State moving to ban some local taxes on utilities
City could lose $360,000 a year that court upheld

Wednesday, May 20, 1998

BY MICHAEL HAWTHORNE
Enquirer Columbus Bureau

COLUMBUS -- Cincinnati Bell Telephone lost its legal battle to avoid paying taxes on its net profits to Cincinnati and other cities, but the company may win the war.

Less than a week after the Ohio Supreme Court rejected the company's challenge of the municipal taxes, the Republican-controlled House unveiled legislation Tuesday that would specifically prohibit cities from taxing utilities subject to the gross receipts tax. If the measure becomes law, Cincinnati, along with Blue Ash and Fairfax, would no longer be able to tax the net profits of Cincinnati Bell or any other utility. Cincinnati, which has levied the tax since 1955, would stand to lose about $360,000 a year in revenues. "It's that much less the city will have to complete its work," said Richard Ganulin, assistant city solicitor.

GOP lawmakers have been under pressure from their allies in the business community to respond quickly to the court decision. The House bill is moving so rapidly that even Senate President Richard Finan, R--Evendale, wasn't sure about the specifics.

While the ruling involved only Cincinnati Bell and a handful of cities, the ramifications are far more sweeping.

Writing for the 6-1 majority, Chief Justice Thomas Moyer wrote that municipalities have the authority to impose taxes "in the absence of an express statutory prohibition of the exercise of such power by the General Assembly."

In other words, cities now have the ability to tax gasoline, beer, cigarettes and other products that historically have been reserved for taxation by the state and federal governments.

"This was a very broad, far-reaching decision," Mr. Finan said. "This doesn't just apply to utility taxes, it applies to any tax."

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. Lawmakers, who are scheduled to adjourn for the summer in two weeks, are being urged to act quickly to discourage cities from imposing new taxes in the wake of the court decision.

Said Carol Bessey, deputy state tax commissioner: "This decision opened up the municipalities to tax just about anything."

The measure pending before the House Finance Committee is tucked into a 379-page bill correcting mistakes in the two-year state budget. Legislative leaders want to move the bill to the House floor by Thursday so it can be sent to the Senate for consideration.

In the court case, Cincinnati Bell 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.

Libby Korosec, a company spokesman, said Cincinnati Bell is still reviewing its response to the court decision. She said company lawyers had not yet seen the pending legislation.

"It's fair to say we are encouraged they are taking a look at this," she said.

Lisa Donovan contributed to this report.



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