NWOTCA

MEETING DATE: 06/24/05

Call to Order

The meeting was called to order at 9:30 a.m. in the City of Toledo at Government Center.

Clarence Coleman from the City of Toledo opened the meeting by welcoming Ohio State Senator Teresa Fedor and Chief of Staff for the City of Toledo, Tom Crothers.

Key points by Mr. Crothers:

v Local governments are relieved that the State did not reduce the Local Government Fund distribution. Toledo stood to lose $3.7 million.

v Cautious optimism that Northwest Ohio is turning the economic corner. Despite opinion to the contrary, he believes that our strength is still partially due to the fact that we are in the “rust belt”.

v Economic development is vital to financial stability, and regional cooperation between municipalities is a key component to such development.

Teresa Fedor

Angie Kuhn welcomed all guests attending the meeting and introduced Senator Fedor.

Senator Fedor said the tax reform bill just passed by the Senate and awaiting Governor Taft’s signature contains several new elements and it will be interesting to see how the pieces all fit together. She said that she and her colleagues had been prepared to do a sleep-in during the vote on the budget bill in order to retain the Local Government Fund at its current funding levels.

Senator Fedor also stated that she would be willing to meet with tax representatives from our group on a regular basis if we felt the need.

Senator Fedor then asked each attendee to identify themselves and their municipality and to state their primary concerns regarding state/local tax reform. Major concerns included:

v Consolidated tax returns (presentation given subsequently by Peter Rancatore from the City of Toledo).

v Rumors that business income may become exempt from municipal income tax in the future, to be replaced by a portion of the new CAT tax.

v Changes made by the state legislature having a significant impact on local governments. The Ohio Business Gateway is seen by many municipalities as being the first step by the State to take over collection for municipalities.

v The state legislature is whittling away at Section 718 of the Ohio Revised Code. The changes being made are represented as creating more uniformity, but actually create less uniformity.

v The mandate by the State that municipalities must accept 2106 expenses (presentation given subsequently by Jeff Bugbee from the City of Port Clinton).

v Uniformity in taxation among businesses. Specifically, hospitals and the banking industry are currently exempt.

v The assault on “Home Rule” by the State seems to have escalated over the last five or six years.

Presentation on consolidated tax returns

Peter Rancatore explained that the passage of House Bill 477 a few years ago instituted the requirement that municipalities must accept consolidated income tax returns. As a result, companies will combine profitable subsidiaries from one city with unprofitable subsidiaries from another city to lower or eliminate local taxes. The State does not allow a company to net one subsidiary’s loss (located in another state) against another subsidiary’s gain (located in Ohio). Allowing this to occur at the local level leads to tax avoidance policies by companies, such as “trafficking in losses” wherein a company shops for companies with losses in order to be able to reduce their tax liability at the local level.

At Senator Fedor’s inquiry for a solution, Peter said it would just involve striking Section 718.06 from the Ohio Revised Code. Senator Fedor said it would need to be put in the form of a bill, and we could give it a try.

Presentation on 2106 deductions

Jeff Bugbee explained that with the relocation of 2106 expenses from a line on the 1040 Form to Schedule A beginning in 1987, the 2106 expenses no longer have any impact on the adjusted gross income figure taxed by the State. Isn’t it unfair that they don’t have to allow it, but municipalities do?

Mayor Ford Arrives

At this point, discussion was suspended with the arrival of Toledo Mayor Jack Ford. Mayor Ford said he appreciated the wisdom of the Governor and legislature in restoring the Local Government Fund to its prior level. If the cuts had been instituted, it would have opened the door to serious funding issues for many local governments. Toledo would have been forced to make staffing cuts in Police and Fire.

Mayor Ford praised the job Senator Fedor has done, stating that she looks out for taxpayers by fighting against wasted tax dollars. She draws on many facets of her personal life, including what she learned as a former teacher, single parent, and veteran.

Discussion of 2106 deductions resumes

Marie from Wauseon said that her city has an ordinance stating that 2106 deductions are not allowed. Doug from RITA said that a few municipalities in the state have this practice and, to date, it has not been challenged. Several tax commissioners said their cities have not taken action because of an anticipated negative reaction by council members and taxpayers. So far, municipalities have been reactive to changes versus proactive. There is hesitation in general on the part of local government to present any bill on Section 718 of the Ohio Revised Code before the state legislature for fear of opening a Pandora’s box. In regard to 2106 deductions, the general consensus of the group was that in order to maintain uniformity, it would be best if this issue were addressed at the state level rather than at the local level. Doug’s opinion was that tax preparers don’t really like dealing with 2106 deductions on the local level and would not be sorry to see it go away.

In summary, the group agreed that local governments have allowed the State to take control of local issues and that it is time to stand up and fight for home rule.

Senator Fedor can be contacted at the following numbers:

v Office: 614-466-5204

v Fax: 614-466-3337

v Home: 419-385-8803

Official Payments

Brett from the City of Toledo (419-245-1665) gave a presentation on credit card payments through an agency named Official Payments. Toledo has used this company for credit card payments to the Income Tax Department since August 2004. With very little advertising of its availability (a letter was included with the tax package sent out for 2005), use of the system has increased substantially since its inception. Toledo is projecting that they will collect $100,000 through the Official Payments system for 2005. There is no cost at their end. Users pay a 2.5% “convenience fee” so two separate transactions appear on their credit card bill--one for payment to Toledo, and one for payment of the “convenience fee” to Official Payments. Toledo has been very pleased with the results. For taxpayers who carry a balance for multiple years, Toledo will sometimes give them a break on penalty/interest to offset the convenience fee if the taxpayer pays the entire balance at one time using Official Payments.

Features include:

v Instant authorization and confirmation

v Access for payment by telephone or internet 24 hours a day

v All major credit cards are accepted

v Debit cards are also accepted, if they are MasterCard or Visa

v Daily reports of payment activity via e-mail

There is a two-day lag on MasterCard or Visa payments, and a three-day lag on Discovery or American Express payments. It’s possible that there is a set-up fee, but Toledo was able to negotiate that fee out of their agreement.

Pat (Oregon) said she has been checking into Official Payments for Oregon. The convenience fee quoted to her was 3%, perhaps because Oregon is a smaller city or because the fee percentage has increased since Toledo set up their program. The program is also available for use in other departments, but in order to determine the convenience fee for other departments, Official Payments needs to be supplied with each department’s total revenue collection amount for 2004.

Next Meeting

The next meeting will be held on Wednesday, August 10^th at 9:30 a.m. in Bowling Green.