Background
In March, 2008, the City appointed 15 business leaders, economic experts and community leaders to an Economic Advisory Committee. The Committee's charge was to determine if there was a structural imbalance in the city's general operating fund. A structural imbalance exists when long term average growth in the city's revenues is not able to support the long-term average growth in expenditures needed to sustain an acceptable level of government services. The Committee concluded that a structural imbalance did indeed exist, and has resulted in a cumulative shortage of $80 million to $120 million in the general operating fund.
The Committee compiled a wide variety of options for City leaders to consider in resolving the structural imbalance. The Committee recommended that a combination of cost reductions and revenue enhancements should be pursued, and concluded that an increase in the City income tax rate was a necessary component in eliminating the structural imbalance.
In response to the Advisory Committee's recommendations, the City has developed a three-prong plan to include: reforming city government operations; creating jobs; and boosting city revenue. Part one of that strategy includes a 10-year comprehensive plan of government reforms and efficiencies expected to save between $100 million and $150 million over the next 10 years and includes implementing new approaches to employee benefits, public safety reforms and strategic partnerships. Part two of the plan focuses on economic development and job creation activities in order to bring new jobs into Columbus and retain jobs that are already here. The third prong is the implementation of an income tax increase.
This ordinance authorizes an increase in the city income tax from a rate of two percent to a rate of two and one half percent effective October 1, 2009.
Title
To increase the city income tax from a rate of two percent (2.0%) to a rate of two and one-half percent (2.5%) effective October 1, 2009, to amend sections 361.19, 361.21, and 361.24, Columbus City Codes, 1959, and to declare an emergency.
Body
WHEREAS, in March of 2008, the City appointed 15 business leaders, economic experts and community leaders to an Economic Advisory Committee, whose charge was to determine if a structural imbalance exists in the general fund, wherein long term average growth in the city's revenues is not able to support the long-term average growth in expenditures needed to sustain an acceptable level of government services; and
WHEREAS, the Economic Advisory Committee concluded that a structural imbalance exists, and has resulted in a cumulative shortage of $80 million to $120 million in the general operating fund; and
WHEREAS, the Economic Advisory Committee recommended a combination of cost reductions and revenue enhancements to address the structural imbalance, including an increase in the City income tax rate as a necessary component; and
WHEREAS, in response to the Economic Advisory Committee's recommendations, the City developed a three-prong plan to include: reforming city government operations; creating jobs; and boosting city revenue; and
WHEREAS, it has been determined that an income tax increase of one half of one percent is necessary to sustain an acceptable level of city services; and
WHEREAS, Section 36 of the Charter (the "Charter") of the City of Columbus, Ohio (the "City") provides that "The power of Council to levy an income tax shall be limited to a tax of not to exceed one per centum (1%) per annum" so that the Council of the City of Columbus, Ohio (the "City Council") has no authority to increase the municipal income tax beyond the limit set forth in Section 36 of the Charter but must submit any such proposal to a vote of the electorate; and
WHEREAS, Ohio Revised Code Section 718.01 provides that "No municipal corporation shall levy a tax on income at a rate in excess of one per cent without having obtained the approval of the excess by a majority of the electors of the municipality voting on the question at a general, primary, or special election"; and
WHEREAS, this approval was obtained as a result of an election held on August 4, 2009; and
WHEREAS, an emergency exists in the usual daily operation of the City Council in that the implementation of an increase in the city income tax from a rate of two percent (2.0%) to a rate of two and one-half percent (2.5%) effective October 1, 2009, is necessary to preserve the public peace, property, health, safety, and welfare.
Now, therefore, be it ordained by the Council of the City of Columbus, Ohio:
Section 1. That there be and hereby is levied a tax on income, effective October 1, 2009, equal to two and one-half percent (2.5%) per annum.
Section 2. That effective October 1, 2009, Section 361.19, Columbus City Codes, 1959, be and hereby is amended to read as follows:
Section 361.19 Imposition of Tax
To provide for the purposes of general municipal operations, maintenance, new equipment, and capital improvements of the city, there is hereby levied a tax at the rate of two (2) percent two and one-half percent (2.5%) per annum upon the following:
(a) On all salaries, wages, commissions, and other compensation earned by residents of the city.
(b) On all salaries, wages, commissions, and other compensation earned by nonresidents of the city for work done or services performed or rendered in the city.
(c) Net profits:
(1) On the net profits earned of all unincorporated businesses, professions, or other activities conducted by residents of the city.
(2) On the net profits earned of all unincorporated businesses, professions, or other activities conducted in the city by nonresidents.
(3) For the purposes of paragraphs (c)(1) and (c)(2) of this section, an association shall be taxed as an entity, on the net profits of the association derived from work done or services performed or rendered and business or other activities conducted in the city, whether or not such association has its principal or any place of business located in the city, effective for all accounting periods commencing on or after January 1, 1991.
(4) For the purposes of paragraph (c)(1) of this section, a resident of the city who is a member of an association is taxed individually on that resident's entire share, whether distributed or not, of the annual net profits of the association which are not subject to entity filing under paragraph (c)(3) of this section, effective for all accounting periods commencing on or after January 1, 1991.
(d) On the net profits of all corporations, estates, and trusts, derived from work done or service performed or rendered and business or other activities conducted in the city, whether or not such corporations, estates, and trusts have their principal or any place of business located in the city.
(e) On a resident's entire share, whether distributed or not, of the net profits of a Subchapter S corporation as defined in Section 1361 of the Internal Revenue Code. If a resident is a shareholder in two or more Subchapter S corporations to be included in the same return, the resident's share of the net loss of one Subchapter S corporation (except any portion of a loss separately reportable for municipal tax purposes to another taxing entity) may be used to offset the resident's share of the profits of another Subchapter S corporation for purposes of arriving at overall net profits derived from Subchapter S corporations. Credit on the tax imposed by this paragraph shall be given for tax paid on the resident's share of the net profits of a Subchapter S corporation under Sections 361.19(d) and 361.33 of this chapter. The tax imposed under this paragraph is effective for all accounting periods commencing on or after January 1, 2001.
The tax upon all of the income specified in paragraphs (a), (b), (c), (d) and (e) hereof shall remain in effect for the purpose of filing returns and collection of the tax at the rate of one (1) percent with regard to all income earned prior to January 1, 1971; at the rate of one and one-half (1.5) percent with regard to all income earned after January 1, 1971, and prior to January 1, 1983; and at the rate of two (2) percent with regard to all income earned after January 1, 1983 and prior to October 1, 2009; and at the rate of two and one-half percent (2.5%) with regard to all income earned on or after October 1, 2009.
Section 3. That existing Section 361.19, Columbus City Codes, 1959, be and hereby is repealed effective October 1, 2009.
Section 4. That effective October 1, 2009, Section 361.21, Columbus City Codes, 1959, be and hereby is amended to read as follows:
Section 361.21 Levy of Tax
The income tax at the rate of one and one-half (1.5) percent shall be levied, collected and paid with respect to the salaries, wages, commissions and other compensation earned on or before December 31, 1982 and with respect to the net profits of businesses, professions or other activities earned on or before December 31, 1982. The income tax at the rate of two (2.0) percent shall be levied, collected and paid with respect to the salaries, wages, commissions and other compensation earned on and after January 1, 1983, and with respect to the net profits of businesses, professions or other activities earned on and after January 1, 1983. The income tax at the rate of two and one-half percent (2.5%) shall be levied, collected and paid with respect to the salaries, wages and commissions and other compensation earned on or after October 1, 2009 and with respect to the net profits of businesses, professions or other activities earned on or after October 1, 2009. Where the fiscal year of the business, profession or other activity differs from the calendar year, the tax at the rate of one and one-half (1.5) percent shall be applied to that part of the net profits for the two (2.0) percent shall be applied to that portion of the fiscal year occurring before January 1, 1983. The tax at the rate of two (2.0) on or before September 30, 2009, and the tax at the rate of two and one-half (2.5) percent shall be applied to that portion of the fiscal year occurring on and after January 1, 1983 October 1, 2009.
Where the fiscal year of a business, profession or other activity is other than a calendar year, in computing the tax, the profits of such taxpayer shall be determined by dividing the annual profits by twelve (12) and multiplying the quotient by the number of months of the fiscal year between January 1, 1971, through December 31, 1982, occurring on or before September 30, 2009, and multiplying the quotient by the number of months of the fiscal year between January 1, 1983, and thereafter occurring on and after October 1, 2009 and applying the appropriate tax rate to each period.
The income tax at the rate of two percent (2.0%) shall be levied, collected and paid with respect to the salaries, wages and commissions and other compensation earned on or before September 30, 2009, and with respect to the net profits of businesses, professions or other activities earned on or before September 30, 2009. The income tax at the rate of two and one-half percent (2.5%) shall be levied, collected and paid with respect to the salaries, wages and commissions and other compensation earned on or after October 1, 2009 and with respect to the net profits of businesses, professions or other activities earned on or after October 1, 2009.
Section 5. That existing Section 361.21, Columbus City Codes, 1959, be and hereby is repealed effective October 1, 2009.
Section 6. That effective October 1, 2009, Section 361.24, Columbus City Codes, 1959, be and hereby is amended to read as follows:
Section 361.24 Collection at Source
(a) Each employer within or doing business within the city, shall deduct at the time of payment of such salaries, wages, commissions or other compensation as defined in Section 361.16 the tax of two (2) percent of the gross salaries, wages, commissions or other compensation earned by said employee on or before September 30, 2009 and the tax of two and one-half percent (2.5%) of the gross salaries, wages, commissions or other compensation earned by said employee on or after October 1, 2009, and due by the said employer to said employee and shall, on or before the last day of the month following the close of each calendar quarter, make a return showing the amount of taxes so deducted and a record of payments showing that all taxes deducted during the quarter have been paid to the city in accordance with the payment schedule prescribed by subsection (c) of this section. Such employer shall be liable for the payment of the tax required to be deducted and withheld, whether or not such taxes have in fact been withheld. Every employer or officer of a corporation is deemed to be a trustee for this municipality in collecting and holding the tax required under this chapter to be withheld and the funds so collected by such withholding are deemed to be trust funds.
b) In the case of employees who are nonresident professional athletes, the deduction and withholding of personal service compensation shall attach to the entire amount of wages, salaries and other compensation received for games that occur in the taxing community. In the case of a nonresident athlete not paid specifically for the game played in a taxing community, the following apportionment formula must be used: The wages, salaries and other compensation earned and subject to tax is the total income earned during the taxable year, including incentive payments, signing bonuses, reporting bonuses, incentive bonuses, roster bonuses and other extras, multiplied by a fraction, the numerator of which is the number of exhibition, regular season, and postseason games the athlete played (or was available to play for his team, as for example, with substitutes), or was excused from playing because of injury or illness, in the taxing community during the taxable year, and the denominator of which is the total number of exhibition, regular season, and post season games which the athlete was obligated to play under contract or otherwise during the taxable year, including games in which the athlete was excused from playing because of injury or illness. Exhibition games are only those games played before a paying audience, and played against another professional team from the same professional league. In the case of nonresident salaried athletic team employees who are not professional athletes, deduction and withholding shall attach to wages, salaries and other compensation earned for personal services performed in the city.
(c) Employers shall pay to the city all income taxes withheld or required to be deducted and withheld on either a semimonthly, monthly or quarterly basis depending on the amount of taxes involved according to the following payment schedule:
(1) Semimonthly payments of the taxes deducted are to be made by an employer if (1) the total taxes deducted in the prior calendar year were twelve thousand dollars ($12,000.00) or more, or (2) the amount of taxes deducted for any month in the preceding quarter exceeded one thousand dollars ($1,000.00). Such payment shall be paid to the city within five (5) banking days after the fifteenth and the last day of each month.
(2) Monthly payments of taxes withheld shall be made by an employer if the taxes withheld in the prior calendar year were less than twelve thousand dollars ($12,000.00) but more than two thousand three hundred ninety-nine dollars ($2,399.00) or if taxes withheld during any month for the preceding quarter exceeded two hundred dollars ($200.00). Commencing with taxable years subsequent to December 31, 1998 monthly payments of taxes withheld shall be made by an employer if the taxes withheld in the prior calendar year were less than twelve thousand dollars ($12,000.00) but more than three thousand five hundred ninety-nine dollars ($3,599.00) or if taxes withheld during any month for the preceding quarter exceeded three hundred dollars ($300.00). Such payments shall be paid to the city within fifteen (15) days after the close of each calendar month. However, those taxes accumulated for the third month of a calendar quarter by employers making monthly payments pursuant to this paragraph need not be paid until the last day of the month following such quarter.
(3) All employers not required to make semimonthly or monthly payments of taxes withheld under (1) and (2) of this subsection shall make quarterly payments no later than the last day of the month following the end of each quarter.
(d) Each employer who maintains a place of business in the city and another branch within the metropolitan area of the city, must also withhold the tax from employees residing in the city but working at the employer's metropolitan area branch even though the payroll records and place of payment are outside the city.
(e) The employer shall make and file a return on a form furnished by the city auditor, showing the amount of tax deducted by said employer from the salaries, wages, commissions or other compensation of any employee and paid by the employer to the city treasurer. Such employer's return shall be accepted as the return required of an employee whose sole income subject to the tax under Chapter 361 is the salaries, wages, commissions and other compensation returned by said employer.
(f) Each employer, on or before the thirty-first day of January, unless written request for thirty (30) days extension is made to and granted by the city auditor, following any calendar year in which such deductions have been made, or should have been made by an employer, shall file with the city auditor an information return (Columbus withholding statement of wages paid, and Columbus income tax withheld), for each employee from whom income tax has been or should have been withheld showing the name and address of the employee, the total amount of salaries, wages, commissions and other compensation paid said employee during the year and the amount of city income tax withheld from each employee.
(g) Where a resident of the city performs service for his employer in another municipality, which services are subject to withholding in the other municipality, the employer shall have the authority to reduce the withholding to the city to the extent of the tax liability in the other municipality.
(h) The officer or the employee having control or supervision of or charged with the responsibility of filing the report and making payment, is personally liable for failure to file the report or pay the tax due as required by this section. The dissolution of a corporation does not discharge an officer's or employee's liability for a prior failure of the corporation to file returns or pay tax due.
Section 7. That existing Section 361.24, Columbus City Codes, 1959, be and hereby is repealed effective October 1, 2009.
Section 8. It is hereby found and determined that all formal actions of this Council concerning and relating to the adoption of this Ordinance were adopted in an open meeting of this Council, and that all deliberations of this Council and of any of its committees that resulted in such formal action, were in meetings open to the public, in compliance with all legal requirements, including Ohio Revised Code Section 121.22.
Section 9. This Ordinance is hereby declared to be an emergency measure necessary for the immediate preservation of the public peace, health, and safety, said emergency being the need to identify and collect future revenue for the purposes of general municipal operations, maintenance, new equipment, and capital improvements of the City, and, except as otherwise provided herein, shall be in force and effect immediately upon its passage and approval by the Mayor.