A deeper dive into tax implications from more Ohioans working from home
Cities are worried they will lose revenue
The COVID pandemic forced many Ohioans to work from home. And now, some won’t be going back to their offices and even more of them will be working remotely at least part of the time. A new report from the Ohio Mayors’ Alliance shows a third of workers in the state will be working two or three days from home following the pandemic. That has tax implications for Ohio’s cities but it’s hard to determine just how those will play out at this point.
Cleveland resident Jen Johns, who works for the Academy of Medicine of Cleveland & Northern Ohio, worked from home last year.
“It’s nice that we are not having to drive in every day of the week but I do think we miss the comradery of being social with one another,” John says.
Now, Johns is one of the many Ohioans who is splitting her work time between home and office.
This hybrid approach is popular. In fact, a recent study by the Ohio Mayors’ Alliance looked at ten cities and found that between 24% and 39% of workers in various cities will be splitting time between working from home and the office. And Keary McCarthy, the group’s executive director, says that means some big tax implications.
“While there’s certainly a lot of good benefits for workers and even employers around remote working, it does have some unintended consequences that will have pretty significant fiscal impacts on our cities, our downtown businesses, and our approach to economic development statewide,” McCarthy says.
That tax money goes to pay police, firefighters, and other first responders, as well as for roads, parks, and other city expenses.
The study shows Columbus will take the largest hit. The worst-case scenario estimates the city and the businesses that cater to workers could lose more than $110 million dollars in taxes from employees who no longer work primarily from their offices in the capital city. Cincinnati could lose up to $43 million, Dayton could lose about $22 million, Akron around $20 million, and Toledo nearly $16 million. But smaller cities, like Fairfield in southwest Ohio, would lose less than 2% and Strongsville in northeast Ohio would lose a little more than 2%.
But Greg Saul, director of tax policy for the Ohio Society of Certified Public Accountants, says that worst-case scenario isn’t likely. He says it’s up to employees who are working from home more now to file for a refund from the city where their office is located. He says if that worker lives in a township where there is no income tax, that might make sense. But if the worker lives in another city, it doesn’t.
“Somebody, like in my situation, where our office is located in Columbus which has a 2.5% income tax and the city that I live in also has a 2.5% income tax and Gahanna gives 100% reciprocity credit for taxes paid to your workplace city. So somebody in my situation, which is a lot of workers, is not going to go through the hassle of requesting a refund from Columbus then turn around and give it to their home city because there is no refund," Saul explains.
Saul says not only would it not save many Ohioans money to request a refund, but they’d also likely have to pay a tax professional to file that paperwork. So, they could end up losing money in that process.
There’s another issue here – taxation without representation. The conservative Buckeye Institute has been involved in a court case over that. If you are paying income tax to a city where you work, but you live elsewhere, you don’t get to vote for how that money is spent in the city where you work. The Buckeye Institute’s Greg Lawson says Ohio lawmakers have made some shifts in the recent budget to try to deal with the problem right now. But he says the long-term solution might be to do what other states do.
“Most cities in most other states don’t get income tax revenue at all. They get it from a mix of a lot of different kinds of things. But what you usually see are sales taxes, property taxes and sometimes you see revenue sharing between the state and local communities,” Lawson says.
And Lawson points out many Ohio cities have heavily relied on property tax abatements for economic development so they don’t get nearly as much as they could from those revenues.
Last year, state lawmakers passed a bill that basically kept income tax to cities stable, though that is being challenged in court right now. But it’s not in place for this current tax year, so filers could go for possible rebates when they file in 2022. McCarthy with the Mayors’ Alliance says cities are already seeing some signs of that from people who are filing now.
“Our cities are seeing some rebate requests come in and honoring those requests in accordance with city law,” McCarthy says.
McCarthy says the real impact of working from home won’t be known until later. He says it’s possible his group will have to ask the state to allow changes in tax law to stabilize cities, but at this point, he says it’s too early to know what changes might be sought going forward.