Sweeping city income tax changes coming

Amherst treasurer Richard Ramsey

A massive overhaul to Amherst’s tax code is coming and it could throw the city for a loss.

House Bill 5, adopted by the Ohio General Assembly in December, is pushing widespread changes to how cities and villages across the state collect income tax.

“They took our 50-page (state) tax code and made it 150,” said city tax secretary Laura Kemp.

Her office is projecting a $200,000 loss in income for Amherst.

Amherst treasurer Richard Ramsey, who attended a seminar on the issue earlier this month, said he plans to hand city council a huge reform package when legislators convene after summer break. Cities have recently been provided with a sample of the new tax code that must be used as a template, he said.

The updates must be applied universally across Ohio by Jan. 1 and will go into effect at the start of 2017.

According to the Ohio Society of CPAs, which championed the reforms, HB5 makes municipal income taxes more uniform and reduces headaches for companies that do business in many communities.

Ohio’s current system has been called the most complicated in the nation, the OSCPA said.

The Ohio Municipal League opposed HB5, arguing that it eliminates local control and eats away at revenue, especially for smaller cities.

“This is a clear roadmap to future centralized collection of municipal income tax revenues by the state,” said an overview published by the OML.

According to the think-tank Innovation Ohio, communities stand to lose an estimated $82 million per year under the new tax system.

When combined with cutbacks to local towns over the past four years, Ohio cities and villages are down about $500 million, the group said.

So what will change?

The new code:

• Defines the income cities can and can’t tax, notably barring cities from taxing certain benefits for highly-paid executives.

• Requires businesses to be allowed to deduct 50 percent new net operating losses and carry those losses forward five years (Amherst already allows 100 percent net loss deductions).

• Allows “Pass-through” workers such as roofers, pavers, and other contractors to operate up to 20 days in a city without having to pay local taxes (up from 12).

• Bars cities from applying local taxes to businesses that have income generated through off-site or Internet sales.

• Creates more red tape for city tax offices, including requiring the use of certified mail and limits on how audits are conducted.

Ramsey highlighted another specific issue raised by HB5: Cities will now have the option to tax the income of minors.

“We’re going to be as close as possible to what already exists,” Kemp said. “But this is a huge, huge change.”

Jason Hawk can be reached at 440-988-2801 or @EditorHawk on Twitter.