Ohio municipal taxation is one of the most convoluted and complex systems for a business operating in multiple jurisdictions in Ohio to navigate. A municipal reform bill known as House Bill 5 passed the Ohio House in mid November. However, although it was introduced in the Senate in November, the Ohio Senate does not yet have any scheduled hearings by the Senate Finance Committee. The goal is to get the Senate to begin hearings now before the lawmakers take their five month summer break.
The complexity and burdensome nature of compliance has resulted because Ohio allows local governments to levy income taxes. Each government can draft its own set of rules and regulations regarding who is subject to taxation, what income is subject to taxation and the tax rate that is levied. Ohio currently has 593 municipalities that levy local income taxes. This has created inconsistent treatment of issues across municipalities and significant inefficiencies where many times little-to-no tax liability exists.
Uniformity would decrease the compliance burden on current businesses and also assist in attracting new businesses to Ohio who may have considered the complex municipal income taxes a barrier to entry.
House Bill 5 Simplifications
- A uniform set of rules;
- A standardized definition of taxable income for both businesses and individuals;
- An extended occasional worker period from 12 days to 20 days before a municipality may impose a tax;
- Eliminates current throwback provision for sales by redefining sales;
- Uniform tax base for pass-through entities (partnerships, S Corporations and multi-member LLCS); and
- A five year net operating loss carryforward starting in 2017 with limitations through 2021.
A few items that would be streamlined are a uniform procedure for how employers file withholding payments and a standard municipal income tax form. House Bill 5, however, would not prohibit municipalities from changing their tax rates. The municipalities would be required to amend their current tax codes by January 1, 2015.
One of the major issues causing conflict between the cities and the bill proponents is a requirement for cities to allow a five year net operating loss carryforward. Many Ohio localities, including Columbus, which collects the most municipal tax revenue in the state, do not currently allow net operating loss carryforwards to offset any future revenues.
House Bill 5 concerns any person who lives in or does business in Ohio. Please contact your state representative TODAY! It costs both time and money to comply with these laws in the way they are currently being executed. It is time for change to Ohio’s municipal taxation!