Repeal unconstitutional state income tax rule
Some leaders of cities across our state and the Ohio Municipal League are arguing against attempts to change income tax laws that allow cities to collect tax from those working remotely, outside city boundaries.
But state Sen. Kristina Roegner of Akron maintains workers should not be forced to pay taxes in communities where they aren’t physically working. “The taxes paid should be going to the communities that are providing services to the workers,” Roegner said in her reasoning for the legislation, Senate Bill 352. The bill would return Ohio’s income tax guidelines to pre-pandemic rules where income tax is assessed in the community where work is done.
The bill would bring an early end to a temporary rule governing the municipal income taxation of employees who are working at temporary worksites — including their home — due to the COVID-19 pandemic. That was part of Ohio House Bill 197 that passed in March.
As we now approach the one-year mark for this pandemic, and as many workers have become well equipped to work remotely in this digital age, it’s possible — even likely — many workers may never return to in-person, full-time work at their places of employment. Indeed, increasingly more employers and employees are finding it feasible and, in some cases, even desirable to work from home. We agree with Roegner’s position. Workers should not be paying income tax to cities where they aren’t working. If these workers no longer regularly enter the cities for employment, then they also are not using regularly the city’s utilities, roadways and emergency services.
Senate Bill 352’s analysis from the Ohio Legislative Service Commission also points out the Ohio Supreme Court has held that a municipal corporation taxing nonresident income may violate constitutional due process if there is no “fiscal relation” between the tax and the protections, opportunities and benefits provided by the taxing municipality to the nonresident, such as police and fire protection.
Leaders in some local municipalities who have relied on income tax expressed concern and fear about what the move could mean for government finances. The Ohio Municipal League’s executive director reacted by suggesting keeping the law allowing income tax on remote workers in place for at least three years. While we understand the cities need time to react, we see three years as excessive, especially considering HB 197 always was intended as only temporary during the pandemic. Let us all hope the pandemic does not last three years!
Kent Scarrett, executive director of the Ohio Municipal League, said the changes could be drastic for municipalities. “Cities may lose hundreds of thousands of dollars in income taxes, affecting their ability to pay for police, fire and ambulance services,” Scarrett said.
We believe fear and concern is legitimate as the tax implications are significant. But we also believe the tax burden must not fall on citizens who neither live in those cities nor any longer work inside city borders — meaning they no longer utilize city services. At the end of the day, Ohio’s General Assembly is right to address this matter. The emergency-based local income tax system allowed under House Bill 197 is unconstitutional, and this wrong must be corrected.