ELYRIA — Seven Lorain County cities are part of joint lawsuit filed Tuesday against the state of Ohio in opposition to House Bill 49.
The lawsuit was filed in Lorain County Common Pleas Court and included 22 cities across Northeast Ohio, including Elyria, Avon, Avon Lake, North Ridgeville, Oberlin, Sheffield Lake and Vermilion. The suit was filed in an effort to protect home rule authority and request a temporary and permanent injunction against the state’s attempt to collect municipal net profit tax.
“House Bill 49 basically is an assault on cities and our ability to run our own tax departments,” Elyria Finance Director Ted Pileski said. “What it does is allows companies, non-individuals, to file their net profit returns with the state of Ohio. If they choose to do that, then the cities lose any ability and power to audit those returns.”
The municipalities also are concerned that the change in collection also could lead to cash-flow issues, according to Pileski.
Municipal income tax is currently handled by the Regional Income Tax Agency, which gives municipalities their tax money twice a month. The state plans to give cities their income tax money on a quarterly basis.
The cities see it as the state usurping the authority of municipalities, once again.
“Basically, it’s just another assault on local government,” Pileski said. “They’ve taken half of our local government funding away. They’ve repealed the estate tax, and for Elyria that’s a loss of $2 million right there. If they start trying to collect income tax and not give us our money in a timely fashion, it’s going to hurt the cities.”
There are also concerns about how much of a processing fee the state will charge cities for the collection of income tax.
Pileski said RITA charges 3 percent but does reconciliation and a refund the following year.
“Typically, it’s right under 2 percent most of the time,” he said. “It just depends on the cost of collections. With RITA there’s about 240 member cities, so it becomes an economy of scale. The more cities they collect, the more municipalities they can spread the cost of collections over.”
Pileski also said it is difficult to say how much money, if any, the change will cost the city since it depends on how many companies file net profit returns with the state. He said the state claims the change will make Ohio more business-friendly, but Pileski has never had any companies complain about the current system.
There’s also another concern about the bill, which has been passed and is scheduled to go into effect Jan. 1.
“The fear is that they’re not going to stop here,” Pileski said. “The fear is they’re going to take over municipal income tax collection altogether. If that happens, then all the cities are in big trouble.”
The suit comes on the heels of a similar suit filed in Franklin County Common Pleas Court in November, which included about 135 municipalities.