Mr. Chairman and Members of the Committee,

My name is Daniel Navin and I am the director of taxation & public finance for the Ohio Chamber of Commerce. I am here today to testify in support of HB 477, important legislation intended to reduce the burden of compliance under Ohioõs municipal income tax system.

Municipal tax reform has been a long-standing goal of the Ohio Chamberõs legislative efforts. When you consider the fact that each municipal and local income tax jurisdiction enacts its own ordinances, itõs easy to see why many if not most Ohio businesses view the municipal tax system as a quagmire. This measure, though it does not address some issues of significant importance to the business community, is a good first step toward rectifying employer concerns for complying with the rules and regulations of the more than 500 Ohio cities and villages that impose a municipal income tax.

In the interest of time and to avoid redundant testimony, the representative of the CPA Society, Dave Adler, and I have split up the major provisions of the bill for more specific comment. My testimony will focus on the limitations on municipal corporations regarding an employerõs obligation to withhold, including the new de minimis withholding exception, and the minimum standards set in the bill for taxpayer appeals. Mr. Adlerõs testimony will generally focus on the issues surrounding the filing of returns, including the use of generic forms, acceptance of consolidated returns, filing extensions, return due dates and estimated tax payments.

Withholding of Municipal Tax On Employee Compensation
Withholding for municipal tax is one of the most difficult compliance issues for Ohio businesses. Most municipal ordinances require employers doing business within a city to withhold for municipal taxes imposed on salaries, wages and other forms of employee compensation. On the surface, this would not seem to create a hardship for employers. But many questions do invariably arise, not the least of which is the point at which employers must withhold and at what levels of income should a municipality tax a non-resident individual.

A particularly thorny issue, especially for contractors and service businesses, is when and under what circumstances they should withhold. In instances where a companyõs employee(s) spend very small increments of time on isolated projects or service calls in a variety of municipal jurisdictions, the employerõs cost to determine the amount of withholding for each municipality far outweighs the actual amount of tax withheld. As a result, businesses are less likely to voluntarily withhold because of the administrative and financial burden of compliance.

To address this concern, the bill provides that a municipal corporation may not require an employer to deduct and withhold income tax from its affected employees unless the total amount of tax to be withheld from all the companyõs employees exceeds $150 for the calendar year. In addition, it precludes a municipality from taxing compensation paid to an individual for services performed within the municipality if:

• the individual does not reside in the municipality;
  the services were performed in the municipality on 12 or fewer days during the calendar year; and
  if the individual is an employee, the principal place of business of the individualõs employer is located outside the municipality.
  

Taxpayer Appeals
The right of a taxpayer to appeal a tax assessment to a person or entity more neutral or detached from the person issuing the assessment is a basic tenet of due process. Unfortunately, many taxpayers either donõt know about their municipal tax appeal rights or municipalities have such widely varying requirements and procedures that taxpayers are caught in the procedural confusion. In sum, there few if any uniform minimum standards regarding taxpayer appeals.

HB 477 addresses these concerns by requiring every municipality that imposes an income tax to establish or create a Board of Appeal to hear taxpayer appeals within 180 days after the billõs effective date. The bill also stipulates that taxpayers are granted the right to appeal decisions of the municipal tax administrator to the Board, but only if the taxpayer has filed the required returns and/or other documents pertaining to the tax obligation at issue. Other provisions include:

• Requests for an appeal must be filed with the Board within 30 days after the tax administratorõs decision;
  Request must be in writing and state the alleged errors in the administratorõs decision;
  Appeals hearings must be scheduled within 45 days after filing the appeal; and
  Board of Appeal must issue a decision within 90 days after the final hearing, and send notice of the decision to the taxpayer within 15 days thereafter.