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Council Advised to Strongly Oppose Gov Budget

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    Posted: Feb 27 2017 at 1:28pm


From the latest council packet:

Emergency Resolution No. 19-2017. A Resolution strongly opposing the State of Ohio
Governor’s proposed 2017-2018 budget, which proposes centralized collection of net profit tax
returns and other provisions related to the municipal income tax which will cause a substantial loss
of revenue needed to support the health, safety, welfare, and economic development efforts of
Ohio municipalities, and declaring an emergency.

Recommendation. Adopt Resolution No. 19-2017 as an emergency.
Background and Discussion. The Tax Commissioner is asking for adoption of a Resolution in
opposition of the Governor’s proposal to institute a state-operated central-collection program for
the Ohio municipal income tax. As well as opposition of the proposed elimination of the uniformly
applied “throwback” rule.

As you are aware, the municipal income tax is our largest generator of revenue. With the passage
of House Bill 5, alterations to the structure of the municipal income tax is estimated to cause a
loss of revenue and increased financial strain. The impacts of the changes to the municipal tax
won’t be fully realized until after this tax filing season.
The Governor’s proposal of instituting centralized collection will only increase the financial
burdens by further reducing our revenue. We believe that quarterly distributions of the net-profit
revenue would have a large impact on our ability to meet the daily challenges of both typical and
unforeseen financial obligations.

There is also the concern regarding our inability to audit and enforce accurate filings and correct
returns. Centralized collection offers zero accountability in ensuring the state returns the correct
amount of revenue back to the municipality. There is a potential audit of the net profit returns by
the state; however, currently we audit every return. In the past year, we have realized $86,215.92
in underpaid employee withholding from allocations listed on 40 company’s net profit return.
Without the ability to managing the filings, we believe that all the net profit revenue would be
decreased. We currently have 236 unfiled net profit accounts and currently 19 net profit accounts
that have not paid (total outstanding balance due of $11,464.62); however, without knowing
what companies have filed and/or paid, it would be impossible to proceed with our delinquent
process.

The other financially dangerous proposition in the Governor’s budget is the elimination of the
“throwback” rule. This rule ensures sales tax on a product manufactured in one municipality and
delivered in another are “thrown back” to the municipality of origin. A 2011 sampling of just 12
Columbus businesses showed an elimination of this provision would have meant a staggering
loss of over $500,000. The loss of this revenue would be virtually crippling to many 
municipalities, including us. 

Based on the last 5 years, we are estimating a loss of revenue of $175,859.
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Post Options Post Options   Thanks (0) Thanks(0)   Quote John Beagle Quote  Post ReplyReply Direct Link To This Post Posted: Feb 27 2017 at 1:57pm

First the bad news:

Increased Alcoholic Beverages Taxes

H.B. 49 proposes to increase the tax rates on most kinds of alcohol (i.e., beer and wine) by approximately 70 percent. An additional tax rate increase would be applied to high alcohol beer. The proposal eliminates the deduction for early beer and wine payments and reduces the small brewers’ credit. Notably, there is no increase in the tax on liquor and other spirits, which are sold by the state of Ohio!

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Post Options Post Options   Thanks (0) Thanks(0)   Quote John Beagle Quote  Post ReplyReply Direct Link To This Post Posted: Feb 27 2017 at 2:00pm
Now.... how the budget affects Monroe and why the city manager wants to oppose the budget:

Municipal Business Net Profits Tax Reform

A bright spot for business in Gov. Kasich’s budget proposal has nothing to do with lowering taxes, but would go a long way to reduce business compliance costs and making Ohio’s municipal income tax system more competitive. Currently, each municipality with an income tax also administers a net profits tax on businesses and individuals that generate business income. The Bill essentially centralizes the collection and administration of the municipal income tax on net profits and eliminates the throwback rule for most taxpayers.

Net Profits Tax Centralization. The Bill prevents a municipality from administering its net profits tax that is imposed on any person other than an individual starting Jan. 1, 2018. It also deletes most of the existing references to business entities that exist in R.C. Chapter 718 and moves those provisions to a newly proposed R.C. Chapter 5718. Under the plan, individuals that generate business income will continue to be subject to municipal net profits tax as administered by each municipality and governed by R.C. Chapter 718. With a couple of limited exceptions, entities disregarded for federal income tax purposes will be disregarded for municipal purposes and any net profits will be required to be reported by the disregarded entity’s owner.

R.C. Chapter 5718 would empower the ODT to administer all aspects of the municipal tax on net profits of non-individual taxpayers and require all net profits tax returns be filed through the Ohio Business Gateway (“OBG”). This approach would allow a business to file electronically and use a standard form across all Ohio municipalities. Likewise, the new R.C. Chapter incorporates similar administrative processes applicable to other Ohio taxes, including that all audits and assessments would be performed by ODT and appeals would be heard at ODT’s Tax Appeals Division. Similar to current municipal tax law, appeals of Final Determinations would be made to the Ohio Board of Tax Appeals (“BTA”) and then to the Ohio Supreme Court (“Court”).

Individuals will continue to be governed by the administrative process administered by each municipality currently provided in R.C. Chapter 718. Also, to the extent that an individual is an owner of a pass-through entity, the individual will still need to comply with R.C. Chapter 718’s provisions, while the pass-through entity would be governed by the new R.C. Chapter 5718. One area that may need clarified is the treatment of net profits generated by an S corporation in a city that has elected to tax S corporations at the individual level.

Centralized collection of municipal net profit taxes by the Ohio tax commissioner is not without precedent. In the early 2000s, electric light and local telephone companies became subject to the municipal income tax for the first time; electric light companies in 2001 and local telephone companies in 2004. Similar to H.B. 49’s approach, a new R.C. Chapter 5745 was enacted and provided that the net profits tax on electric light companies and local telephone companies would be administered and collected by the Ohio Tax Commissioner on behalf of the municipalities. Under the H.B. 49 plan, electric light companies and local telephone companies would continue to pay the municipal net profits governed by R.C. Chapter 5745, which provides a slightly different methodology than R.C. Chapters 718 or 5718 and is already administered by ODT.

Elimination of the Throwback Rule. The Bill would eliminate the throwback rule for purposes of the net profits tax on non-individuals. Under the current R.C. Chapter 718 throwback rule, sales of tangible personal property that are shipped from an Ohio municipality to a location at which the seller does not have employees soliciting the sales must treat those sales as if delivered within the originating city for apportionment purposes (i.e., the seller must “throw-back” the sales to the originating municipality by including those sales in the numerator of the sales factor for the originating municipality). Under the proposed R.C. Chapter 5718, there would be no throwback rule.

Although it may be inadvertent, the Bill retains the throwback rule for purposes of individuals with net profits under R.C. Chapter 718. As a result, there are some differences between the net profits tax set forth in R.C. Chapter 718 applied to individuals and the proposed net profits tax set forth in R.C. Chapter 5718 on businesses. Thus, a business owned by a sole proprietor would continue to be subject to the throwback rule, but a business that is a pass-through entity or a corporation will not be subject to the throwback rule.

Other Observations. The Bill allows a taxpayer to claim job creation and job retention tax credits (“JCTC” and “JRTC”) that were previously awarded by a municipal corporation(s) against the taxpayer’s net profits tax in the same municipal corporation(s) as administered pursuant to R.C. Chapter 5718. However, the Bill requires that each municipal corporation provide a copy of the underlying agreement with each taxpayer and a copy of each municipal ordinance or resolution granting each credit awarded by Jan. 31, 2018. For JCTC or JRTC grants, the municipal corporation(s) must provide the same information by January 31, 2018 of the year a credit may be claimed.

We anticipate that there will be significant debate regarding the proposed municipal tax reforms provisions of the Bill. While the proposed approach will be applauded by businesses, the application of the two R.C. Chapters will require some fine tuning. For example, the Bill deletes a provision that allowed an employer to forgo the deduction of stock options in order to allow its employees to exclude the same income. The language was deleted, perhaps inadvertently, because businesses will no longer be subject to R.C. Chapter 718. However, the change may also prevent the individual from excluding the stock option income from the individual’s municipal net profits tax. This was likely not intended and could be addressed.

Gov. Kasich’s municipal tax plan is bold, but will need strong support from the business community in order to succeed. Taxpayers should closely review the proposed changes to evaluate the impact on their municipal obligations and to identify areas of further improvement.

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Post Options Post Options   Thanks (0) Thanks(0)   Quote Monroe News Quote  Post ReplyReply Direct Link To This Post Posted: Mar 23 2017 at 12:40pm
Emergency Resolution No. 19-2017. A Resolution strongly opposing the State of Ohio Governor’s proposed
2017-2018 budget, which proposes centralized collection of net profit tax returns and other provisions related to
the municipal income tax which will cause a substantial loss of revenue needed to support the health, safety, and
welfare, and economic development efforts of Ohio municipalities, and declaring an emergency.
Mr. Brock advised this is a resolution in response to the Governor’s budget that includes the centralized collection
of net profit tax returns. It will make it more difficult for us to audit our returns, specifically the business returns.
Mrs. Rubin urged the adoption of this legislation.
Mr. Funk asked if there were other states that did this and saw a positive impact. No one was aware of any.
Mrs. Rubin moved to suspend the rule requiring the reading of Emergency Resolution No. 19-2017 on two
separate days, authorize its adoption on the first reading, and have it read by title only; seconded by Mr. Hickman.
Voice vote. Motion carried.
The Clerk of Council read Emergency Resolution No. 19-2017 by title only.
Mrs. Rubin moved to adopt Emergency Resolution No. 19-2017; seconded by Mr. Frentzel. Roll call vote: six
ayes. Motion carried.

Monroe Council Minutes
Regular Meeting of Council
February 28, 2017 – 6:30 p.m.
233 South Main Street, Monroe, Ohio
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