Municipal Income Tax Reforms

Why Ohio’s Municipal Income Tax System Needs Fixed

Ohio has over 650 municipalities that levy an income tax on wages of individual workers and the net profits of businesses.  Only Pennsylvania has more municipal jurisdictions imposing an income tax.  Further, Ohio is the only state with such a broad municipal tax imposed directly on business.  These differences lead to two major problems:

  • Due to its complexity, the municipal income tax system imposes significant costs of compliance upon taxpayers, often above the actual amount of tax due.

  • The imposition of a local income tax by over 650 jurisdictions makes Ohio a much harder place to do business, when compared to all other states.

Proposed Municipal Income Tax Reforms

The Coalition advocates for the following reforms to Ohio’s property tax system:

  • Centralize administration and collection of the municipal income tax, and report taxes directly on the Ohio personal income tax return.

  • Allow employers to assign a legitimate single work location for employer withholding purposes.

  • Mandate that resident city provide a 100% credit for taxes paid to a resident’s work city.

  • Clarify that only residents of Ohio can be residents of Ohio municipalities.

  • Eliminate the tax on business income.

Why is Now the Time to Reform the Municipal Income Tax System?

Ohio has made great strides at making the state level tax system competitive. But, Ohio’s municipal income tax system is a huge red thumb making Ohio less competitive for new business investment and job creation. The Coalition acknowledges that the income tax on wages is an important element of municipal revenues to fund police and fire protection. While taxpayer’s bear the high cost of compliance, municipalities bear the cost of redundant tax administration costs. Centralizing administration and simplifying compliance for the tax on wages reduces costs for both taxpayers and local governments without impacting revenues used to provide police and fire protection.

Another area of progress at the state level is lowering the tax burden on capital investment and job creation by businesses. However, Ohio’s unique tax on business income at the local level mitigates the positive improvements made at the state level. The following chart illustrates the reason why Ohio’s municipal income tax on business income is such a sore thumb for Ohio.