Duvall & Associates, Inc.
BUSINESS ADVISOR NEWSLETTER
 

 Cities fight over taxes at citizens' expense

- by Alan Duvall 

Published in Dayton Daily News  June 10, 2007 

“Money...share it fairly, but don’t take a slice of my pie.”  Pink Floyd 

Dayton area news has been dominated by headlines shedding light on the struggle of Ohio cities to garner income tax revenues, once again underscoring the relative insanity of Ohio’s income taxing system. 

Ohio cities tax individual and business income under a complex “where you work or live” philosophy.  Employees are immediately familiar with the procedure as they survey their pay stubs to discover taxes withheld for the city of employment. 

Businesses however may be blind-sighted by Ohio’s definition of “tax where work is performed”.  Company income is allocated among various cities via a three-factor formula based upon relative percentages of property, payroll and sales. 

Property, the easiest factor, generally is allocated to home plant situs.  On the far extreme, sales and payroll may be allocated among various cities where work is actually performed. 

So a paint contractor sending shifts out to 50 city work sites in a year may have to file 50 separate city income tax returns.  Relative percentages of payroll and sales allocated to each city must be dutifully recorded and inserted into the formula to determine which city gets what slice of the proverbial tax pie. 

Further, each city may have varying definitional rules regarding calculation of taxes which force cubicle-trapped bookkeepers to research multiple sets of Regulations for tax return preparation.  

Such revenue opportunities provide incentives for city auditors to scour the countryside in search of business work performed within its taxing borders.  Witness the city of Riverside which has just sued for the opportunity to tax Wright Patterson civilian employees.  

As a result, Ohio cities declare war and become combatants for business headquarters.  Instead of Teradata’s move to the suburbs being marketed as a regional success for job retention, the City of Dayton is bemoaning its individual loss of tax revenues.  And the taxing scheme is so complex, many businesses are locating out-of-state to less complex and expensive locales. 

“Those in need and those with plenty, all are one.  Let’s work together now.”  Donna Summer  

Alan Duvall is a certified public accountant in Dayton.  Contact him at Alan@Duvallcpa.com.  Previous articles archived at www.duvallcpa.com.