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An Open Letter to the Ohio Legislature: Simplify the Municipal Income Tax System!

April 23, 2013

Dear Legislator:

On behalf of National Taxpayers Union’s 362,000 members nationwide and over 13,500 members in Ohio, I urge you to support House Bill 5, which will lead to job creation and economic growth by simplifying and updating standards for Ohio’s municipal income tax system. HB 5 would accomplish this by establishing a clearer and more uniform set of tax rules that would apply to all Ohio cities and villages imposing income taxes.

Ohio is one of only a few states with an extensive statewide municipal income tax system. In fact, 243 Ohio cities and more than 343 villages currently levy their own local income tax, resulting in close to 600 distinct municipal tax regimes – thereby creating a maze of compliance requirements that are the most difficult to navigate in the United States. This makes Ohio the outlier among its state peers. It is telling that there are few, if any, constituencies in the state willing to defend this unacceptable status quo except some local officials who administer the laws.

The severe complexity of this system creates a heavy burden for taxpayers and hinders Ohio’s competitiveness. Those 600 tax jurisdictions utilize 300 different income tax forms and have varying legal definitions for basic concepts like business income and residency. Currently, businesses with employees who work in multiple jurisdictions must keep track of how many hours are worked in each city or village and withhold separately for each one. Not only does this cause a host of administrative headaches, but it also costs businesses money that would be better spent growing their enterprises and creating new jobs. In order to keep employers in Ohio and attract new ones, this economic disadvantage needs to be eliminated.

Many of our members believe that Ohio’s entire local income tax structure should be reevaluated, with an eye toward lowering rates or eliminating the levies entirely. An abundance of research, including that of Ohio University Professor Richard Vedder, indicates that states with no or low own-source income taxes economically outperform their neighbors. Given these circumstances, HB 5 represents the minimum the Legislature should do to rationalize tax policy.

While HB 5 does not call for lower tax rates, it would bring more simplicity, neutrality, and transparency to Ohio’s municipal income tax system—three important characteristics that lawmakers should strive to achieve. As such, this legislation ought to pass both chambers by wide, bipartisan margins. Our members eagerly look forward to its enactment.

Lee Schalk
State Government Affairs Manager

cc: Governor John Kasich