COVINGTON — Covington Council on Monday approved participating in legal action against the state, challenging the state’s changes to the collection of income taxes from businesses.
The village will pay a fee of $1,000 to the law firm of Frost Brown Todd LLC to join a coalition of municipalities to challenge the constitutionality of amendments contained in House Bill 5 in 2014 and House Bill 49 in 2017, specifically challenging the state’s centralized income tax collection for businesses through the Ohio Business Gateway.
“There’s an effort among many cities in the state of Ohio to block the state from trying to further centralize income tax collection across the state of Ohio,” Village Attorney Frank Patrizio said. “Currently, they have a Gateway system and businesses can pay their income tax through that.”
Patrizio said the state passed a law last year that would allow the state to charge municipalities a fee for collecting and redistributing the funds.
The council has previously approved a resolution opposing provisions to centralize income tax collection. That resolution opposed proposals in Gov. John Kasich’s proposed 2018-19 budget that would mandate businesses to file their net profit return through the Ohio Business Gateway.
“It’s time to really show solidarity in this,” Village Administrator Mike Busse said. Busse noted that there are approximately 140 municipalities participating in legal action against the state over this measuring. Local entities like Piqua, Troy, and West Milton are also expected to participate, according to Busse.
The village and other municipalities are arguing that centralizing income taxes, whether for businesses or individuals, “violates the Ohio Constitution and home rule provisions that allow a municipal corporation the right to administer and enforce its own municipal income tax,” according to the approved ordinance.
Busse also argued that, if the income tax collection for businesses is centralized, the village would “have no way of knowing” if a new business was paying their income taxes. Busse said that the state would have no idea if a new business located in the village, arguing that the village would lose oversight to make sure all of the businesses were paying their income taxes.
“We just don’t see the benefit in it at all,” Busse said.
Proponents of centralizing income tax collection for businesses through the Ohio Business Gateway say the proposed process makes it easier on businesses that are required to file tax returns in every city where they earn income.
In a letter to the editor in March, Ohio Tax Commissioner Joe Testa, of Columbus, suggested that some businesses report paying more in fees to file tax returns in all of the municipalities where they earn income versus the total amount of taxes they owe.
Testa called the proposal “pro-business,” explaining that centralizing the income tax collection process for businesses would allow the businesses to file one form in one place with one set of rules.
Testa added that the “Department of Taxation would process the tax and send all payments quarterly — plus interest — back to the respective city or village, minus a 1 percent administration fee.”
Council begins talks on possible street levy
Also during the meeting, Busse said that there was a need to create a dedicated source of funding for street repairs, such as with a possible levy.
Busse explained that a report from Midwest Pavement Analysis identified over $2 million worth of current needs for street maintenance.
“With discussions with council members and the mayor, we feel like we need to have at least $150,000 of annual investment for street resurfacing on top of regular maintenance to streets,” Busse said. “We currently have no dedicated levy for street maintenance. We take that out of the income tax portion that goes into streets, which is the same as operations and equipment and storm sewer repairs (and so on).”
The village researched how other local municipalities fund street maintenance. Of Piqua’s 2 percent income tax, 0.25 percent of that is specifically for street maintenance. The cities of Troy and Tipp City collect income taxes of 1.75 percent and 1.5 percent, respecitively, but Busse did not note any amounts dedicated specifically to street maintenance.
The villages of Bradford and West Milton each have a levy, 7 mills and 3 mills, respectively, dedicated to street maintenance. West Milton also does not give credit for income taxes paid elsewhere, residents are still required to pay income taxes to West Milton even if they are already paying income taxes to a different municipality, such as Troy if they work in Troy.
“One thing we would like council to consider is putting on possibly a 3-mill levy for five years,” Busse said.
The council did not take any action on the possible street levy during their meeting Monday night. If the council later approves the measure, they would put the levy on the May ballot.
Ordinances, resolutions approved
At the end of their meeting, the council approved a handful of ordinances and resolutions.
The council approved a new three-year contract with the city of St. Mary’s for income tax administration a rate of 3.5 percent, which is lower than their previous contract rate of 3.8 percent.
“We were in the initial setup phase,” Busse said, explaining while the previous rate was higher. The village is now paying the regular rate that other similar entities pay the city of St. Mary’s.
The council also authorized Busse to submit an application to participate in the Ohio Public Works Commission (OPWC) state capital improvement and/or local transporation improvement programs for phase two of the Wastewater Treatment Plant upgrades. Phase two of the project has an estimated cost of $250,000, with $125,000 coming from the OPWC grant.
The council later approved vacating two alleys located at 547 N. High St. They then authorized the property owner to replat those inlots and dedicated an utility easement for the village.
The council waived the three-reading rule of any of the legislation requiring it.
The council also held the second reading of a vicious dog ordinance. They are expected to vote on that ordinance at their next meeting on Nov. 6.
Reach Sam Wildow at firstname.lastname@example.org or (937) 451-3336