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1 Chris Stephens & Scott Drenkard, Ohio House Ways and Means Considers Substantially Watered-Down Municipal Income Tax Reform 1 (2013)

handle is hein.taxfoundation/taxfaala0001 and id is 1 raw text is: TAX ; iltii~i~ FOUNDATION November 5, 2013 No. 401 Ohio House Ways and Means Considers Substantially Watered-Down Municipal Income Tax Reform By Chris Stephens er Scott Drenkard This year, the Ohio House Ways and Means Committee has the opportunity to consider changes to their municipal income tax code, which is the most complex local income tax structure in the United States. Unlike any other state that levies local individual income taxes, Ohio problematically allows over 600 municipalities to define tax bases and set their own rules for collection, auditing, and income calculation. This creates substantial compliance burdens associated with income tax filing, withholding, and accounting which are especially prevalent in industries where employees travel between municipalities in the course of their duties. As an example, one Ohio electrical contractor once filed 221 W-2 forms for 19 employees, along with 39 business returns, most having a tax charge of $5 or less.' One bill, HB5, has been in the Ohio House Ways and Means Committee for several months and represents a start at addressing some of the more uniquely egregious portions of the state's municipal income tax practices.2 In recent days, a substitute bill (LSC 130 1581-2) has been introduced that substantially alters many of the provisions of HB5, keeping just a few positive aspects and changing many provisions for the worse. Here, we list the substantive changes and provide commentary on how the changes will affect reform efforts this year and in years to come.3 Chris Stephens is a law clerk and Scott Drenkard is an economist at the Tax Foundation. 1 See Greg Lawson & Scott Drenkard, In the State Tax Battle, The Tar Heels SoarAbove The Buckeyes, Forbes, Sept. 23, 2013, htt://ww- forbes.com/sites/realswin/20 13/09/23/in-the-state-tax-battle-the-tar-heels-soar-above-the-buckeves/. 2 See Scott Drenkard, Ohio's Local Income Taxes: Complex andin Need ofReform, Testimony before Ohio House Ways and Means Committee, May 7, 2013, tx-ard-need-reform. For a fuller analysis, see Ohio Legislative Service Commission, Sub. Bill Comparative Synopsis of H.B. 5. 130th General Assembly (House Ways & Means), Doc. R-130-2278.