A fight over income tax collections is gearing up statewide, and Oberlin is joining the fray.
City council voted Monday to hire legal firm Walter Haverfield in a challenge against House Bill 49, the Ohio biennial budget adopted this summer.
A section of the bill allows businesses to file their net-profit income tax returns directly with the Ohio Department of Taxation rather than with the local authorities. Then the state gets to disburse money back to cities, tacking on a half-percent fee.
Municipal officials far and wide are arguing that the change is unconstitutional, violating their right to collect taxes and ignoring their right to home rule.
Some argue the move is a step toward a full-scale state takeover of all local income tax collections. David Kukucka, auditor in neighboring Amherst, recently told us he views that scenario as the biggest threat facing cities in the coming decade.
The General Assembly has been trying to take more control over municipal income taxes for the last couple of years, said Oberlin finance director Sal Talarico. The first step was adopted in 2014 under House Bill 5, requiring cities to pass standardized ordinances controlling collections, he said.
Talarico said he’s alarmed by the state’s encroachment. He sees the latest change as a test.
“Net profits don’t require a lot of time or energy, so to charge a half percent is not warranted, in my opinion,” he said. “But they’re dipping their toe in the water.”
The Ohio Department of Taxation already collects income taxes for school districts but does not do a good job cracking down on residents who fail to pay their fair share, Talarico said. By contrast, Oberlin is a seat-holding member of the Regional Income Tax Agency, which sends non-filers to collections and if necessary takes them to court.
Twelve RITA communities have joined the lawsuit against the state. In Lorain County, Avon, North Ridgeville, Elyria, and Amherst are part of the fight. Oberlin’s costs in the suit will be covered by RITA.
In the meantime, Oberlin has already been hurt enough by the state’s financial meddling, Talarico said.
Local government funding from the state was slashed in half around 2013, going from in excess of $600,000 down to around $300,000 per year. At the same time, state legislators decided to eliminate the estate tax, which provided between $400,000 and $700,000 per year to the city’s coffers on average.
The cuts have gradually sapped the strength of cities.
“They’re doing it slowly, and I think that’s strategic on their part,” Talarico said.
“The state continues to push the envelope on this income tax issue,” he told council Monday, following our interview. “I am convinced that local municipalities can do a far better job at collecting taxes. It’s a matter of making sure everyone pays their fair share so no one has to pay more.”
Jason Hawk can be reached at 440-775-1611 or @EditorHawk on Twitter. Laurie Hamame contributed to this report.