A Buckeye State Primer on Local Taxes
Vol. III, No. 101 - Not all local taxes are created equally
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Taxes are a hot topic. Property evaluations, especially here in Miami County, have homeowners worried about what future tax bills might look like. On a statewide scale, there are efforts underway to eliminate property taxes altogehter. Cities and Villages are continually going to the ballot box to ask residents to increase income taxes to pay for critical services, like police and fire protection. All of these stories create a vivid, but often confusing picture of what taxes look like in our own communities.
Local governments need reliable funding to provide the basic services that keep communities safe and functioning. These services include schools, roads, police and fire protection, parks, and other community benefits such as libraries. The money to pay for them comes primarily from taxes, but not all taxes are created equally and not every type of local government in Ohio can use every kind of tax. There are three main sources of tax revenue in the state: property taxes, income taxes, and sales taxes. Each of these has its own advantages and drawbacks, and each is used differently depending on the type of government.
Townships represent the oldest and most basic level of government in Ohio, and their powers are limited compared to other governing bodies. Townships may collect property taxes, but they may not collect income or sales taxes. Property taxes provide a steady and predictable source of revenue because property values do not tend to fluctuate rapidly. Instead, values usually rise gradually over time. In Ohio, property values are locked for three years before being reassessed, with a full property reappraisal happening every six years and an update halfway through. This cycle helps make the revenue from property taxes stable and reliable, even if changes in the real estate market occur. For local governments like townships, which often rely on this revenue to provide fire protection, road maintenance, and other basic services, the steady nature of property taxes is critical.
School districts also depend heavily on property taxes. Because Ohio’s school funding system leans so heavily on the local tax base, schools must frequently turn to voters for support in the form of property tax levies. These taxes fund teachers’ salaries, building maintenance, and classroom resources. In some cases, school districts also levy an income tax, collected from residents who live within district boundaries. When a district uses both property and income taxes, it can spread out the responsibility for funding schools. Still, these sources are not without risk—property taxes can weigh heavily on homeowners during times of economic strain, and income taxes are tied to employment levels, which can fluctuate in difficult times.
Counties in Ohio collect sales taxes, which are different from property and income taxes in important ways. Sales taxes are broad-based, because nearly everyone buys goods subject to the tax. This wider base can make sales taxes a valuable source of revenue. Another feature of sales taxes is that they are collected where the sale takes place, not where the buyer lives. That means a person who travels across county lines to shop at a large retailer will contribute to the host county’s revenue. Because of this, counties often encourage commercial development, such as shopping centers, large retailers, or warehouse clubs like Sam’s Club and Costco.
These facilities attract consumers from many areas and bring in sales tax revenue from both local residents and visitors. At the same time, county governments provide statutory oversight of certain special districts, such as Boards of Developmental Disabilities or Alcohol, Drug and Mental Health Services Board, like the Tri-County Board of Mental Health Services. These districts often rely on voter-approved property tax levies, creating a mix of funding sources that balance county responsibilities.
Municipalities in Ohio, basically cities and villages, make use of income and property taxes. Income taxes are especially important for municipalities, but they can also be the most unpredictable. When jobs are plentiful and wages rise, income taxes provide booming revenue. However, during times when a large employer closes its doors, collections can fall sharply; this is why cities tend to put a lot of investment in job creating economic development ventures. This instability can make it difficult for city officials to rely on income tax revenue alone.
Another complication is that Ohio uses a system designed to prevent employees from being taxed twice. For instance, if a person works in a city with a 1.5 percent tax rate, they typically do not also pay 1.5 percent to the city where they live. Their home city will credit them for the taxes paid to the work city. If the home city’s tax rate is higher, the resident pays only the difference. Township residents, however, face a unique situation: if they work in a city, they still pay that city’s income tax but cannot receive a credit in their township, since townships are not allowed to collect income taxes. This highlights yet another way in which income taxation plays out differently across Ohio.
Each of the three major taxes—property, income, and sales—offers benefits while also posing challenges. Property taxes are stable and predictable but can create heavy burdens on property owners when school districts or local governments rely on them too much. Income taxes grow as local economies thrive but can shrink in tough times. Sales taxes are broad and can bring in money from visitors, but they depend on consumer spending and the presence of retail businesses. Local governments balance these tensions as they work to provide services and maintain financial stability.
Ultimately, these funding systems form the backbone of Ohio’s communities. Together, they shape what resources are available to schools, public safety departments, public health agencies, and social service programs. Understanding the role of each tax, and the strengths and challenges each brings, shows why taxation policies matter in daily life. Whether someone owns property, earns wages, or spends money in a store, their contribution plays a part in supporting community life in our hometowns.
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