Ohio nonetheless hasn’t discovered how cities ought to tax individuals who work at home

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Ohio cities rely on local income taxes, which are paid by workers who often live outside their boundaries.  Ohio lawmakers are grappling with how to go about it.

Thousands of Ohioans worked from their kitchen tables last year, paying income taxes to the city where their empty office building is located.

Two Republican officials say it is time to put an end to the pandemic rule that allows cities to levy taxes on people who neither live nor work within their borders. A conservative think tank says the municipal income tax law COVID-19 is unconstitutional. And cities say, law or no law, working from home could completely change the way they pay for services and how Ohio creates jobs.

“We cannot cure this ourselves,” said the mayor of Lima, David Berger. “We need a real partnership with the state to find a source of income that we can count on.”

A temporary solution for the communal income

The basic idea is that people pay taxes to the places where they live and work because they use city services like roads, police and fire services.

Some Ohio cities offer discounts to residents who work and pay taxes in another county, but others do not. It all depends on where you live and work.

That’s how it worked until the coronavirus pandemic hit Ohio and thousands of workers traded their morning drive for a walk down the hallway. The cities were immediately concerned. They routinely paid partial tax refunds to workers who split their time between home and office. Giving reimbursements to all of these people could have resulted in significant cuts in critical urban services and even bankruptcy.

COVID-19: Lawsuits have been filed against Columbus, Cincinnati over taxes levied on those who worked from home during the pandemic

It’s not just a big city problem. Lima receives $ 20 million of its general income fund of around $ 28 million from municipal income tax, and 60% of that $ comes from people who live outside of the city.

“I can’t really describe how crippled we would be without her,” said Berger.

In March 2020, for example, the legislature passed House Bill 197. This allowed local governments to levy local income taxes as if these workers were still in their offices.

Taxation without representation?

Some Ohioans and the Buckeye Institute (a conservative think tank based in Columbus) consider the COVID-19 tax law to be unconstitutional and have taken their cases to Ohio courts.

None of these cases have been resolved yet, but the core of their argument is that cities cannot tax people who do not live or work there.

The Ohio Constitution, President of the Buckeye Institute, Robert Alt said, “You must not be taxed if we pretend we are doing it.”

Commuter Income Tax: Should You Pay Commuter Taxes If You Work From Home? Republicans say no, cities say yes

A number of Republicans in both the House and Senate agree. You have been working on various invoices to remove the temporary tax rule.

“It’s really about fairness,” said Rep. Jay Edwards, R-Nelsonville. “It’s not about lowering income taxes anywhere. We wouldn’t ask you to pay the bill for Wendy’s if you went to McDonald’s, but that’s what we’re asking people now.”

But cities and even Senate President Matt Huffman, R-Lima, have cited the provision as an appropriate response to exceptional circumstances.

When people don’t go back to work

Most of the pandemic restrictions are expected to be lifted in the coming months, but not everything will be back to what it was before.

The coronavirus pandemic accelerated working from home by at least a decade, said Dayton Mayor Nan Whaley. We’ve all learned how to hold video conferencing, change our work schedules, and digitize the earlier paper processes.

Just look at Kettering, a town south of Dayton, Whaley said. Two of the largest employers decided to close their physical offices.

This is not an isolated case. This is the beginning of a trend, she said. And it will be a problem.

The six largest cities in Ohio (Cleveland, Columbus, Cincinnati, Akron, Toledo, and Dayton) generate around 88% of their income from income taxes.

City budgets: Columbus’ dependence on income tax could spell trouble as more work is done from home, a study warns

“We expect a loss of $ 25 million,” said Whaley when asked if Dayton has any idea how many workers are not coming back.

And the Ohio regional income tax agency has started modeling how much money cities will lose if 10%, 20%, or even 30% of city workers choose to stay home.

“According to the laws of the state, we have no authority to unilaterally invent things,” said Berger. “They (legislators) have actually undermined our ability to come up with these solutions ourselves.”

In Ohio, cities are no longer allowed to require new hires to live within their borders, and state lawmakers cut another source of funding (local government funds) in half during the Great Recession. They also increased property tax deductions and homestead tax exemptions, while removing inheritance tax.

“With this disorder, there is an opportunity to have a wider conversation about what Ohio is about and what our cities are about,” Whaley said. “But I don’t have a lot of faith in this legislature.”