Thursday, January 11, 2001

Small businesses get tax refunds

City approves equity measure for self-employed

By Robert Anglen
The Cincinnati Enquirer

        Cincinnati's small-business owners no longer will pay more in city earnings taxes than their corporate counterparts.

        In a unanimous vote Wednesday, City Council approved giving refunds to business owners for self-employment taxes.

        “Someone shouldn't have to pay more taxes to the city of Cincinnati, simply by virtue of the fact that they work for themselves,” said Councilman Pat DeWine, who pushed for a motion to change the tax collection structure. “This is a small sign that this is a place that wants small businesses to locate here.”

        The motion allows the self-employed to exclude half of their payroll taxes (FICA and Medicare) from taxable income.

        An employee who isn't self-employed pays 7.65 percent in federal payroll taxes and his company pays another 7.65 percent. But the self-employed have to pay a full 15.30 percent.

        And while they are allowed to deduct half from federal income taxes, they are not given that choice when it comes to paying the city's 2.1 percent earnings tax.

        Cincinnati Finance Director Timothy Riordan argued the change could cut revenues anywhere from $300,000 to $672,000 a year and double the number of refunds the city must process.

        He also said the city does not allow any other reductions that the federal government does and cautioned that it could set a precedent.

        But council members said it is an issue of fairness.

        “This sends a loud message that we are for fairness,” said Councilwoman Alicia Reece.

        Of the $247.9 million the city takes in from earnings taxes, Mr. Riordan estimates about $9 million comes from those who are self-employed or are in partnerships, which also will also be affected.

        Councilman James Tarbell disputed that it will cause a reduction rush and doubts it will be a hardship

The motion was approved despite Wednesday's revelation that earnings tax revenues are down $8.3 million and have fallen flat for the first time in a decade.


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