BY MICHAEL HAWTHORNE
Enquirer Columbus Bureau
COLUMBUS -- Republican lawmakers are rushing to discourage cities from imposing new business taxes in the wake of a legal skirmish between the city of Cincinnati and Cincinnati Bell Telephone Co.
Legislation expected to be introduced today would prevent municipalities from adopting new business taxes without specific exemptions created by the General Assembly.
While most cities have operated for decades under the assumption that requirement already existed, GOP legislative leaders are concerned about an Ohio Supreme Court decision handed down last week that opened the door to a bevy of new city taxes.
"We've had a long history of separation between taxes levied at the local level and those imposed by the state," House Speaker Jo Ann Davidson, R-Reynoldsburg, said Monday. "It seems to me that we would be creating a tremendous nightmare if we didn't do something in the wake of this court case." By a 6-1 vote, the high court upheld Cincinnati's 43-year-old tax on the net profits of Cincinnati Bell. Chief Justice Thomas Moyer wrote that municipalities have the authority to impose such taxes "in the absence of an express statutory prohibition of the exercise of such power by the General Assembly."
Because lawmakers never said municipalities could not levy such a tax, the high court ruled the tax is legal. The measure being drafted would block only potential future taxes, not ones already imposed by cities, Ms. Davidson said. It is expected to be tucked into a bill correcting mistakes in the two-year state budget.
State law grants exemptions for some local taxes, including income taxes for schools and local-option sales taxes for counties. Until now, most cities have operated under a 1925 court ruling that other areas the state taxes are off-limits to municipalities. "If I was a city administrator, I would have my dream advisers up all night brainstorming ways to take advantage of this situation," said Rep. E.J. Thomas, a Columbus Republican who is chairman of the House Ways and Means Committee. "It's enough to make your eyebrows jump right off your face."
Lawmakers, who are scheduled to adjourn for the summer in two weeks, are being urged to act quickly to discourage cities from imposing taxes that could be repealed later, provoking a slew of additional lawsuits.
Mr. Thomas suggested the ban could be followed by discussion about specific exemptions cities would like to see written into the tax code.
A city official said he had no problem with the fast-moving legislation, as long as it didn't affect Cincinnati's ability to tax the net profits of utilities.
"When it comes to the power of taxation, the Ohio Constitution clearly gives the General Assembly power to limit taxation by municipalities," said Richard Ganulin, assistant city solicitor. "But the court clearly stated there was no such limit in this case." Cincinnati Bell had sought more than $955,000 in combined refunds of taxes paid to Cincinnati, Blue Ash and Fairfax. The cities refused to give the tax proceeds back after the company asked for a refund in 1994, so the company sued.
Cincinnati Bell sought the refunds after the company discovered it was the only Ohio telephone company paying a municipal income tax on interstate revenues. Cincinnati has levied the tax since 1955.
Erik Kirkhorn, a company spokesman, said Cincinnati Bell is still reviewing its response to the Supreme Court decision. The company has 30 days to ask for a clarification.
