A judge in Franklin County Common Pleas Court dismissed a class-action lawsuit brought by about 160 municipalities challenging a new law that allows the State of Ohio to collect local business taxes.
The City of Findlay was among the complainants.
The ruling was announced this afternoon.
Ohio House Bill 49, which is Gov. John Kasich’s two-year budget bill, allows business owners to file tax returns directly with the Ohio Department of Taxation, instead of with the municipality in which the business operates.
The state says the new rule will streamline the filing process for businesses, which often operate in multiple municipalities.
City officials are concerned about the management of the money, timely distribution of the money, accuracy and accountability of the filings, and losing the ability to audit. There is also a concern among city officials that in the future, the state could move to take over the entire collection of municipal income taxes.
Other cities in northwestern Ohio which are party to the suit, include Bluffton, Bowling Green, Defiance, Lima, Upper Sandusky and Van Wert.
On Tuesday, Findlay City Council adopted emergency legislation meant to give the city a fallback position, if the challenged failed.
According to City Law Director Don Rasmussen, Ohio’s tax law will now default to a provision in House Bill 49, retroactive to Jan. 1. He said there is a concern that business taxpayers could argue that the municipalities had no valid rules in place for collecting the business taxes since the beginning of the year. The legislation passed Tuesday by council restates the city’s authority to collect the tax.
The court found that an an optional, centralized filing system administered by the Ohio Department of Taxation is constitutional, that the General Assembly has that authority to limit local taxation and that the law does not impinge on home rule.
“We are pleased that the court found this law to be constitutional. It’s an important ruling for business taxpayers in Ohio who for too long have had to deal with this costly, complex local tax on business income,” said Joe Testa, state tax commissioner. “This law gives business taxpayers the opportunity to save millions of dollars in the cost of complying with the fragmented municipal tax system. Businesses that want to take advantage of the state’s new streamlined system for 2018 taxes have a deadline of March 1 to register through the Ohio Business Gateway.”
Judge David Cain’s ruling denies the cities’ request for a preliminary injunction to block the law and granted a final judgement in favor of the State of Ohio.
Testa said the business community has for years urged the state to improve the municipal tax system. He said he’s gratified that Ohio now has a better option for businesses to deal with the municipal net profit tax.
Gary Gudmundson, communications director for the Ohio Department of Taxation said the law authorizes the state to charge a half percent administrative fee.
“This compares to the estimated 1.6% it costs the City of Findlay to collect the municipal net profit tax. The lower, less costly state fee should actually result in Findlay gaining additional tax revenue,” Gudmundson said.