Cleveland and other Ohio Cities May Lose Remote Tax Revenue

Commuting down the stairs to your home office for remote work may have a big impact on Ohio city revenues.

Remote work is one of the big changes wrought by the pandemic. Initially, a move to reduce infection pressure, remote work quickly gained traction for many office workers seeking to reduce their commute and maintain productivity without living the office life.

As the pandemic moves into its third year, some Ohio businesses are finding remote work is a desired perk to maintain their talent pool. As well, reducing a business footprint in high rent urban settings has its advantages. While some workers expect to return to the office someday, many are happy with remote work as it is.

In 2021, the Ohio State legislature included a provision that home office workers would pay taxes based on their location going forward. As a result, city office addresses would no longer pull in tax revenue from income taxes, even if property taxes were maintained. 

City taxes are important resources to pay for local services including maintenance, utilities, law enforcement and other responders, to name just a few. If the legislative switch plays out, population dense areas will see a significant rise in tax revenue whereas urban areas may see a big drop in critically important revenue. 

According to a 2020 report from the Brookings Institute, cities that are heavily reliant on worker income taxes, like several cities in Oho, could suffer with worker fluctuations if employees exit urban workplaces for more permanent remote work closer to, or in their residence. 

Some estimate the combined loss of local income tax revenue to the six largest cities in Ohio could be $306 million. While some policy institutes decry the loss of revenue to cities, others note the implausibility of taxing worker incomes for services in cities where they are not working. The conservative Buckeye Institute has filed suit on behalf of Ohio residents being taxed by cities in which they do not reside or work. 

Loss of income tax revenue to cities could drive tax restructuring and revenue diversification to capture the new normal of post-pandemic work and the likelihood that many workers will not return to urban workforces. 

New normal? We’ll wait and see. 

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