The Governor is tackling head on a problem that many business people believe hampers the Ohio business environment – municipal income tax administration. Ohio is one of only a handful of states that allow municipalities to assess income taxes upon those who work or live in their communities. Many of the jurisdictions in Ohio participate in RITA – Regional Income Tax Agency which facilitates the filing of municipal income taxes, but the balance of the municipalities have their own tax departments to which individuals and businesses must file and pay. This results in a much higher administration cost for the taxpayer and for the municipalities.
The first proposal on the new budget calls for the state’s Ohio Business Gateway portal to be used by all jurisdictions – one filing, one uniform administration and appeals process. The Gateway will allow filers to upload data from commercial software packages.
The municipalities would continue to determine tax credits, administer employer withholding and set rates. Individual filers could still file with the municipality.
The proposal also calls for the elimination of the income tax throwback rule used by many municipalities. The throwback provisions allow the municipality to claim that sales not being taxed by other jurisdictions should be added to the taxing jurisdiction’s apportionment factor.
Two other major items are incorporated into the proposal. The Governor continues to shift the tax burden from income tax to sales tax. High end rates would drop to 4.33% from 5.44% but be paid for with an increase in the sales tax to 6.25% from 5.75%. For those wondering why they are already paying over 5.75%, local counties often have additional income taxes above the state. The top rates are currently 8% and would climb to 8.50% under this plan. Many in business feel this is also a major hindrance to business in the state as rates change in every county and the administration cost of sales tax in Ohio exceeds that of most states.
The other major change is the continual push to subject more services to sales tax. The Governor has proposed to make lobbying, cable TV, cosmetic services and other services subject to sales tax. This time around the Governor decided not to attempt to tax professional services.
Finally, the proposal would raise the tax on cigarettes from $1.50 to $2.25 per pack and reduce the number of income tax brackets from nine to five.
Now the work begins for the state legislators who will develop a compromise proposal by mid-year.