Ohio Is a ‘Taxation without Representation’ State; Akron Provides the Latest Example
The Akron Beacon Journal’s Bob Dyer notes that the City of Akron wants to raise its earnings tax by about 15% from 2.25% to 2.58% — and that many, if not most, of those paying the tax don’t even live in the city (HT Boring Made Dull):
In case you missed it, Akron Mayor Don Plusquellic recently announced yet another money grab. If he gets his way in May — in a vote open only to residents of Akron — this city will wind up with the second- highest income-tax rate in Ohio.
Only Youngstown, that model city to our east, will be higher than our 2.58 percent.
Plusquellic points out that he is asking for a mere 0.33 of a percentage point. What he isn’t pointing out is that raising the current 2.25 percent tax to 2.58 percent is a hike of 15 percent.
When’s the last time you got a 15 percent raise?
And this is only four years removed from an income-tax hike of 0.25 of a percentage point, enacted to help pay for new school buildings.
If this passes, in four years Akron’s income-tax rate will have risen 29 percent!
The sad fact is that many, if not most, of those affected by the tax increase won’t even get to vote on it, while many city residents will see the vote as an opportunity to stick one to the suburbanites.
How this outrage of taxation without representation ever passed legal muster and has continued to be constitutionally acceptable in Ohio for about the past 40 years is a complete mystery to me.
If the tax increases passes, the victory party will be short-lived. With passage, the Mayor can count on more businesses, individuals, and families leaving Akron, and many fewer moving in. You see, Akron, like Ohio’s other larger cities as far as income taxation is concerned, literally has you coming and going:
- If you live outside Akron but work inside of it, you get socked with the entire brunt of the current 2.25% (soon possibly 2.58%) earnings tax.
- If you live inside the city but work outside of the city, you owe the city the difference between the city’s current 2.25% and the income tax you pay to the municipality or township where you work (often zero, and almost always lower than a big city’s rate).
Given the above, exactly what would make someone want to live in Akron or any other of Ohio’s largest cities, almost all of which have earnings taxes of 2% or more? Rather than be caught coming and going, many people conclude that the best answer is simply to go away — and stay away.
This absurd situation goes a long way towards explaining why almost all of Ohio’s largest cities have lost huge percentages of their populations during the past 40 years. People are voting with their feet. When will Ohio’s big-city mayors get a grip on reality?
Not to mention the impact this will have on the ability of local companies to lure employees. I know of more than one Wisconsin company which has reported that the state income tax makes it difficult for them to land the talent they need to operate here.
Comment by triticale — February 27, 2007 @ 6:10 pm
#1, glad you made that point.
Comment by TBlumer — February 27, 2007 @ 6:27 pm
If the payroll of your Employer is done out of state, that creates another mess. Imagine a large company with offices in multiple states. The Employer’s Human Resources and Payroll is in, for example, California.
A new manager arrives in Ohio to start up a new local office. Not yet realizing the tax implications to his employees, he has the company sign up for a multi-year rental agreement in a Municipality with a Commuter Wage Income Tax (CWIT).
Some staff are local Ohio hires and some are new arrivals. The first paycheck or two probably doesn’t withhold taxes at all. The local Ohio-ans include one who’s resident has no income tax, so he’s happy to let CWIT withholding be overlooked, and see how long before it catches up to him, if ever. But, of course, the local Ohio-ans include one who’s a residency and Employer are both in the CWIT, so he wants that tax withheld. There is much consternation in the local office among the employees and they discover an additional percentage will be withheld for taxes from their paycheck than what they planned for in their salary negotiations for the move here. There is much consternation between the employee who wants his taxes withheld and his boss, the local manager, and then between said boss and the Payroll office…And a month or so later, local withholding starts appearing on their Paystub statements.
But wait, the address says municipality “A†but the physical location is in municipality “Bâ€. California is withholding the wrong amount! And municipality â€A†is one of the higher ones in the area, naturally, since a local office often uses the name of the nearest big city instead of the suburb.
Oh, yes, there’s also School District Income Tax to withhold for some. Now the California Payroll office is really in a bad mood. Also, somewhere in middle management-dom, the macro-company bean counters are realizing that the Admin Overhead Labor for all these payroll nuances is expensive, especially for a new start-up office with only a 10-20 employees but a different combination for each employee of Resident/CWIT Municipal/School income tax withholdings. What a nightmare to make the withholding payment! (And we haven\’t even gotten into Use Taxes or that new thing, Gross Receipts or such.)
Meanwhile, the pay periods roll along. The employees are busy trying to make their start-up satellite office work. The local manager is busy engaging new potential customers. (Some employees are happy no school income tax is being withheld, hoping they can quickly get out of the CWIT-locale rental place being paid by the company as a moving benefit and into a Residency with no local income tax, or at least a low tax one.)
But eventually, Jan 1 occurs. And the Employees start wondering if and how to
a) get their money back from CWIT “Aâ€, who was wrongly paid by the company (and overpaid compared to the CWIT “B†rate);
b) pay CWIT “Bâ€, their place of Employment, at the rate that should have been withheld;
c) pay local income taxes for the partial time living in the rental apartment in a CWIT (and be jealous of the Employee who, by luck, got a different rental apartment in a non-CWIT locality just because of availability);
d) find the dang forms for all this;
e) et cetera.
Oh yes, and after filling out more forms than can be imagined, especially considering it was a partial year employment and paying only 1-2% of that partial year, and getting a relatively small in dollar amount but big in paperwork time and emotional principle-of-the-thing annoyance…
So you think it\’s put to bed until next paperwork season? Nope. CWIT wants to be paid for all your income as reported on your Federal form. What? See the check box on partial year resident. Nope, your guilty and owe us until prove yourself innocent. Cough up the W-2s to prove what income was earned out of state?
Okay, did that. What? You still think I owe how much?
Well, naturally, I reported to you Income Amount “D’, and excluded the moving cost reimbursement payments from my Employer. Well, I see the Employer “reimbursed†by adding it to my payroll stub, so it LOOKS like income to you but its actually expense reimbursement. Their accountants do it that way for some reason. Yes, I also think its weird but it WAS NOT EARNED IN YOUR MUNICIPALITY. That’s the reimbursement for THE REAL ESTATE FEES TO SELL MY HOUSE IN MY PREVIOUS STATE. What? I have to PROVE all that to you, CWIT Tax Collector? Geez, no financial privacy around here. Dig out each Expense Report submittal on my moving expenses. See which ones can count as earned out of the CWIT versus “in†the CWIT. Type an explanation. Mail it to the CWIT folks.
(BTW, And each new interviewee at the satellite office learns about some of this as well intentioned helpful advice to make the transition to Ohio smooth, or hidden and hope they don’t know so they\’ll accept the salary offer and not realize the additional hit on the pay until after they’re here and committed to a one year job or pay back the moving package.)
So stuff was mailed to the CWIT assessor, back and forth letters one or two times (the CWIT one feeling like those debt collector letters: pay now or despute it within 14 days, or we\’ll sock you with a court imposed assessment…), and finally it seems to be resolved for that Tax Year.
And the California payroll office still has the Withholding localities screwed up. So we\’ll get to do this again next year. At least the part-year resident and moving stuff won’t be part of it that time. Oh, yeah, some moving stuff wasn’t processed and paid until after Jan, so there will be a little bit. How long again until that one year commitment is up and I can switch to the company across the street, and across the CWIT line? Or maybe I should move out of this darn state.
NOTE: THE ABOVE DOES NOT REFLECT AN ACTUAL EMPLOYER(S) or EMPLOYEE(S). ANY OF THE ABOVE ARE COMPOSITE OR REPRESENTATIVE OR EXAMPLE STATEMENTS. (Since this is one of my pet peeves, I end up hearing lots of stories over the years, and sharing advice on surviving the paperwork disputes.)
Hmmm, after that long discussion….maybe you should exclude my name with the posting.
Comment by Anon — March 7, 2007 @ 11:03 pm
#3, this explains why so many companies, at least the ones that can legally do it this way, are telling employees in satellite offices, or those who work out of their homes that they have to file quarterly estimated taxes with the cities they live/work in, because they refuse to expend corporate energy on this nonsense. It seems in your case that this probably was not an option, and the withholding is a requirement. I know if I were a controller/CFO I would not do withholding unless I was legally forced to.
Comment by TBlumer — March 7, 2007 @ 11:43 pm