The Ohio House of Representatives recently passed Substitute House Bill 5, legislation to revise laws governing Ohio’s notoriously complex municipal income tax system.

Sub. H.B. 5: Simplifying Ohio’s Municipal Income Tax System

Sub. H.B. 5, which was jointly sponsored by State Representatives Cheryl Grossman (R-Grove City) and Mike Henne (R-Clayton), strives to make Ohio’s municipal income tax structure more conducive to business growth and economic development. Among other provisions, Sub. H.B. 5 will:

  • Consolidate tax returns to improve Ohio’s competitiveness and reduce the cost of compliance and administration by reducing unnecessary returns
  • Codify 11 common-law elements of the domicile test and permits the tax administrator and taxpayers to use other facts to show residency
  • Amend the law pertaining to the apportionment of income to mitigate negative revenue impact to municipalities and reduce costs
  • Create uniform audit and appeal procedures to ensure fair, local enforcement of municipal tax
  • Enhance current Local Government Fund (LGF) reporting of tax amounts collected each calendar year for publication in an effort to increase transparency
  • Establish uniform due dates for all municipal tax returns and uniform withholding requirements for all employers
  • Establish standard interest rate and penalty provisions to prevent imposition of usurious interest rates
  • Create a single layer of tax by specifying that only a city of residence can tax an individual partner, while all other cities must tax partnership at the entity level
  • Treat S-Corp owners the same as current law

“The municipal income tax system in Ohio is the worst in the nation,” said Rep. Grossman. “It has caused important companies to move out of Ohio to avoid dealing with this broken system.  As we strive to keep and attract businesses to Ohio and provide Ohioans with much-needed employment, passage of Sub. H.B. 5 is of utmost importance to the people of Ohio.”

Ohio has the most complicated local municipal income tax system in the nation, with more than 600 different municipalities utilizing more than 300 different tax forms. This system creates a high cost of compliance for Ohio’s businesses, which hinders economic growth, discourages companies from locating in Ohio, and causes some businesses to relocate outside of Ohio.

H.B. 5 stands to clarify the current system, and, if passed by the Ohio Senate and signed by the Governor, bring more businesses to the state. It is anticipated that the Ohio Senate will take up a similar bill sometime in 2014.  A coalition of over 30 organizations came together in support of this measure.  A fact sheet with further detail on major provisions included in the legislation can be found at this link.