Local governments rely on many different taxes for their operation. Some are collected locally, and some by the state. Some are mandatory and some permissive.
a. Real Property Tax
Ohio law mandates that counties collect property taxes. These taxes are distributed to counties, townships, municipalities and school districts. School districts receive, statewide, about 65% of all property taxes. The property tax is the oldest method of financing Ohio local government. The major source of property tax income is from real property.
The Ohio Constitution limits the real property rate of taxation to 1% of value (10 mills). The Ohio Revised Code, section 5705.02 further defines this limit as being 1% of taxable value, which is 35% of appraised value. This 1% limitation can only be exceeded by a vote of the people within the taxing jurisdiction.
The taxing authority of any subdivision at any time and in any year, by vote of two-thirds of all the members of the taxing authority, may declare by resolution and certify the resolution to the board of elections not less than ninety days before the election upon which it will be voted that the amount of taxes that may be raised within the ten-mill limitation will be insufficient to provide for the necessary requirements of the subdivision (ORC 5705.19).
For purposes of establishing value, all real property must be reappraised every six years, and the value must be adjusted the third year following the reappraisal. These are commonly referred to as the sexennial reappraisal and the triennial update, respectively.
There are several exceptions to real property tax liability. For example, land devoted exclusively to agricultural use may be valued according to current use rather than highest use. This exception, authorized by a constitutional amendment adopted in 1973, is called Current Agricultural Use Valuation, or CAUV.
Also, facilities constructed primarily for the purpose of eliminating or reducing air or noise pollution shall not be considered improvements for the purpose of real property taxation (ORC 5709.21).
The major exemption of real property tax is for church and governmental property that is used for religious or public purposes (ORC 5709.07 and 5709.08).
The state legislature has adopted three major real property tax credits. These are direct reductions of tax rather than reductions of value.
The first of these is the percentage rollback, which grants a 10% rollback in each tax bill. In addition, a 2.5% rollback is granted on owner-occupied dwellings (ORC 319).
The second credit is the homestead exemption, which is granted to qualified elderly or disabled homeowners, regardless of income, on the dwelling that is the individual's place of residence. The reduction is equal to the taxes that would otherwise be charged up to $25,000 of the market value of the dwelling (ORC 323.151).
Finally, there is the tax reduction factor. The purpose is to assure that people do not pay more tax dollars on voted issues than was originally approved. This legislation was a result of the property value inflation and consequent increased taxes of the 1970s. The calculation of reduction factors is a complicated process, and different factors are used for residential and agricultural property than for business, commercial and public utility property. New reduction factors are computed each time there is a property valuation change, because of either the sexennial reappraisal or the third year update. The effect is to eliminate increases in voted taxes on existing real property (ORC 319.301).
b. Tangible Personal Property Tax
Although phased out for most taxpayers in 2009, the tax base of tangible personal property (TPP) is property located and used in business in Ohio, including machinery, equipment and inventories. Telephone companies and internet exchange telecommunications companies will continue to pay TPP taxes through tax year 2010. Local governments are reimbursed for the loss of tax revenue due to the elimination of the TPP tax. Replacement payments are based on levies approved prior to Sept. 1, 2005 and TPP values that existed as of Aug. 31, 2005. As local governments revenues have decreased since 2005, replacement payments have increased in order to hold them harmless on qualifying levies through FY2011. Replacement payments to local governments will begin to decline in FY 2012 until FY 2018 (FY 2019 for telephone property), when they will receive no replacement payments (ORC 5709, 5711).
c. Public Utility Property Tax
A third property tax is the public utility property tax, which is levied on both real and personal property. The taxable value varies according to the type of property. Real property taxable value is 35% of true value and personal property is 100%.
Public utilities include electric, rural electric, natural gas, pipeline, water works, water transportation and heating. For most public utilities, the personal property tax base consists of all Tangible Personal Property owned and located in Ohio on December 31st of the preceding year. Tax rates vary by taxing local governments and are the sum of all levies for them in which the property is located or to which it is apportioned. After local administrative deductions, revenue is distributed to local governments according to the taxable values and total millage levied.
d. Commercial Activity Tax
The Commercial Activity Tax (CAT) is a business privilege tax measured by a business' gross receipts. The CAT is being phased-in over a five year period starting with tax year 2005. The CAT replaces the corporate franchise and tangible personal property taxes. As a result of the phase-out of the tangible personal property tax, a distribution was created to reimburse schools and local governments for revenue losses (ORC 5751.02).
e. The Kilowatt-Hour (KWH) and Natural Gas Consumption tax (MCF)
The Kilowatt-Hour (KWH) and Natural Gas Consumption tax (MCF) were both enacted in 2001 to replace losses to local governments and school districts due to the reduction in tangible personal property tax assessment rates. Currently, 25.4% of KWH revenue is paid into the School District Property Tax Replacement Fund and 11.6% of KWH revenue is paid into the Local Government Property Tax Replacement Fund. Distribution to the county auditors of KWH and MCF revenue is made twice a year by the Ohio Department of Taxation and Department of Education (ORC 5727.81-86).
f. Estate Tax
Estates of Ohio residents with a net taxable value over $338,333 are subject to the state's estate tax law. Local governments receive 80% of the revenue generated from the estate tax, while the remaining 20% is deposited into the state's general revenue fund. Revenue is used for capital investments such as new road or fire vehicles or improvements to a government building or park. Funds are also used to maintain a quality level of basic governmental services such as road repair, police, fire and emergency medical services (ORC 5731).
g. Gasoline Tax
The General Assembly adopted the first gasoline tax in 1925. The revenue collected from the tax is apportioned to state agencies and for use by counties, municipalities and townships. The tax is actually comprised of five separate statutory levies that have been enacted over the years. Townships, for example, receive a portion of proceeds 1.9 cents or 6.8% of the total 28 cents per gallon motor fuel tax to maintain the 41,387 miles of township roads. The Ohio Constitution and state law require that any revenue received from any of the gasoline taxes be used only for expenditures (ORC 5735).
Ohio Local Government Fund
Ohio's Local Government Fund (LGF) was established by the General Assembly in 1934. The LGF was created during the peak of the Great Depression, when many local governments were experiencing severe financial difficulties. The LGF has undergone many changes since its inception, but the basic elements of the program have remained constant over the years: a designated portion of state revenues (currently 3.68% of the state's general revenue fund) are deposited into the LGF; a formula is used to allocate the monies to the county undivided local government fund in each Ohio county; and county budget commissions authorize and determine the distribution to local governments. They use this money to offset operational costs and fund unfunded mandates.
a. Sales and Use Taxes
Ohio law permits local governments to implement a variety of local taxes. Counties may enact up to 1% sales and use tax, in 0.25% increments, for use by the county general fund. This tax can be enacted by the regular method, which is subject to referendum within ninety days; the emergency method, which is effective the first day of the month after 30 days' notice to the Ohio Tax Commissioner; or by submitting the issue to the voters. Most other permissive taxes are enacted by similar means. An additional 0.25% or 0.5% sales and use tax may be enacted for several different purposes, including the county general fund, transit authority, county permanent improvements, and convention facilities notes or bonds. If the tax is to be used for any purpose other than the general fund, it must be voted on by the people.
The county commission or regional transit authority may submit additional sales and use tax, up to 1.5% in 0.25% increments, to the voters for use by a county transit board or regional transit authority (ORC 306, 307, 351, 5739, 5741).
b. Lodging Tax
Counties, townships and municipalities are permitted to enact lodging taxes. In 1967, municipalities and townships were given authority to adopt up to a 3% tax on lodging, with the total proceeds to go to their general funds. In 1980, municipalities, townships, and counties were permitted to levy an additional 3%, primarily to be used for convention and visitors bureau expenses. The county cannot enact it if any township or municipality has, and similarly no township or municipality can enact it if the county already has the tax in place (ORC 307.693, 307.695, 351.021, 505.56, 505.58, 5739.02, 5739.09).
c. Real Estate Transfer Tax
County commissioners may impose a tax, not to exceed 30 cents for each $100 of value, on the transfer of real estate. The proceeds are used in the county general fund (ORC 322).
d. Motor Vehicle License Tax
The state imposes several motor vehicle license fees upon owners of motor vehicles. The revenue the state receives from these various fees are collected and credited to the state's auto registration distribution fund. The state creates an account for each county and district of registration of the state, including townships. Of the total amount collected and deposited into the fund, notwithstanding some prohibitions listed in ORC 4501.03, various defined percentages are distributed to local governments based on a percentage of the total number of miles of within their jurisdiction that they maintain. All permissive motor vehicle license taxes must be used for highway, roads, streets or bridges (ORC 4501).
e. Alcoholic Beverage and Cigarette Taxes
Counties have the authority to levy a two and twenty-five hundredths of a mill per cigarette, and shall be computed on each cigarette sold and a $3 per gallon of spirits to finance the construction or operation of a major league sports facility (ORC 307.696, 307.697, 5743.024, 5743.323).
f. Income Tax
Municipal legislative authorities may levy, without vote of the people, an income tax of up to 1%. A higher rate may be adopted by vote of the citizens. All income tax revenue is deposited in the general fund (ORC 718).
School District Income Tax
The school district income tax is an income tax separate from federal, state, and municipal income tax that is earmarked specifically to support school districts. Imposition of the school district income tax must be voter approved by residents of a school district (ORC 5747.03).
Local governments have other sources of revenue in addition to taxes. Some of them include:
A. Investment Income - Money not needed for immediate cash flow purposes should be invested in appropriate interest-bearing instruments.
B. Fees - Local governments charge fees for a wide variety of services, such as zoning permits, dispatching, building permits and recording.
C. Sales of Products and Services - Many local governments sell the farm products of land they own. They also sell utility services, such as sewer and water.
D. Rents - Many local governments own property that can be rented to others, either public or private.
E. Reimbursements - Reimbursements are primarily from other jurisdictions as provided by law. Examples include election, auditing and child welfare expenses.
F. Licenses - Local governments sell many different licenses, including dog and kennel, junkyard, cigarette, peddler, exhibitor and vendor.
G. Federal Grants - The federal grant picture is constantly changing; the most dramatic change is the end of federal revenue sharing. Other grants continue to be available, however, such as Community Development Block Grant.
H. Assessments - Local governments collect assessments for part of the costs of certain improvements, such as utilities, curbs, sidewalks, etc.
References
No Author, "Ohio Local Government Structure and Finance", Ohio State University Extension Bulletin, 835-98, http://ohioline.osu.edu/b835/b835_10.html.
OHIO REVISED CODE, (ONLINE)
http://codes.ohio.gov/orc/.
Ohio Department of Taxation Government, Columbus Ohio
http://tax.ohio.gov/channels/government/distributions.stm.