Tax certainty: Multiple slices taken by state, cities

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Alex Fischer was surprised—and not in a good way—when he came to Ohio from Tennessee in 2007 and saw a proliferation of local government agencies, which may request their own taxes.

Michael Dalby was similarly taken aback when he moved from Indiana three years ago to head up the Columbus Chamber. “One of our challenges is we have multiple layers of taxation,” Dalby notes. Taxation and regulation is the number three top concern of Columbus’ business community, just behind worries about healthcare and workforce, according to a recent Chamber study for the city of Columbus. 

“If you’re someone who’s lived in Ohio and operated a business in Ohio for a number of years, you’re kind of just accepting of it as part of doing business in this region,” Dalby says. “If you move into Franklin County from another state, this taxation layering is surprising. There’s only like nine states that allow municipalities to levy an income tax,” he adds. 

At the state level, tax reform begun under Governor Bob Taft in 2005 and continued with Governor John Kasich is helping to keep Ohio’s tax climate better than many other states, but when local taxes are factored in, Columbus rises to among higher-taxed areas nationally. 

“I think everybody would agree that the proliferation of local governments in Ohio—cities,  townships, county government, and multiple school districts—has in part caused Ohio’s cost of local government to be higher than a lot of places,” notes Fischer, president and CEO of the Columbus Partnership.

It’s not just the typical government jurisdictions grabbing a slice of the local tax loaf to fund services like schools, police and fire departments and local infrastructure. Social service agencies, parks and libraries also compete for local tax dollars. And so do zoos. 

An overwhelming defeat of a new and replacement property tax levy for the Columbus Zoo in May, by a 70-30 margin, caught the attention of local business and community leaders and has some wondering if the local tax climate has taken a precipitous turn. 

Not to worry, say those who have studied recent tax votes in the context of history. They say the zoo levy failure and a similarly lopsided defeat of a Columbus Public Schools levy in November 2013 are easily explained in terms of specifics of those requests.

Mayor Michael Coleman has studied voter behavior on local tax issues for decades and sees nothing to indicate a significant shift. In his analysis, voters approve tax requests where they trust the entity making the ask, understand how money will be used and believe the money is needed.

“I don’t see anything negative about the long-term viability of voted issues in our city. I think it’s just a reminder that you have to meet these three criteria in order to get public passage of public dollars. And you know what, that’s a good thing, not a bad thing. It hasn’t changed,” Coleman says.

Tom Stalf, president and CEO of the zoo, says the zoo is taking time to analyze data and talk with voters to better understand why the levy failed so dramatically and to prepare for the next request. “One thing’s for sure that we cannot do, and that would be to lose another levy,” Stalf says.

The zoo won’t be back on the ballot this year, but its current levy expires at the end of 2015. Nor will the Columbus Public Schools return in the near future, as recalculations and budget cuts since a lopsided defeat of a 9.01-mill levy in November 2013 are reported to have district finances in good shape through the 2017-18 school year.

There is some breathing room, as the next county-wide levy request is a renewal for Franklin County Children Services, which means no increased cost. 

“I do hope we’re not a community of ‘no,’” Fischer says. “If I look over history, we never have been.” And he adds, “I’m not as worried about being a community of ‘no’ as making sure that we are investing in critical areas.” 

“From a tax standpoint, Ohio is much friendlier to business now than 10 years ago,” says Howard Fleeter, a PhD economist and owner of a Columbus public policy and research firm.

“Columbus—that gets more complicated,” Fleeter continues.  “From a rate standpoint, Columbus is higher than the other major cities,” he says.

Fleeter points to annual analyses by the Ohio Department of Taxation, comparing state and local tax burdens across the country. The state analysis looks at the tax burden in terms of per capita taxes and as a percent of personal income and compares both at state and local levels.

Looking at state taxes, Ohio fares well in the most recent analyses done in 2013, which examined 2010-2011 taxes. Ohio ranks 33rd for per capita state taxes, falling under the $2,440 average U.S. tax burden at $2,167. As a percent of personal income, Ohio ranks 32nd, at 6.0 percent for state taxes compared to the national average of 6.2 percent.

Local taxes tell a different story. Ohio ranks 21st nationally with a local per capita tax burden of $1,742, but still under the national average of $1,856. As a percent of personal income, local taxes in Ohio rank 12th in the nation at 4.8 percent, just over the 4.7-percent national average.

Even more striking was  a federal report earlier this year by the Office of Revenue Analysis of the District of Columbia, which looks annually at property, sales, auto and income taxes for a hypothetical family in the largest city in each state. The report ranks Columbus as having the fifth-highest local tax burden nationally and calls out the local property tax burden, with an effective rate of $3.57 for every $100 in home value. The report says that rate is the nation’s highest. 

“The first way I think of it—tax climates aren’t static but are dynamic. From a business standpoint, what you’re looking for is predictability and reliability in tax and regulatory environments,” Fischer says.

“Every day I work with companies on state and local taxes issues,” says Tom Zaino, a lawyer and CPA who was state tax commissioner from 1999-2003. “Ohio’s climate has really improved compared to what it was 10 years ago,” he adds.

Zaino continues, “Something that’s important to business is certainty in the tax climate. We’ve had that, but when there’s talk of doing things dramatically different, that makes people nervous….We want to make sure we maintain that certainty in Ohio.” 

Zaino advocated for passage in late May of House Bill 289. It changed state law to prohibit municipalities and townships from creating new joint economic development zones just to extend their tax base to businesses not previously taxed.

Recent attempts to form JEDZs—between Reynoldsburg and Etna Township and between Gahanna and Jefferson Township—were indications of how local governments’ struggle with revenue problems creates uncertainty for business, Zaino says.

The tax climate is just one aspect of the overall environment businesses need to continually assess as they make decisions about operations in a particular area, Fischer stresses.

“We’re not the bottom of the barrel. We are better than many of the places we compete with,” Fischer says. “We have a very competitive business tax environment, and more importantly, a business cost environment. The cost of living, combined with the cost of distributing goods, combined with our workforce, combined with taxation and other factors come together to create a very competitive environment from a business standpoint. And that’s why we’re seeing record job creation,” he concludes.

“We still have lots of work to do on the efficiency equation, but the fact we have 88 counties and approaching 1,000 school districts, and not only those, how many townships? It’s not likely something we’re going to solve real quickly, but it’s something, as we advocate for policy changes, we need to advocate for efficiencies,” Fischer says.

Economist Fleeter agrees. “The last time I looked in Franklin County, there were almost 140 separate and distinct property taxing districts,” says Fleeter. The overlap of multiple taxing entities is not as pronounced in Cleveland or Cincinnati, he says.

Income, sales and property taxes make up the local tax picture—and a look at each helps explain why Columbus has shown up in at least one national study as a high-tax area, and why voters may be feeling some tax fatigue.