Ohio Cities Challenge State’s Takeover of Local Taxes

COLUMBUS, Ohio (CN) – A coalition of more than 100 Ohio municipalities are challenging the legality of a provision in Gov. John Kasich’s two-year budget bill that allows business owners to file tax returns with the state rather than the villages or cities where they do business.

In a lawsuit filed last week by the law firm Frost Brown Todd, dozens of Ohio villages, cities and towns – including Columbus, Cleveland and Cincinnati – asked the Franklin County Court of Common Pleas to block House Bill 49’s municipal income tax provisions.

They claim the bill violates the Ohio Constitution’s Home Rule Amendment, which bars the state from overriding the powers of local governments.

“The power of taxation is an inherent component of home rule and the power of local self-government,” the Nov. 16 lawsuit states, adding that Ohio’s operating budget usurps “for the state the local self-government power to administer, receive, and audit municipal net profits [from] taxes that have been levied.”

Ohio lawmakers contend the provision will make filing taxes easier for companies that frequently do business in more than one municipality.

But in testimony before the Ohio House Ways and Means Committee in March, the Ohio Municipal League called the budget proposal a “bad idea” for the state and local taxpayers and said the bill would rob villages and cities of income-taxing authority.

“This ‘power-grab’ by the state and equally alarming ‘money-grab,’ would strip the ability of municipal officials from over 600 cities and villages the ability to manage approximately 15 percent of their general operating budgets or $600 million annually of municipal taxpayer dollars, instead surrendering this revenue to the state, for its management and promises of return,” Ohio Municipal League Kent Scarrett said in a prepared statement.

Lawmakers sent the budget bill to Gov. Kasich’s desk in June. The bill’s sponsor, Republican Rep. Ryan Smith, said at the time that the 3,384-page bill would provide $154 million in the fiscal year of 2018 and $120 million in the fiscal year of 2019 to the state’s schools. It also includes $180 million to combat Ohio’s opioid crisis.

Other provisions would simplify the state tax code by trimming it from nine to seven tax brackets and cutting the House’s administrative budget by 6 percent.

The bill’s municipal income tax provisions became effective on Sept. 29, according to the lawsuit.

The cities and villages seek a preliminary and permanent injunction and a ruling that the budget bill’s provisions infringe upon their power of local self-government.

Ohio Attorney General Mike DeWine’s office did not immediately respond Wednesday to an emailed request for comment.

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