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Government and Politics

House Bill 5 overhauls local income tax rules
A bill before the Ohio House changes the way cities charge local income taxes, but advocates say it doesn't go far enough

Reporter / Host
Jeff St. Clair
In The Region:

Big changes could be coming this week to simplify Ohio’s local income tax rules.

The Ohio House is expected to approve a bill that limits the wide-ranging autonomy of cities to levy income taxes.

Economist Scott Drenkard of the Tax Foundation says Ohio is unique in the amount of local control its 600 municipalities have in setting income tax policy.

LISTEN: Tax Foundation's Scott Drenkard

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“In most other states the state sets strict rules that localities need to comply with so that local income taxes don’t get out of hand in the way that they’re levied.  In Ohio each municipality is allowed to decide what they’re going to tax, how you calculate taxable income, whether tax rates are different for residents or people that just work in the locality…”

Supporters of House Bill 5 say it will be good for businesses by allowing them to pay less through a system that is easier to follow.

But local governments around the state have come out against the bill —saying it cuts too far into their finances already sliced by the recent state budget. 

Several provisions of the bill are drawing ire.

The first is a requirement that cities offer businesses a five year carry forward for net operating losses, which cuts future tax liability.

The other changing the law so that a person must work in a city 20 days instead of 12 to owe income taxes to that city.

And taxes won’t begin being assessed until day 20, as opposed to the current law which requires assessment on day one.

But the Tax Foundation's Drenkard says a substitute bill passed last week by the House Ways & Means Committee does not go far enough to reform Ohio's complex local income tax system.



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