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 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 (i.e., municipal legislative body, county commission or township trustees) of political subdivisions may place a levy on the ballot to raise taxes in excess of the 10 mill (1%) limitation. First they must adopt a resolution declaring that the amount of taxes within the 10 mill limitation is insufficient to meet the needs 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, .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 319.302).
The second credit is the homestead exemption, which is granted to qualified elderly or disabled homeowners. The credit ranges from 25% to 75% depending upon income. The state reimburses local governments for losses of both the above credits (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
Another property tax is the tangible personal property tax. This tax is levied upon tangible personal property used in business. The tax rate is the same as for real property in each jurisdiction. The taxable value is presently in a reduction mode. For 1998, the taxable value is 25% of true value.
The first $10,000 of taxable value for each firm is exempt. There are many other exemptions, including church and school property, certified pollution control equipment, licensed motor vehicles and aircraft; property used in agriculture; and property of insurance companies, financial institutions and dealers in intangibles (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%, except that the personal property of rural electric companies is assessed at 50% of true value and the personal property of railroads is assessed the same as other tangible personal property, 25% in 1998. The tax rate is the same as for real property.
Major exceptions and credits include municipally owned utilities, certified pollution equipment, licensed motor vehicles, personal property under construction, and the 10% real property rollback (ORC 5727).
d. Manufactured Home Tax
The manufactured home tax, although not a property tax, is paid in lieu of property tax. The taxable value is 40% of the depreciated value of the home. The tax rate is the same as for real property but the tax shall not be less than $36 in any event.
Manufactured homes taxed as tangible personal property, used as a travel trailer (if less than 35 feet in length), or licensed in another state, are exempt from the tax (ORC 4503.06).
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. Recent law allows county commissioners to enact the tax by the emergency method, and at the same time order the issue to be voted on by referendum at the next general election. 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 an 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. By 1980 law, municipalities, townships, and counties were permitted to levy an additional 3%, primarily to be used for convention and visitors bureau expenses. The county can not 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, 5739.024).
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
Counties, townships and municipalities may enact up to $20 in additional motor vehicle license taxes. In 1967, counties or municipalities were permitted to levy a $5 tax. If counties enacted the tax, municipalities are entitled to share in the receipts. If one or more municipalities has enacted the tax, the county may enact it in the remainder of the county.
In 1987, counties, townships, and municipalities were authorized to collect up to an additional $15 in motor vehicle license taxes. The additional taxes are in three increments of $5 each. Counties were give the first opportunity to enact the first two increments, after which municipalities could enact them if the county failed to do so. The third $5 increment is available to municipalities or townships, regardless of any action on any other permissive license tax.
All permissive motor vehicle license taxes must be used for highway, roads, streets or bridges (ORC 4504).
e. Alcoholic Beverage and Cigarette Taxes
Counties have the authority to levy 4 1/2 cents per pack of cigarettes and $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).
a. Ohio Local Government Fund
4.6% of the public utilities excise, corporation franchise, sales and use, and Ohio income taxes are placed into the Ohio Local Government Fund, which is distributed by a formula, based largely upon municipal tax duplicates, to local government funds in each county. In addition, 4.2% of the tax on dealers in intangibles is returned to the local government fund of the county of collection (ORC 5747).
The public utilities excise tax is levied at rates ranging from 4.75% to 6.75% of gross receipts on business within the state. Utility companies providing services such as electricity, gas, and telephone must pay this tax (ORC 5727).
The corporation franchise tax is paid by the Ohio corporations based upon either (1) 5.82 mills on net worth or (2) 5.1% of the first $50,000 of net income and 8.9% of income over $50,000, which ever is greater (ORC 5733).
State sales and use taxes are levied at the rate of 5% on all eligible items sold or used within the state (ORC 5739, 5741).
Income taxes are levied on individuals and estates earning income in the state. The rates are progressive, currently ranging from 0.713% to 7.20% of adjusted gross income less exemptions (ORC 5747).
The tax on dealers in intangibles is levied against certain dealers, such as stockbrokers and mortgage brokers, at the rate of 8 mills on shares and capital (ORC 5725.13-.17).
Each county local government fund is distributed to townships, municipalities, park districts and the county either by a formula based on need or another method agreed upon by the local governments. Ohio municipalities that levy an income tax get 1% of the Ohio local government fund before distributions are made to the local funds (ORC 5747.52, .53).
b. Ohio Library and Local Government Support Fund
5.7% of the Ohio income tax is deposited into the Ohio library and local government support fund. This fund is distributed by statutory formula to county library and local government support funds. This tax replaced, in 1985, the intangible property tax, and is used primarily for the support of libraries (ORC 5747.46-.48).
c. Ohio Local Government Revenue Assistance Fund
The Ohio Legislature authorized a fund, effective July 2, 1989, for the assistance of local governments. It is called the Ohio Local Government Revenue Assistance Fund, and it consist of 0.6% of the same taxes from which the Ohio Local Government Fund is derived. The fund is distributed to each county budget commission on a per capita basis, and is distributed within each county in much the same manner of the Local Government Fund (ORC 5747.61-.63).
d. Motor Vehicle License Tax
License taxes are levied upon passenger cars at the rate of $20, and upon other motor vehicles at various rates. After bond retirement and administrative obligations are met, the tax is distributed 61% to counties, 34% to municipalities and 5% to townships (ORC 4503).(See Sec. 2d above for permissive local motor vehicle taxes.)
e. Motor Vehicle Fuel Tax
The current rate of motor vehicle fuel tax is 22 cents. One cent of the tax goes to the local transportation improvement fund, with the balance distributed approximately 75% to the state, 10.7% to municipalities, 9.3% to counties, and 5% to townships(ORC 5735).
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 charge 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.