Ohio's Effort to Standardize Municipal Taxes

State and Local Tax

By Dennis Mowrey

Legislation to streamline Ohio’s municipal income tax system has been introduced in House Bill 601. The Bill is intended to provide more uniformity and simplicity in filing municipal tax returns. The Bill has been the work of the Municipal Tax Reform Coalition, the Ohio Society of CPA’s, the Ohio Manufacturers’ Association, the Ohio Contractors Association, the Ohio Trucking Association, and another two dozen organizations.

Consider the following:
• Ohio has the most complicated local income tax system in the U.S.
• Ohio is the only state where each city/village can make its own rules and regulations
• Businesses in Ohio must keep track of and comply with as many as 600 different sets of tax ordinances
• Having employees working and/or traveling in multiple cities becomes a bookkeeping nightmare where keeping compliant can cost businesses more than what they owe in taxes
• S-Corporations and Partnerships are sometimes taxed at the owner level and sometimes taxed at the entity level; and in one municipality can be taxed at either level

Under House Bill 601, corporate taxpayers would be allowed to file a consolidated municipal tax return, which would ease the burden of the more than 300 different municipal forms currently in existence. The bill would also impose uniform definitions on income and tax exemptions, provide for a five year carry forward period for all net operating losses generated in tax years ending in 2014 and after, and municipal tax would be legally due at the owner level (but each pass-through entity would be required to withhold and remit tax on behalf of each owner). Throwback rules which some municipalities currently use would be eliminated.

Each municipality would still be permitted to determine its own income tax rate, decide the amount of credit it will give to residents for taxes paid to other communities and still be able to administer, collect and enforce its own taxes.

As every business owner who does business in multiple cities in Ohio knows, House Bill 601 would be a major achievement for the business environment of Ohio. For every one of the 600 municipalities operating in Ohio, protecting their tax base and tax dollars is of equal importance, which is why change may or may not come to Ohio.

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This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.

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