On December 19, 2014, Ohio Governor John Kasich signed House Bill 5 into law. The bill’s aim is to streamline municipal tax codes in order to make it easier for businesses to file local tax returns. In Ohio, municipalities that have adopted a charter are permitted to pass their own laws, and as a result, many charter municipalities also have a local tax code, causing the tax codes to vary from charter municipality to charter municipality. Proponents of the bill argued that this made it very confusing for businesses that operate in multiple cities, often requiring them to hire accountants just to fill out local tax forms.

The exact impact of the bill on Ohio’s municipalities is currently unclear, but many municipalities estimate that they will lose hundreds of thousands of dollars in local tax revenue as a result of the bill’s passage. One troublesome provision for municipalities is that the bill requires all municipal corporations to allow businesses to deduct new net operating losses (“NOL”) and carry forward those NOLs forward for five years, beginning in January 1, 2017. The NOL carry forward will be phased in over a five year period, beginning with 50% in 2018, and will be fully implemented in 2023.

Other notable parts of the bill include:

  • Owners of pass-through entities only need to file a municipal tax return in their city of residence and the pass-through entity will be subject to a municipal net profits tax.
  • Businesses that have individuals working in a temporary location for less than 20 days do not have to pay the municipality’s income tax on those individuals’ wages. Additionally, while the business can choose to pay the income tax, if workers end up working for more than 20 days, there is still no tax liability to the municipality for the initial 20 day period.
  • Prohibits the taxation of employees of businesses with less than $500,000 in annual revenue in any municipality other than the location of that business’s principal place of business.
    Municipalities are only allowed to treat individuals as residents for municipal income tax purposes if the individual is domiciled there.
  • There is a $10 threshold for municipal tax refunds and balances due (it was previously $5). If an individual owes less than $10 to the municipality, the individual does not have to pay the tax owed, but must file a tax return. Likewise, if an individual is owed a refund of less than $10, the municipality will not remit the refunded payment.
  • Municipalities are required to create an income tax withholding schedule, semi-monthly, monthly, or quarterly for employers. Employers who paid more than $2,399 in the previous year will be required to pay taxes monthly, while employers who paid more than $11,999 in the previous year will be taxed on a semi-monthly basis.
  • This is just an overview of the changes the bill requires. The bill also mandates that municipal corporations that levy income taxes must amend their local ordinances by January 1, 2016 to reflect the bill’s changes. For advice on how this may affect you, please contact the attorneys at FHKA.

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