If Everyone Keeps Working From Home, Will Ohio Cities Lose Tax Revenue?

Commutes have gotten remarkably short for some Ohio workers. Instead of fighting traffic on the freeway, they’re walking down the hall. But that arrangement could present challenges for local governments.

“In the state of Ohio you pay income tax where you work,” explained Columbus City Auditor Megan Kilgore. “And so here at the city, we’ve been thinking about, in light of COVID, we’re going to try to get our arms around the tax implications of remote work, should this continue down the road.”

According to  research from The Brookings Institute, Columbus is more reliant on income tax revenue than any other city in the country. Cleveland, Cincinnati, and Toledo make the top five, as well. 

In those cities, commuters from outlying cities or townships help fund services. But with more people working at home during the pandemic, it's harder to figure out where income tax revenue should go. Should it stay in the city where the employee used to clock in, or follow them to where they live? 

Ohio lawmakers decided early on in the pandemic to temporarily keep things as they were. Under a temporary law, employers are withholding taxes based on where their employees normally work.

But that holding pattern only extends through Ohio’s state of emergency, plus 30 days.

Greg Lawson from the conservative thinktank the Buckeye Institute says it’s understandable state lawmakers made that switch, rather than force employers to restructure their payroll systems overnight.

“Compliance would be very difficult for businesses,” Lawson explained. “Because it’s very easy for them to do payroll and administer the stuff they’re supposed to administer based on their location, but it’s a lot more difficult if they’re having to figure out where everybody else is.”

But he warns some people’s patience is wearing thin.

“I would not be surprised if at some point in time, folks file litigation, basically saying, 'Look, I live in a jurisdiction that is less than say Columbus, why am I paying half a percent more when I haven’t set foot in Columbus in two months?'” Lawson said.

Already, some Ohio lawmakers like state Sen. Kristina Roegner (R-Hudson) have floated the idea of rolling back the provisions, although she has yet to file a bill.

Wendy Patton from Policy Matters Ohio encourages patience. The underlying threat of COVID-19 hasn’t gone anywhere, she says, and most businesses are still approaching work from home as a temporary shift.

“Our business cards haven’t changed, our answering machines are at the same place, we will return to this place when this is over,” Patton said. “And so it saves everyone a bunch of money, but it’s also just common sense.”

Still, some of Columbus’ largest employers are beginning to flirt with a broader work-from-home strategy. Nationwide Insurance, for instance, announced in May that it would shutter offices in five states, although not Ohio. 

As for Ohio cities’ over-reliance on income taxes, Patton said that’s par for the course — as schools rely heavily on property taxes, and counties depend on sales taxes. It might be a good time to reconsider the local government fund, which state lawmakers cut in half under former Gov. John Kasich's administration, she suggested.

Kilgore acknowledged the potential for a shift in tax revenue as work from home expands, but she said it’s too soon to put a number on what the city could be facing.

“For me to say, 'This would be our potential risk is X,' it would be very, very, very, very loose,” Kilgore said. “And so what I would like to be more thoughtful about is, looking at commuter patterns and working with these larger companies to really get an idea of what are their end goals and then we can inform our revenue models more.”

The U.S. Census Bureau tracks commutes as part of its American Community Survey, but it goes by county rather than municipality. In 2015, the most recent year on record, nearly a quarter of Franklin County’s more than 700,000 workers commuted from a different county.

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