Commuter taxes about to change
Communities, such as Warren and Youngstown, that depend on commuters paying income tax to fund government are in for a rude awakening.
The Ohio House approved a bill two weeks ago that no longer would permit cities and villages to collect those taxes from people who used to work in those communities but now work from their homes.
The bill is retroactive to Jan. 1 of this year. Those who worked from home in communities without income taxes could seek refunds from the city where they used to work for all of 2021 and then into the future if they don’t return to their places of work.
This was a reaction to the COVID-19 pandemic.
In March 2020, after Gov. Mike DeWine ordered nonessential employees to work remotely from home, when possible, because of the pandemic, the state Legislature approved a bill permitting businesses to still deduct municipal income taxes from those workers.
The House bill allows that deduction to continue through the end of the year with impacted workers seeking refunds for this year in 2022. After that, those who stay at home without going to an office in a community with income tax would no longer pay them starting next year.
In an attempt to do one better, the Senate approved a bill Wednesday that would allow remote workers to seek refunds going back to 2020.
The two legislative bodies will reconcile differences between the two bills before heading to the governor’s desk.
It wouldn’t be surprising to see an agreement reached that favors the Senate bill. The House and Senate are dominated by Republicans with many not living in cities with income taxes.
Officials in impacted cities are in an uproar, but the complaining isn’t going to change reality that the best they can hope for is the Legislature allows the refunds to take effect early next year, retroactive to 2021.
Keary McCarthy, executive director of the Ohio Mayors Alliance, said: “Our communities fully expect to fell the effect of future revenue impacts because of shifts in the workplace and they accept this reality, but moving the goalposts by allowing for retroactive refunds could greatly harm local communities as they work their way through the pandemic.”
Youngstown Mayor Jamael Tito Brown said of the retroactive refunds: “The long-term impacts of remote working have the potential to significantly impact municipal budgets and the police, fire and EMS workers who were on the front lines responding to this pandemic.”
Robert Alt, president and CEO of the conservative Buckeye Institute, said the Senate “recognized what the Buckeye Institute has argued in significant court cases across the state: Municipalities taxing people who do not live or work within their jurisdiction is unconstitutional.”
For years, Ohio cities have depended on commuters to keep them afloat.
For example, about 85 percent of the money collected by Youngstown through its 2.75 percent income tax comes from people who work in the city but don’t live there.
Plenty of workers have returned and several never left so it’s hard to know how these bills will impact income tax collections. But we’ve learned some workers don’t need to come to an office building to do their jobs effectively.
Cities say commuters get the benefits provided by municipalities, such as police and use of roads, and those cost money so it’s only fair they pay an income tax.
There’s another side to the issue.
First, commuters pay taxes without having a voice in city government. It’s taxation without representation.
Also, the busy suburbs where much of the retail shopping and other businesses are located get a lot of vehicular traffic and they don’t receive income taxes to offset those costs. They receive more financial resources from counties, but it doesn’t rise to the level of their needs.
Then there’s the incredible amounts of money coming to cities from the American Rescue Plan in federal COVID-19 relief money.
Cities may use those federal funds to make up for losses in income tax revenue, so there is an immediate cushion that will, in many cases, more than cancel out what municipalities will refund when the Legislature reaches a resolution. They can do that for 2020, 2021, 2022 and 2023, so there might not be a huge financial blow to any of the municipalities.
After that, those communities will have to get used to the new normal.
Skolnick covers politics for the Tribune Chronicle and The Vindicator.