The Village of Gambier joined a coalition of Ohio municipalities in a class action lawsuit against the Ohio State Legislature on Nov. 6. The coalition is represented by the Ohio Municipal League (OML), a non-profit organization that represents the interests of Ohio municipalities.
The lawsuit was filed in response to changes made to municipal tax codes by the most recent Ohio operating budget, which became effective June 29, 2017. This new system would affect municipalities, which are any incorporated city or village with its own government, by changing the way these cities can collect income tax. Instead of allowing each municipality to collect income tax locally, the budget requires companies and employers to file their income taxes directly to the state government via an online platform. The state would then remit the revenue collected from these taxes to the municipalities at a fee of one percent, the effect of which would vary depending on the size of each city and its reliance on tax revenue for operation. The new system will cause smaller municipalities to lose money through this additional fee and through the potential inefficiencies with the online filing system. Like most other municipalities, Gambier, which has an income tax rate of 1.5 percent, collects a large portion of its annual operating funds from this tax-generated revenue.
This change has prompted a strong reaction from municipalities because it is an example of government overreach, and strips away a city’s constitutional right to fiscal autonomy, according to Mayor Kachen Kimmell. “They [the Ohio Legislature] have passed laws in recent years trying to capture that municipal income tax,” Kimmell said. “We in the municipalities are very defensive about this, because we think that it is a real attempt to usurp what this constitutional provision is, which is called home rule.”
Gambier’s involvement in the lawsuit began as a response to language within the original bill that would make tax collection inefficient and expensive for the Village. Though this specific language was removed during the bill’s revision, Gambier still remains committed to the case.
Roughly 50 percent of those who file income tax with Gambier don’t live within the Village, according to Kimmell. “Our town is a really good example of this [bill being potentially harmful to municipalities],” she said. “Probably half the people that work at Kenyon come from either Mount Vernon or commute from other places where they raise their families. And all those people pay income tax to Gambier. [Income tax] is the heart of the income of every single municipality.”
Though this lawsuit started in 2017, it is still in a preliminary stage. Franklin County Common Pleas Court Judge David Cain presided over an injunction hearing in the lawsuit this past week, according to the OML website.
The cities and villages in the suit asked that Judge Cain issue an injunction that would prevent the budget provision from going into effect before Feb. 24.
If the injunction is not granted, municipalities will be required to pass ordinances allowing the state to centrally collect the net profits tax. If they do not, they could lose the ability to levy any tax at all.