January 22, 2013
At the close of 2012, the Ohio General Assembly passed House Bill 50 ("HB 50") to amend R.C. Sections 349.04, 709.023, and 718.01. The purpose was to better protect individuals employed by political subdivisions in certain limited situations. This is achieved by dictating that municipal corporations may no longer collect income tax from those individuals if their principal place of employment is annexed into a municipality by means of a Type-II annexation.
Municipal corporations occasionally acquire property owned by another political subdivision through a form of annexation called "Type-II" annexation. Type-II annexation is an expedited annexation procedure where, if 100% of the property owners consent, a municipal corporation is permitted to complete the annexation without a hearing or other procedural hurdles. Conceptually, it makes sense to remove obstacles to the annexation when all of the property owners agree. The problem that HB 50 is intended to correct, however, arises from the fact that R.C. 709.02(E) states that other political subdivisions are not considered "property owners" for purposes of calculating the 100% consent.
As a result, a municipal corporation is able to annex land owned by another political subdivision, such as a township, school district, or park board, without a hearing in which the detriment to the other political subdivision is considered. And, prior to HB 50, the municipality was also able to collect municipal income tax from individuals employed on that annexed property. For example, a municipal corporation had the ability to annex the portion of a township that contained the township's administrative office and then collect income tax from the township's employees working in that office even though they had not previously been subject to an income tax.
HB 50 eliminates this problem for employees of political subdivisions. A municipal corporation is still able to annex property owned by another political subdivision through Type-II annexation. But after passage of HB 50, the municipal corporation may not then collect income tax from individuals employed by the political subdivision on that property. Applying HB 50 to the example provided above, a municipal corporation may still annex the portion of a township that contains its administrative office. But, it may no longer collect income tax from the employees who work at the administrative office.
As a result, HB 50 has removed one of the monetary incentives for municipal corporations to annex property owned by another political subdivision.