Sweeping city income tax changes coming

A massive overhaul to Oberlin’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.

City finance director Sal Talarico is projecting a $60,000 loss in income for Oberlin. About $16,000 of that will be lost cashflow that will eventually be recovered, though.

Talarico plans to hand city council a huge reform package this fall, likely in October.

In the meantime, he is awaiting sample tax code language being prepared by the Ohio Municipal League.

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.

Talarico is skeptical.

“I’m not sure this will save anyone anything,” he told the News-Tribune.

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 (Oberlin already allows 100 percent net loss deductions over three years).

• 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.

Talarico said Oberlin’s charter will have little power to resist those changes being put in place by the state.

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