On Wednesday, the class-action lawsuit that was brought by several Ohio municipalities challenging the state’s ability to collect local taxes has been struck down by a Franklin County judge. The lawsuit, filed by over 100 municipalities, challenged a recent law passed by Gov. John Kashich that grants the State of Ohio the power to collect local business tax. The judge’s ruling is a victory for businesses and the conservative state Congress. For Ohio municipalities, it is a significant blow.
Before 2017, business owners had to file their business taxes with the municipality that was home to their business. Last year, Gov. Kashich’s two-year budget plan, House Bill 49, included a provision that allowed business owners to file their taxes directly with the Ohio Department of Taxation rather than the municipality in which they operate. The state claims that this will streamline the process of filing business taxes, which is often a time-consuming and expensive endeavor.
However, municipal officials raised several concerns. Many towns questioned how the tax revenue would me managed and distributed and whether the filings would be accurate. Under HB 49, municipalities also lose the ability to audit their local businesses’ tax returns. They also expressed concern that the State of Ohio would eventually move to collect all municipal income taxes.
Approximately 160 municipalities filed a class-action lawsuit in an attempt to halt the bill. The Franklin County Common Pleas Court dismissed the lawsuit, declaring that the centralized filing system is constitutional. The court ruled that the state does have the authority to limit local taxation. Further, the court found that HB 49 does not violate home rule.
Now that the state has the go-ahead to collect municipal taxes, business owners are able to choose between filing with the state and filing with the town in which they operate. The option of a central, streamlined system for filing business taxes is likely to appeal to many business owners. Business owners who wish to file taxes with the state system have a deadline of March 1.