August 7, 2018

Ohio Municipal Net Profit Tax Update

Ohio Municipal Net Profit Tax Update Tax Advisory Services

Ohio’s municipal income tax reform sought simplicity for Ohio businesses through uniformity. With the enactment of H.B. 49, the state’s centralized filing and administration of municipal net profit taxes through the Ohio Department of Taxation is currently underway. Members of the Ohio Society of CPAs met with Ohio Tax Commissioner Joseph W. Testa earlier this month to provide an update on the new centralized filing process. Here are some of the key takeaways.

A common complaint among businesses in Ohio is municipal income tax compliance. In Ohio, business taxpayers file and pay tax in every municipality (cities and villages) where income is earned. Many businesses operating in multiple cities often find the cost of compliance to be significantly more than even the tax itself.

In 2015, Ohio municipalities collected nearly $5 billion in municipal income taxes. The individual cities and some third parties, such as the Regional Income Tax Agency (RITA) and the Central Collection Agency (CCA), administer the compliance and collection of the tax. H.B. 49 now gives businesses another option, to elect to file and pay municipal net profit tax with the state.

There are many benefits to centralized administration of the tax— one standardized form, one set of rules and one agency to deal with, to name a few. The Ohio Department of Taxation (ODT) already handles many local income taxes, such as sales tax and school district tax. Utilizing the Ohio Business Gateway, Ohio’s online resource for streamlined business tax filing, ODT has the resources and technology to simplify the addition of municipal net profit tax. Filing through the ODT, taxpayers no longer need to provide copies of federal returns.

ODT’s role in municipal net profit tax includes:

  • Providing electronic and online filing
  • Prescribing forms
  • Issuing bills, assessments and refunds
  • Conducting audits
  • Certifying debts

Municipal net profit taxes make up about 15% of total municipal tax revenue. The bulk of all other city tax revenue is still administered by the cities (individual income tax, employer withholding, etc.). Tax rates and credits are left to the cities, and access to taxpayer information collected by ODT is still available to the cities.

The state’s 2018 municipal net profits tax return will be available this fall. The state is currently working with the IRS to accept e-filed returns, and expects e-filing to be available for 2019 filings.

As of May 2018, nearly 2,600 businesses chose to opt in for filing with ODT. With the March 1 opt-in date so early in the tax year, and lawsuits challenging the constitutionality of the recent changes, businesses were left with little time to decide for 2018. Once the lawsuits are out of the way, there is still plenty of time before March 1, 2019 to opt in, so the number of businesses choosing to opt in will increase significantly.

Before you register, be sure to give us a call. Marcum’s tax professionals are here to help. For assistance or questions regarding your state and local (SALT) tax needs, contact your Marcum representative at (855) MARCUM1.

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