By Aaron Clapper and Alison Goebel

With many workplaces still on partial or full work-from-home orders, Ohio’s job centers are beginning to fear challenges to the income taxes they have traditionally collected.

Ohio’s municipalities primarily rely on income tax to fund their operations and services. The tax is collected by the jurisdiction in which the worker works, not where they reside.  In the work-from-home (WFH) environment, the questions have become, “where do these workers work?” and “which jurisdiction gets their income tax?”

A handful of state legislators have suggested that they may call for a review—and possible changes—to Ohio’s tax policy to allow jurisdictions with WFH workers to collect their income tax.

Ohio’s small, mid-sized, and large legacy cities are the economic engines of the state.  Undoubtedly their role as the physical address for major employers is important, but they are also the hubs of social, cultural, and economic activity that supports these employers.  The quality of life in these cities contributes to the success of the physical headquarters.  Ensuring cities have sufficient income to maintain road, water, and broadband infrastructure is just as important as the restaurants, shops, parks, and cultural amenities that make workplaces attractive to their workers. Restuarants, shops, parks, and cultural amenities depend on adequate city services, many of which are paid for with income taxes.

Pre-pandemic, there were encouraging signs that Ohio’s legacy cities were beginning to re-populate. This trend was often in aided by the amenities, services, and opportunities offered by Ohio’s cities.  Moreover, research by GOPC and many others have shown that suburbs and surrounding metro areas are strengthened when the center city is strong—and that declining center cities often negatively impact the economic health of surrounding areas.

With this backdrop in mind, GOPC was curious to understand what portion of workers in Ohio’s legacy cities live outside the city and could, potentially, be working from home.  The numbers surprised, and worried, us. Sustainably, resilient recovery in Ohio will require that our cities have as many tools and resources available to them as possible. One fundamental tool will be continuing to collect income taxes in the jurisdictions that house the physical location of Ohio’s employers.

The findings below are based on 2017 census data and do not attempt to estimate the percentage of employees who may currently work from home, due to the pandemic. 

• On average, nearly three-quarters of Ohio’s Small Legacy Cities’ workforces do not reside within the legacy city. The percentage of workers who reside outside of the Small Legacy City they work averages to about 78%, with the smallest percentage being 68% in Lorain, and the highest as 82.5% in Zanesville. Ohio’s Small Legacy Cities rely heavily on the payroll tax from those who work within their boundaries, but do not reside in their cities.

• Similar to Ohio’s Small Legacy Cities, nearly three-quarters of Ohio’s Mid-Sized and Large Legacy Cities workforces did not reside within the legacy city in which they worked. Slightly lower than small legacy cities, on average, 74% of workers in mid-sized legacy cities live outside city boundaries; on average 77% of workers in Ohio’s large legacy cities commute in. When comparing cities, Toledo is an outlier compared to its mid-sized legacy city counterparts: 42% of the workers who work in the city also live within the city.

• Columbus’s workforce is more evenly split between those who reside in the city and live outside the city than that of its legacy city counterparts. In Columbus, 41% of the city’s workforce resides within the city.  Still, the Brookings Institution warns that Columbus is the most vulnerable city in the country as it relates to immediate COVID-related economic impacts. Cincinnati, Cleveland, Toledo and Akron are among the 15 most impacted cities nationally. These vulnerabilities are due to these cities’ use of income taxes and the share of industry sectors in each place that were at high risk for COVID-related layoffs or furloughs.

The income tax is a longstanding source of revenue for our cities. Toledo was the first city to collect a municipal income tax, in 1946.  By 1957 so many cities had begun collecting income taxes that the General Assembly enacted its first uniform municipal income tax law.  After six decades of depending on income taxes to fund operations, capital improvements, and bond retirement, abruptly changing the tax collection structure would be hugely disruptive, particularly at a time of uncertainty due to COVID.

Below is information for Ohio’s GOPC pulled the below information from the United States Census. Note this data is from 2017.