The Re-Introduction of Ohio Issue (601) as HB No.5

The Ohio General Assembly is fast at work in 2013, introducing 22 new bills for consideration. One particular bill of interest is House Bill No.5 (hereinafter "HB No.5"). This bill seeks to amend several sections of the Ohio Revised Code, to enact new sections therein and repeal a few, all of which relate to laws governing income taxes imposed by municipalities in Ohio. The legislature is attempting to make the state's municipal income tax system more uniform, as it relates to filing and residency requirements.

Having just been introduced, the bill will require further House consideration, public hearing, and voting for approval before ever getting to Governor Kasich for review. To become law in Ohio, a bill must receive three considerations or approvals in each house of the General Assembly. Introduction of a bill constitutes consideration or approval. Thus, HB No.5 is in the infancy stages for the life of a bill.

HB No.5 proposes many new changes. For example, several new definitions are proposed within various Ohio Revised Code (ORC) sections relating to municipalities and the tax codes. Of note is the change proposed to "net profit" from a business or profession in a municipality imposing income taxes, and an alternative apportionment method. Another proposed change involves employer withholding taxes and qualifying wages.

Section 718.04 of the ORC, as proposed, requires a municipality to include the following in its ordinances or resolutions, in order to levy a tax on income and prohibits a municipality from taxing income at "other than the uniform rate:"

• A statement that the tax is an annual tax levied on the income of every person residing in or earning or receiving income in the municipal corporation, and that the tax shall be measured by municipal taxable income;
• A statement that the municipal corporation is levying the tax in accordance with the limitations specified in this chapter and that the resolution or ordinance thereby incorporates, by reference, the provisions of ORC 718;
• The rate of the tax;
• Whether, and the extent to which, a credit will be allowed against the tax as described in division (E) of ORC 718.04;
• The purpose or purposes of the tax;
• Any other provision necessary for the administration of the tax, provided that the provision does not conflict with any provision of this chapter or any rule adopted by the municipal tax policy board pursuant to ORC 718.

HB No.5 also provides for an allowance to a taxpayer to file a "generic form of any income tax return, report, or document required by the municipal corporation … [so long as the] generic form, once completed and filed, contains all of the information required," rather than using prescribed and existing forms for each municipality.
Beginning in 2015, the Bill proposes that a taxpayer shall "prepare a consolidated municipal income tax return in the same manner as is required under the United States Department of Treasury regulations that prescribe procedures for the preparation of the consolidated federal income tax return required to be filed by the common parent of the affiliated group of which the taxpayer is a member." If a taxpayer elects to do this, however, he or she must continue to file a consolidated return in each subsequent year unless the tax administrator provides written permission otherwise.

Another point of interest is a proposed requirement to have a local board of tax review, comprised of three members, two of whom shall be appointed by the legislative authority of the municipality, but cannot be employees thereof, and one of whom shall be appointed by the top administrative official of the municipality

In an effort to streamline the collection of unpaid taxes, HB No.5 does provide that "immediately upon the filing of the assessment or final determination, the clerk shall enter a judgment against the party assessed in the amount shown on the assessment or final determination. The judgment shall have the same effect as other judgments. Execution shall issue upon the judgment at the request of the tax administrator, and all laws applicable to sales on execution shall apply to sales made under the judgment."

The attorney fee provision is both good and bad for municipalities. In the face of an appeal of an assessment, however, of interest in HB No.5 is that if a taxpayer appeals unsuccessfully, he or she is liable to the municipality for the "reasonable costs of litigation and attorney's fees sustained." If a taxpayer is successful with the appeal, however, the municipality is "liable to the taxpayer for reasonable costs of litigation and attorneys' fees sustained."

An entirely new provision being proposed requires the Ohio Governor to appoint a municipal tax policy board consisting of seven members comprised as follows:

• One member shall be the tax administrator of a municipal corporation with a population greater than three hundred fifty thousand, according to the most recent decennial census;
• One member shall be the tax administrator of a municipal corporation with a population greater than one hundred thousand, but not more than three hundred fifty thousand, according to the most recent decennial census;
• One member shall be the tax administrator of a municipal corporation with a population greater than fifty thousand, but not more than one hundred thousand, according to the most recent decennial census;
• One member shall be the tax administrator of a municipal corporation with a population greater than fifteen thousand, but not more than fifty thousand according to the most recent decennial census;
• One member shall be the tax administrator of a municipal corporation with a population of not more than fifteen thousand, according to the most recent decennial census;
• One member shall be an employee of the regional income tax authority;
• One member shall be an employee of the central collection agency.

By rule, this new board may prescribe uniform requirements7 as to the keeping of records and other pertinent documents related to the liability of any person for a tax imposed by a municipal corporation and as to the filing of copies of federal income tax returns and determinations.

If enacted, HB No.5 would be effective for municipal taxable years beginning on or after January 1, 2015. For municipal taxable years beginning before January 1, 2015, tax administrators may continue to administer, audit and enforce the income tax of a municipal corporation under Chapter 718 and ordinances and resolutions of the municipal corporation as that chapter and those ordinances and resolutions existed before January 1, 2015. While HB No.5 has just been introduced, and assigned a number to go to committee, if passed will have a major impact on the current function of municipalities as it relates to local taxes.