Regards voter approval of municipal income tax reciprocity credit

As Passed by the House

136th
General Assembly

Regular
Session
Sub. H. B. No. 503

2025-2026

Representatives Roemer, Workman

Cosponsors: Representatives
Daniels, King, Newman, Thomas, D., Williams, Click, Abrams, Craig,
Fischer, Fowler Arthur, Gross, Lear, Mathews, A., Peterson, Plummer,
Robb Blasdel, Swearingen, Young

To
amend section 718.04 and to enact section 718.041 of the Revised Code

to
require voter approval to reduce or repeal a municipal income tax
reciprocity credit, to allow a voter initiative to enact or increase
such a credit, and to require the Department of Taxation to conduct a
study of municipal income taxation.

BE
IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF OHIO:

Section
1.
That
section 718.04

be amended and section 718.041

of the Revised Code be
enacted

to
read as follows:

Sec.
718.04.
(A)
Notwithstanding division (A) of section 715.013 of the Revised Code,
a municipal corporation may levy a tax on income and a withholding
tax if such taxes are levied in accordance with the provisions and
limitations specified in this chapter. On or after January 1, 2016,
the ordinance or resolution levying such taxes, as adopted or amended
by the legislative authority of the municipal corporation, shall
include all of the following:

(1)
A statement that the tax is an annual tax levied on the income of
every person residing in or earning or receiving income in the
municipal corporation and that the tax shall be measured by municipal
taxable income;

(2)
A statement that the municipal corporation is levying the tax in
accordance with the limitations specified in this chapter and that
the resolution or ordinance thereby incorporates the provisions of
this chapter;

(3)
The rate of the tax;

(4)
Whether, and the extent to which, a credit, as described in division
(D) of this section, will be allowed against the tax;

(5)
The purpose or purposes of the tax;

(6)
Any other provision necessary for the administration of the tax,
provided that the provision does not conflict with any provision of
this chapter.

(B)
Any municipal corporation that, on or before March 23, 2015, levies
an income tax at a rate in excess of one per cent may continue to
levy the tax at the rate specified in the original ordinance or
resolution, provided that such rate continues in effect as specified
in the original ordinance or resolution.

(C)(1)
No municipal corporation shall tax income at other than a uniform
rate.

(2)
Except as provided in division (B) of this section, 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. The legislative authority of
the municipal corporation shall file with the board of elections at
least ninety days before the day of the election a copy of the
ordinance together with a resolution specifying the date the election
is to be held and directing the board of elections to conduct the
election. The ballot shall be in the following form: "Shall the
Ordinance providing for a___ per cent levy on income for (Brief
description of the purpose of the proposed levy) be passed?

FOR
THE INCOME TAX

AGAINST
THE INCOME TAX

"

In
the event of an affirmative vote, the proceeds of the levy may be
used only for the specified purpose.

(D)
A municipal corporation may, by ordinance or resolution, grant a
credit to residents of the municipal corporation for all or a portion
of the taxes paid to any municipal corporation, in this state or
elsewhere, by the resident or by a pass-through entity owned,
directly or indirectly, by a resident, on the resident's distributive
or proportionate share of the income of the pass-through entity. A
municipal corporation is not required to refund taxes not paid to the
municipal corporation.

A
municipal corporation granting such a credit shall not reduce the
amount, percentage, or rate limit of the credit or repeal the credit
without having obtained the approval of the reduction or repeal by a
majority of the electors of the municipal corporation voting on the
question at a general election. The legislative authority of the
municipal corporation shall file with the board of elections at least
ninety days before the day of the election a copy of the ordinance
together with a resolution specifying the date the election is to be
held and directing the board of elections to conduct the election.
Upon transmission of the ordinance to the board of elections, the
municipal corporation shall notify the tax commissioner in writing of
the question to be submitted to electors. The question of modifying
the credit shall be submitted to the electors as a separate question
and shall not be combined in a single ballot question with any
question regarding the rate of tax proposed under division (C)(2) of
this section. The ballot shall be in the following form: "Shall
the Ordinance providing for ______ (a repeal or reduction) of a tax
credit to residents of ____ (the applicable municipal corporation)
for ____ (all or a portion of, as applicable) the taxes paid to any
other municipal corporation be passed? (If a modification, language
shall be added here stating the amount, percentage, or rate limit of
the modified credit compared to the amount, percentage, or rate limit
of the current credit.)

Yes

For
the (repeal or reduction)

No

Against
the (repeal or reduction)

"

(E)
Except as otherwise provided in this chapter, a municipal corporation
that levies an income tax in effect for taxable years beginning
before January 1, 2016, may continue to administer and enforce the
provisions of such tax for all taxable years beginning before January
1, 2016, provided that the provisions of such tax are consistent with
this chapter as it existed prior to March 23, 2015.

(F)
Nothing in this chapter authorizes a municipal corporation to levy a
tax on income, or to administer or collect such a tax or penalties or
interest related to such a tax, contrary to the provisions and
limitations specified in this chapter. No municipal corporation shall
enforce an ordinance or resolution that conflicts with the provisions
of this chapter.

(G)(1)
Division (G) of this section applies to a municipal corporation that,
at the time of entering into a written agreement under division
(G)(2) of this section, shares the same territory as a city, local,
or exempted village school district, to the extent that not more than
thirty per cent of the territory of the municipal corporation is
located outside the school district and a portion of the territory of
the school district that is not located within the municipal
corporation is located within another municipal corporation having a
population of four hundred thousand or more according to the federal
decennial census most recently completed before the agreement is
entered into under division (G)(2) of this section.

(2)
The legislative authority of a municipal corporation to which
division (G) of this section applies may propose to the electors an
income tax, one of the purposes of which shall be to provide
financial assistance to the school district described in division
(G)(1) of this section. Prior to proposing the tax, the legislative
authority shall negotiate and enter into a written agreement with the
board of education of that school district specifying the tax rate;
the percentage or amount of tax revenue to be paid to the school
district or the method of establishing or determining that percentage
or amount, which may be subject to change periodically; the purpose
for which the school district will use the money; the first year the
tax will be levied; the date of the election on the question of the
tax; and the method and schedule by which, and the conditions under
which, the municipal corporation will make payments to the school
district. The tax shall otherwise comply with the provisions and
limitations specified in this chapter.

Sec.
718.041.
(A)(1)
The electors of a municipal corporation may initiate a question to
enact a credit authorized under division (D) of section 718.04 of the
Revised Code or to increase the amount, percentage, or rate limit of
an existing credit by filing a petition with the board of elections
of the county in which the municipal corporation is located. If the
municipal corporation has territory in more than one county, the
petition shall be filed with the board of elections of the county in
which the most populous portion of the municipal corporation is
located.

(2)
The petition shall be on a form prescribed by the secretary of state,
shall state the proposed amount, percentage, or rate limit of the
credit or the amount of the proposed increase in the amount,
percentage, or rate limit of the credit, and shall be signed by
qualified electors of the municipal corporation equal in number to at
least ten per cent of the total number of votes cast in the municipal
corporation for the office of governor at the most recent general
election for that office.

(3)
If the board determines that the petition is sufficient and valid,
the question shall be submitted to the electors of the municipal
corporation for their approval at the next general election held at
least ninety days after the petition is filed with the board.

(B)
The board of elections shall publish notice of the election in a
newspaper of general circulation in the municipal corporation once a
week for two consecutive weeks before the election, or as provided in
section 7.16 of the Revised Code. The board of elections of each
county in which the municipal corporation has territory, if it
operates and maintains a web site, shall post notice of the election
on its web site for thirty days before the election. The notice shall
state the time and place of the election.

(C)
If the question is approved by a majority of the electors voting on
it, for taxable years beginning on and after the first day of January
following the election, the municipal corporation shall administer
the credit at the approved amount, percentage, or rate limit.

(D)
The procedures of this section apply notwithstanding any contrary
provision of Chapter 731. of the Revised Code.

Section
2.
That
existing section 718.04 of the Revised Code is hereby repealed.

Section
3.
The
Department of Taxation shall conduct a study on municipal income tax
uniformity, convening relevant stakeholders including, but not
limited to, the Ohio Mayors Alliance, the Ohio Municipal League, the
Ohio Chamber of Commerce, the Ohio Business Roundtable, the National
Federation of Independent Business Ohio, the Ohio Council of Retail
Merchants, the Regional Income Tax Authority, the Central Collections
Agency, and the Ohio Society of Certified Public Accountants, and
issue a report to the General Assembly not later than December 31,
2026, in accordance with division (D) of section 101.68 of the
Revised Code. The report shall cover the amount of municipal income
tax collected annually statewide, the impact of current law on
taxpayers and tax preparers, as well as the financial impact of
potential changes to current law on statutorily required municipal
services. The report shall also evaluate stakeholder proposed reforms
to the existing municipal income tax system.