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Understand a new taxing tool
by Leah Curtis, Ohio Farm Bureau director of agricultural law
A law originally intended to allow local governments to collaborate and create an environment supportive of economic development has become the newest taxing tool. JEDD and JEDZ projects have become quite popular with local governments, but what do they really do?
Most simply, a joint economic development district or JEDD is a contract between cities or a township and a city, located in the same county or in adjacent counties, with a purpose of facilitating economic development. Practically, the JEDD allows a municipal income tax to be applied to employees and businesses in the area of the township within the JEDD. The municipality takes a cut of the collected taxes to compensate for the administration and the township receives the remaining tax revenue levied on the JEDD area.
A joint economic development zone or JEDZ is similar, an income tax can be applied to the area agreed to in the JEDZ and the parties share the revenue. However, while a JEDD requires parties to be geographically close to each other, a JEDZ has no geographic requirement. This means a township can shop for the best tax rate and could create a JEDZ with a city hundreds of miles away to apply that city’s income tax to employees and businesses within a township.
State law does not allow a township to levy income taxes, but a JEDD or JEDZ provides an attractive work-around. This situation has resulted in proposed JEDD or JEDZ projects where existing and thriving businesses or employers located in unincorporated townships are carved into a JEDD or JEDZ and connected with a far-off taxing municipality. Because these sites are already occupied with thriving employers, the possibility of bringing new development into the JEDD or JEDZ may be very limited. While residents will typically vote on whether to enter into a JEDD or JEDZ, it is not residents that are taxed as a result of the agreement. The businesses and employees who are taxed do not get to vote, unless they are also residents.
Several state lawmakers have criticized the use of JEDD and JEDZ in this manner, arguing it doesn’t comply with the spirit of the original law that created these mechanisms. One of those lawmakers, and the sponsor of the legislation that first created JEDDs, Rep. Kirk Schuring, R-Canton, has introduced House Bill 289 to make changes to the law. House Bill 289 would require petitions to establish a JEDD or JEDZ to outline economic development activities that will occur and require 100 percent of landowners and business owners in the zone approve the creation of the zone.
What does this mean for farmers? An attorney general’s opinion clarifies it is possible for the contracting authorities of a JEDD to exempt certain portions of the zone from an income tax when the contract is formed, which could be used to exempt farmers and their seasonal crop production. However, it appears a JEDZ does not have the same ability, and state law would prevent a municipal income tax from providing a specific exemption for farm income.
Ohio Farm Bureau is monitoring the legislative process. It is anticipated that OFBF delegates will consider establishing policy on the matter at this year’s annual meeting.