At issue is the collection and distribution of about $600 million in municipal income taxes paid by businesses, some of which must file tax returns with multiple local jurisdictions.
Instead of requiring businesses to file tax returns with individual cities, Kasich proposed as part of his two-year, $66.9 billion budget, to have them file through the online Ohio Business Gateway. The Ohio Department of Taxation would then process the returns before distributing the money to each municipality, minus a 1 percent fee.
State Tax Commissioner Joe Testa held a listening tour with business owners around the state and said he was most often told that the biggest tax burden was the municipal net profits filing. He said it "lacks uniformity in administration, imposes significant compliance costs, and, in some cases, utilizes unusual apportionment rules that are inconsistent with other tax policies."
But city officials have no interest in giving up control of processing tax returns, and they especially don't want to hand their tax revenue over to the state, where, they fear, future elected officials could significantly raise the processing fee to fill budget shortfalls.
"If history is our guide, past distribution systems like the local government fund has been significantly altered," said Kent Scarrett, executive director of the Ohio Municipal League. "The state would have complete control of that tax. Down the line ... if the state has another financial downturn, we've seen policy changes from the state to make their financial stability the first priority."
Municipalities also worry this would be a first step toward total state central collection of all $4.7 billion in municipal taxes.
Testa says the money will be collected and distributed just as the state currently does for school income taxes and county sales taxes.
But some question if Ohio is equipped to do what the budget calls for, and the state's chief information officer did not boost the confidence of some lawmakers during testimony today.
Net profit taxes would be filed through the Ohio Business Gateway, billed as a one-stop shop for business tax filings, which has been around since the days of Gov. Bob Taft's Third Frontier initiative 15 years ago. But businesses rarely use the online portal for municipal taxes.
RITA, the Regional Income Tax Agency, which processes income taxes for 271 Ohio municipalities and 24 economic development zones, says that of the 71,341 net profit returns it got in 2015, only 197 came through the Business Gateway.
Greg Saul, tax policy director for the Ohio Society of CPAs, said the Gateway is not compatible with the tax preparation software used by CPAs, so using it requires preparers to manually recreate a tax return and often mail in paper documentation.
"Nobody's using it because it's not user-friendly now," Saul said, adding that he hopes an ongoing upgrade addresses the issue. "We want this to be done right. If they need to push out the effective date further, we're OK with that."
CPAs are backing the central collection proposal because it would require only one filing form and the need to make only one payment, Saul said.
State officials are working on upgrading the Business Gateway, and Stewart Davis, the state's chief information officer, said the front-end system should be completed by Oct. 1 — three months before the budget proposal calls for the start of centralized municipal tax collections.
"If I was in your shoes, I might be pretty darn nervous about that date," Rep. Gary Scherer, R-Circleville, told Davis.
Multiple sources have said the Gateway upgrade is behind schedule and more likely won't be finished until the spring of 2018.
Faye Gibson, director of taxation for the city of Dublin and a member of the Gateway Modernization Project team, said the portal needs to be able to upload electronic forms directly from tax preparers. Currently, much of the data must be inputted manually, so most businesses end up filing paper forms.
"I believe it's a good tool, but it's not there yet," Gibson said. "They've not ever really funded it properly."
Addressing questions from the House Ways and Means Committee, Davis said there will be conversations starting with software firms about making the Gateway more compatible.
That didn't satisfy Rep. Michael Henne, R-Clayton, who said the Gateway must be able to work with accounting software and collect the needed documentation to audit returns.
"If it doesn't do that, and we have no guarantees that it will do that, we can't mandate this to be the system," he said. "(Davis) said we're starting communications. That sounds like we're a long way away."
Dublin collected more than $10 million in net profit tax in 2016, Gibson said. The administrative cost for all income tax collection was 0.8 percent, below the 1 percent the state would charge.
"They can't do it as economically or as well as we do at the local level," she said.
Kevin Robison, assistant income tax administrator for the city of Columbus and also a member of the Gateway modernization team, said completing a return now requires about 45 online screens, plus the need to print out copies and mail it to the cities.
"We want to try to come up with a more user-friendly return filed through the business portal, rather than centralized collection," he said. "There is still quite a bit of work that needs to be done to make it a business-friendly format."
Robison and others said centralized collection also could cause cash-flow problems for municipalities, because money would be distributed quarterly, and payments would be delayed by a quarter — the Dec. 15 payment would come in April, for example. "You're starting out in the hole," he said.
Grove City Mayor Richard "Ike" Stage called Kasich's proposal a "radical change to our community's ability to administer our primary revenue source."
Grove City, a member of the RITA, could pay more under Kasich's proposal, Stage said. Centralized collections, he said, gives the city no recourse if the state provides poor customer service, nor does it allow the city to audit returns and catch the few instances each year when a business headquartered out of state reports their Grove City tax liabilities to the city of Columbus.
Donald Smith, RITA executive director, said net profit makes up about 12 percent of all tax returns. Centralizing those at the state level won't change RITA's overall costs, which includes auditing, collections and other services, so municipalities won't be charged less. But they would also have to pay 1 percent to the state.
In 2014, Smith said, 87 percent of net profit taxpayers filed with three or fewer municipalities.
But businesses say it's time to simplify the process. Chris Ferruso of the NFIB/Ohio, which represents thousands of small businesses, said too many have to file multiple returns in multiple jurisdictions
"Relieving some of this burden by allowing a single point of filing, a single payment, a single return, a single set of rules and single point of appeal will improve the overall system," Ferruso wrote to lawmakers.
©2017 The Columbus Dispatch (Columbus, Ohio) Distributed by Tribune Content Agency, LLC.
