Tax Tip of the Week | No. 306 | Ohio Municipal Tax Reform

Tax Tip of the Week | June 10, 2015 | No. 306 | Ohio Municipal Tax ReformHigh court decision in Maryland case could impact OhioOhio cities could see fallout from a U.S. Supreme Court decision last week rejecting the way Maryland double-taxes income earned outside the state.The court ruled 5-4 that Maryland’s tax scheme violates the dormant Commerce Clause. Maryland will reportedly have to refund millions in claims to thousands of taxpayers who generate income in other states. Justice Samuel Alito called the rule “inherently discriminatory.”The ruling could place Ohio cities at odds with the Supreme Court, and it goes back yet again to our state’s crazy quilt of municipal income tax laws. Because they call their own shots when it comes to taxpayer credits, Ohio cities are not required to give credit for income tax paid to another city.  This lack of reciprocity causes double taxation on Ohioans – they are often forced to pay municipal income tax to both their nonresident and resident cities, i.e. when working in one city but living in another.  For example, The City of Xenia only allows a 1.5% credit for taxes paid to another city; the City of Springboro only allows a 1% credit.  So if you live in one of these cities and work in a different city, you would pay an additional .75% (Xenia) or .5% (Springboro) in city taxes.Ohio’s state income tax won’t be affected because it provides full credit for taxes paid on income earned outside the state.The Associated Press reports that the ruling could affect nearly 5,000 cities in Ohio, Indiana, New York and Pennsylvania.We will have more updates on Ohio’s municipal tax reform throughout the year.You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.Rick Prewitt – the guy behind TTW...until next week.