its relationship with member organization The Ohio Society of CPAs, is supporting Ohio House Bill 5 (HB 5). The proposed legislation aims to streamline the process so that Ohio’s municipal income tax system is simpler, fairer and more predictable. It’s a reform that’s long overdue in Ohio.

You might think that accountants would be opposed to this reform. After all, we’re paid by the hour to do your taxes, and more cumbersome tax laws mean more billable hours, right? But, that’s a short-sighted perspective. As accountants, our real value comes in providing tax planning, in consulting with clients to create strategies for long-term tax savings. Our job is to look out for your financial best interest; the changes proposed in HB 5 will help us to do just that.

This is not a home rule issue. Each city will continue to administer their tax collection, collect their resident’s taxes, set their own tax rate and determine the amount of tax credit they will allow for taxes their residents pay to other cities. Municipal uniformity is to lessen the preparation burden for each city resident and for each city business.

Your legislators are being attacked with scare tactics and misinformation from city tax administrators and the Ohio Municipal League. If you believe in lessening the burden on taxpayers to comply with the tax laws, please contact your state legislator and tell them you support municipal tax uniformity. It is important.

If you support Ohio municipal tax reform, now is the time to make your voice heard. The legislature is still hearing testimony surrounding the bill; by speaking up now, taxpayers can have a real impact on Ohio’s tax system for years to come. To learn more about municipal tax reform, contact your Rea advisor or visit http://munitaxreform.org.

This article was originally published in Illuminations: Facts & Figures from people with a brighter way, a Rea & Associates enewsletter, 4/10/2013.

Note: This content is accurate as of the date published above and is subject to change. Please seek professional advice before acting on any matter contained in this article.