THE RITA DEBATE ~ Should Euclid’s In-House Income Tax Department be Outsourced?
Why is RITA a Ballot Issue this November?
City Council was split in a 5-4 decision to send our tax collection to RITA (Regional Income Tax Agency) The 4 council “no” votes do not believe that this is a prudent move for the City. Neither RITA nor the City Administration can promise this extra additional $1M. Euclid Citizens have expressed opposition to outsourcing the tax department as well. As a result of a citizen referendum petition drive, the decision is now up to the valued residents of Euclid to have their say. This issue is on the November Ballot. Euclid Citizens in Action highly suggest that you Vote NO on RITA.
A bit of history, during 2006, the City of Euclid left CCA and brought collections in house. The City felt that they could do a better job of collecting in house. In fact, that first year, the City collected $2M more.
Additionally, in October, the Mayor put a hold on the non-filers estimate program. This was because she was not sure how the program would convert over to RITA. As a result, this hold left money that could have been collected lost.
Why Move to RITA and Federal Tax Information Versus State Tax Information?
The City Administration and 5 Council Members believe that RITA, having access to the federal tax information (FTI) from the IRS, will bring in monies that they believe we are missing. The Mayor and Finance Director state that the City is missing out on $1M per year because we do not have access to FTI. It is true that the City does not have access to this information but The State of Ohio does. Ohio has every incentive to find individuals that have not filed a state income tax return (as required by law). The State forwards the “state tape” to Euclid. The City then examines this information for non-filers and begins the compliance process. FTI makes very little difference; in other words, the idea that we will have increased collections because of access to FTI is false.
Will RITA collect more tax?
No. The city collects more tax income by accessing: US Post Office for residents moving in or out, The Ohio lottery for winners, the housing department for rentals, and the building department to capture subcontractors. (RITA does not receive this information.) The City also requires apartment owners to submit census data for their properties monthly. We also have subpoena power to bring non-filers to court.
What is the cost?
Our city tax department collected $31Million dollars in 2017 at a cost of 1.4% or $434,000. RITA charges a minimum of 1.7% and $8 for every subpoena letter sent even if information is inaccurate and $35 per hour for paralegals to work on late returns. The 1.7% amounts to $527,000 (which is more than our cost). This cost could average as high as 3 to 4% (but with no guarantee). RITA has yearly audits and a portion of cost will be charged to Euclid for their share.
RITA charges a 2.75% surcharge for credit card payments. Euclid has no fee. Additional costs: the cost of data transfer/conversion from Municipal Income Tax Solutions and housed in the Finance Department before data transfer to RITA, $12,000 was allocated to purchase an external hard drive to house data until transfer. With this extra step, are we in compliance with State Law under ORC 125.18.?
What about customer service?
Euclid tax personnel assisted over 9,000 walk-in residents last tax year. 2000 residents visited the department in April, 2018 alone and on tax day, residents dropped off their returns with payment instead of sending them though the mail. (drop off numbers are not included in the 2000 cited here).
RITA will place one agent, one day a week, in city hall to assist residents. This will be a major disservice to residents who need assistance with their returns, to pay their taxes or to make payment arrangements. Many of these valued residents are unable to visit a remote RITA office.
Our tax department spends 100% of its time assisting Euclid residents. RITA services over 310 communities. How can our residents possibly be provided the service that they have come to expect if RITA is our tax collection choice? Our tax department has been lauded for their professional courtesy to our residents. RITA’s customer service has been reported in the news media as horrible. (NewsChannel5, Yelp and others)
How are overpayments handled?
Overpayments of $10 or less are kept by RITA so they keep your money! Euclid allows you to keep a $10 or less credit for the following year.
What about taxes collected for the schools?
The .85% tax collected is split with .47% to the schools and .38% to the city. In 2017, $6,079,171 was collected for the schools. The city received $145,900 back as an overhead collection fee. This reduced the city cost from $434,000 minus $145,900 to $288,100. If RITA collects, the city will lose that collection fee and RITA will keep it and we will be charged their 1.7% fee for collecting it.
Are there any upfront costs?
There is a 3% retainer fee charged on total collections. On $31 Million dollars collected for 2017, the city must pay RITA $930,000 to transfer our tax collections there. Our tax department budget is $363,000, (dollar amount from finance). Based on projected receipts RITA will charge $527,000 for the same. This is based on their Est. Of 1.7% not including any “ala carte” features like the $8 charge to send out delinquency letters. Something included with our department and a service offered by Weltman, Weinberg and Reis that does not cost us dollars, as delinquent taxpayer will pay it.
Will I pay more tax?
No, your city income tax rate is 2.85% regardless of who collects the tax.
Does this change affect our cash flow?
Yes! As taxes are collected from withholding tax for wages or income taxes or net profit taxes, the city has an ongoing flow of income. RITA claims it will pay bi-monthly after deducting their fee, however there is no guarantee.
Is there any guarantee RITA can collect more tax dollars?
No. 2018 and 2019 tax collections will increase regardless of who collects them because of Amazon and the Lincoln Welding project as well as the other new business coming into the city. The RITA figures of increased collections are in their revenue projections. RITA and the Administration claim that switching will generate an extra $1M dollars for the City. While Euclid badly needs the money, there seems to be no real analysis of this figure. While supporters point to other communities that have seen increased collections, not all have, and there are many variables that can affect tax collections in any given year
What is the bottom line?
Bottom line is that a changeover to RITA is taking away one more valued City service at a higher cost than we presently have with no guarantee of a profit for the city. Is the risk worth the alleged reward? Once our in-house, resident facing, revenue generating tax department will be eliminated, it’s gone. For more information, or to receive the full report, call 216-759-2840 and leave a message. Vote NO to send our tax collection to RITA.