1. HB49 How The Budget Bill Changed Municipal Income Tax
2017 Income Tax Seminar
HB49 How The Budget Bill Changed Municipal Income Tax

2. Elimination of the Throwback Rule 718.02(D)(2), page 418
Gross receipts from sales of tangible personal property are sitused to the municipal corporation if:
1. The property is shipped to or delivered within the municipal corporation from a stock of goods located within the municipal corporation, or
2. The property is delivered within the municipal corporation from a location outside the municipal corporation, provided the taxpayer has employees regularly engaged in solicitation or promotion of sales within the municipal corporation, and the sales result from such solicitation.
What has changed?
The following provision has been ELIMINATED from ORC 718:
“The property is shipped from a place within the municipal corporation to purchasers outside the municipal corporation, provided that the taxpayer is not, through its own employees, regularly engaged in the solicitation or promotion of sales at the place where delivery is made.”

3. Elimination of the Throwback Rule (continued)
What does this change mean?
HB 49 creates “nexus to nowhere” sales.
How does this impact the sales reported to a municipality?
For example: Distribution centers that previously reported sales delivered to destinations outside of the municipal corporation will only report sales made and delivered within the municipal corporation. All other sales, if not solicited by an employee in another municipal jurisdiction, will not be reported or taxed for municipal purposes.

4. Fourth Quarter Estimated Due Date for Individuals 718
Fourth Quarter Estimated Due Date for Individuals (C)(1)(d), page 425
“For an individual, on or before the fifteenth date of the first month of the following taxable year…..”
What has changed?
Fourth quarter estimated tax due date for individuals is now JANUARY 15th. This will apply to the fourth quarter estimated tax payments for individuals only. Businesses due date remains December 15.

5. Withholding Penalty Change 718.27(C)(2)(b), page 428
“With respect to any unpaid withholding tax, a municipal corporation may impose a penalty not exceeding fifty percent of the amount not timely paid.”
What does this mean?
Penalty for UNPAID withholding tax, (not including LATE FILING penalty), is not to exceed 50%. This is intended to give municipalities the flexibility to charge less than 50% on unpaid withholding tax, should they choose. This option already existed for municipalities, since the sole discretion for assessing penalty is with the tax administrator.
A late filing penalty of $25 per month is still applicable. See ORC (C)(3) for late filing penalty language, which is unchanged.
It is important to make sure your billing notices reflected the difference between the 50% penalty and the late filing fee. The notice needs to be itemized to reflect the different components showing that the penalty does not exceed the 50%.

6. New Opt in Language
Taxpayers, other than individuals, may opt to file their net profit municipal income tax through the State of Ohio Department of Taxation.
Once the taxpayer has opted in they can file using the OBG or file directly with the ODT either by paper or electronically.
How would this opt in process work?
718.80(A) The tax commissioner shall serve as the sole administrator of each municipal income tax for which the taxpayer is liable for the term of the election.
How is this language problematic?

7. Opt in Language (continued)
718.80(A)(2), page 431 The tax commissioner shall administer according to and any applicable provision of chapter 5703.
This is a brand new section of tax code that will be administered only to the businesses that elected to opt in.
718.80(B)(1), page 431 The election must be made on or before the first day of the third month after the beginning of the taxpayers taxable year by notifying the tax commissioner and each municipal corporation in which the taxpayer conducted business during the previous taxable year using a form prescribed by the tax commissioner.
For a Fiscal year end of 12/31/2018 this would need to be completed by March 1,
How is this notification process problematic?

8. Opt in Language (continued)
718.80(B)(2)(a), page 431 The election, once made by the taxpayer, applies to the taxable year in which the election is made and each subsequent taxable year until the taxpayer notifies the tax commissioner and each municipality in which it conducted business of its termination of the election.
The termination must be made by the 1st day of the third month of their taxable year.
Once the termination is made by the taxpayer, for subsequent tax years, they are no longer subject to sections of the ORC but instead is subject to tax set forth in the rest of ORC 718.

9. Opt in Language (continued)
718.80(C)(1)(a), page 431 On or before the thirty-first day of January each year, each municipality imposing a tax shall certify to the tax commissioner the rate of the tax in effect on the first day of January of that year.
718.80(C)(1)(b), page 431 If, after the thirty-first day of January of any year, the electors of a municipality approve an increase in the rate of tax that takes effect within that year, the municipality shall certify to the tax commissioner the new rate of tax not less than sixty days before the effective date of the increase.
How is this language problematic?

10. 718.80(C)(2)- If any municipality fails to timely comply with the requirements listed below, the tax commissioner shall have 50% of each monthly payment made to the municipality withheld, until they comply:
Within ninety days of receiving a taxpayer’s notification of election, the municipality shall submit to the tax commissioner, on a form prescribed by the tax commissioner, the following information regarding the taxpayer:
The amount of any net operating loss that the taxpayer is entitled to carry forward to a future tax year.
The amount of any net operating loss carryforward utilized by the taxpayer in prior years. (Note: Number of prior years is not specified.)
Any credits granted by the municipality to which the taxpayer is entitled, the amounts of the credits, whether the credits may be carried forward, and the duration of any such carryforward.
Any overpayments of tax that the taxpayer has elected to carryforward to a subsequent tax year.
Any other information the municipality deems relevant.
What happens if the municipality IS NOT notified by the taxpayer?
There is no provision that states that the 50% withheld will be paid back to the municipality.

11. Tax Commissioner Authorities 718.80(D)(1) through (D)(3), page 432
The tax commissioner shall enforce and administer sections to of the Revised Code.
They have the powers to prescribe all forms necessary to administer those sections.
Adopt rules as the tax commissioner finds necessary to carry out those sections.
Appoint and employ such personnel as are necessary to carry out the duties imposed upon the tax commissioner by those sections.
NO TAX ADMINISTRATOR shall utilize sections to of the Revised Code in the administration of municipal income tax. Those sections shall not be applied to any taxpayer that has not made the election under

12. Tax Commissioner Authorities (continued)
(E)(1), page 440 “The tax commissioner may adopt rules that further govern the terms and conditions under which tax returns filed with the commissioner under this chapter, and any other information gained in the performance of the commissioner’s duties prescribed by this chapter, shall be available for inspection by properly authorized officers, employees, or agents of the municipal corporations to which the taxpayer’s net profit is apportioned under section of the Revised Code.”
The tax commissioner had the same authority to prescribe rules for municipal corporations to view returns from electric and telephone deregulated companies, and in 17 years, has failed to prescribe such rules. (See of the Revised Code.)

13. Dates Items Are Due To Municipalities
(A), page 438 On or before the last day of each month, the tax commissioner shall certify to the director of budget and management the amount to be paid to each municipality based on amounts of reported annual returns and declarations of estimated payments, LESS any amounts previously distributed and any audit adjustments or refunds granted by the commissioner, for the calendar month preceding the month in which the certification is made.
The payment must be made no later than the fifth day of each month.
For example, the payment for June 2019 tax receipts would be made by August 5, 2019.
If the tax commissioner determines that the amount of tax paid by a taxpayer and distributed to a municipal corporation under this section for a taxable year exceeds the amount payable to that municipal corporation under sections to of the ORC after accounting for amounts remitted with the annual return and estimated taxes, the commissioner shall proceed according to divisions (A) and (B) of section of the revised code.
ORC Section A references to carryovers and section B to refunds.
In simple terms, the tax commissioner is required to notify the taxpayer if there is additional credits or refund on the account that was not accounted for.

14. 718.84(B), page 439 In May and November of each year, the tax commissioner shall provide each tax administrator the following information for each business who has elected to file a return with the State:
Name, address and federal ID number.
Apportionment ratio for your municipality.
The amount of any pre 2017 NOL carryforward utilized by the taxpayer.
Amount of overpayment to be credited to a future taxable year.
The amount of any credit claimed under section of the revised code.
718.84(C), page 439 No later than thirty days after each distribution made under section of the new revised code, the tax commissioner shall provide to each municipality a report stating the following for each taxpayer that made estimated payments:
Name.
Federal ID number.
Amount of estimated tax payments.
NOTE: There is no report that will provide you with the payment of tax that
might be remitted with the filing of the annual tax return.
Missing something???
How do you apply that amount???
What was included in the payment; tax, estimated payments, P&I?

15. Audit Referral
718.84(f), page 440 If a municipality discovers that it has additional information in its possession that could result in a change to a taxpayer’s tax liability, the municipality may refer the taxpayer to the tax commissioner for an audit.
Such referral shall be made on a form prescribed by the commissioner and shall include any information that forms the basis for the referral.
Upon receipt of a referral under division (F)1 of , the commissioner shall review the referral and MAY conduct an audit of the taxpayer that is the subject of the referral.
Nothing in division (F) shall be construed as forming the sole basis upon which the commissioner may conduct an audit of a taxpayer.
Nothing in this chapter shall prohibit a municipality from filing a Writ of Mandamus if the municipality believes that the commissioner has violated his/her fiduciary duty as the administrator of the tax levied by the municipality.

16. Writ of Mandamus
This section has been added to this language simply as “window dressing’, to make it appear as though municipalities have the authority to hold the tax commissioner accountable for violating his fiduciary duty.
How would you determine when the tax commissioner has violated their “fiduciary duty” when performing work for the municipality?
-Access to records held by the tax commissioner.
-How do you verify if audits are correct?
Municipalities with knowledge of a taxpayer working in the municipal corporation, who has opted to file with the State, but does not appear on any report by the State for that taxable year, would be subject to possible review for filing a Writ of Mandamus. It will be important to track businesses working in the municipality and review all reports provided by the State for the failure of the tax commissioner to accurately determine the taxpayer’s municipal liability for any given municipality. The taxpayer may fail to notify the tax commissioner, but it is the tax commissioner’s responsibility to act as the “administrator” of the tax for each municipal corporation. This includes determining when the taxpayer has failed to properly allocate or report earnings in a municipal corporation. “Administration” of a tax involves more than just processing returns.

18. From Auditor Yost’s letter, June 23, 2017
“…cities should have some recourse to determine whether they were receiving accurate amounts in remittance from the State. I suggested then, and still believe now, the best way for cities to have this recourse is through an audit mechanism. If a city has a question about a business filing, it should be permitted to hire an Independent Public Accountant (IPA) to examine the tax data and ensure the correct amounts are being remitted to the city.” “Cities are in the best position to observe a business’s activities.” “The local city is an indispensable partner in ensuring the integrity and accuracy of the tax system.” “R.C (F) allows cities to refer individual taxpayers to the Department for audit, an audit solely within the control and supervision of the State, and which is discretionary as to whether it even gets done! Cities should not be forced to wade through the Columbus bureaucracy to determine whether they are receiving the correct amounts. And they need actual access to the tax data.” “I stand by my original recommendation to the Commissioner – centralized collection needs an accountability mechanism – an independent audit.”

19. 2017 Income Tax Seminar
New Penalties
For businesses who have elected to opt in, all or part of any penalty imposed may be abated by the tax commissioner!
The following penalties are in the new section of and can only be used by the State for companies who have elected to opt in.
If a taxpayer makes a fraudulent attempt to evade the reporting or payment of the tax required to be shown on any return, a penalty may be imposed not exceeding $1, or 100% of the tax required to be shown on the return.
If a person makes a false or fraudulent claim for a refund under section , a penalty may be imposed not exceeding $1, or 100% of the claim.
If a taxpayer files a tax return that does not contain information or may be judged or contains information that on its face indicated that the return is substantially incorrect, the filing of the return is due to a position that is frivolous or a desire that is apparent from the return to delay or impede the administration. A penalty of up to $5, may be imposed.
Tax administrators cannot assess these penalties. They can only be assessed by the tax commissioner on businesses that have opted to file through the State.
718.89(A)(2) If a person required to file a tax return electronically under sections to of the new code fails to do so, the commissioner may impose a penalty not to exceed the following
First two failures, 5% of the amount required to be reported on the return.
Third and any subsequent failure, 10% of the amount required to be reported on the return.
Who receives the money collected from penalties?
718.89(D) All amounts collected under this section shall be considered AS TAXES and shall be credited and distributed using the same proportion as the underlying tax liability is distributed. The penalty will not go to the municipal corporation where the liability was incurred, but it appears it will be distributed among all municipalities using the same proportion as distributing the tax liabilities.

20. Required Information by Municipalities
No later than the thirty first day of January of each year, you must provide the tax commissioner, in a format prescribed by the commissioner, the name and mailing address of up to two persons to whom the municipality requests that the commissioner send the information to. The commissioner shall not provide such information to any person other than a person who is designated to receive the information and is employed by the municipality or by the tax administrator.

21. What do Municipalities Need to Provide to The State?*
718.80(C)(1)(a) By 1/31 each year, certify the rate of tax in effect on 1/1 of that year.
718.80(C)(1)(b) If a rate change occurs, certify a new rate of tax not less than sixty days before the effective date of increase.
718.80(C)(2) Within 90 days of receipt of taxpayer opt in election, on a form prescribed by the tax commissioner, provide detailed taxpayer information as outlined.
718.84(D) No later than 1/31 each year, each municipality shall provide, in a format prescribed, name and mailing address of up to two persons to whom ODT can send information from (B) and (C) (May and Nov reporting; monthly breakdown of estimated tax paid).
718.94(A) On or before the later of 1/31/18 or 31st of Jan of the first year of eligibility, information as detailed related to credit under or of Revised Code. (Form prescribed by the tax commissioner)
*List may not be all inclusive

22. What is The State Required to Provide to Municipalities?*
718.83(A) No later than the fifth day of the month, payment of amount certified to be paid, plus pro rata share of investment earnings.
718.84(B) In May and November of each year, provide detailed information for every taxpayer that filed returns with ODT and that had municipal taxable income apportionable to the municipal corporation. (Details provided in (B)(1) through (5), page ).
718.84(C) No later than 30 days after each monthly distribution (See (A) above), ODT shall provide a report stating the name and FEIN’s of every taxpayer that made estimated tax payments and amount of each estimated payment.
Upon issuance of a refund, the tax commissioner shall notify each municipality of the amounts refunded which shall be deducted from the next municipal distribution.
*List may not be all inclusive

23. Forms “Prescribed by the Tax Commissioner”*
718.80(B)(1) Form for initial election to file with the State.
718.80(B)(2)(b) Form for termination; opt-out form.
718.80(C)(2) Form to provide the State with specific taxpayer info within days after receipt of election.
718.80(D)(1) All forms necessary to administer municipal tax collection as outlined in through
718.84(F)(1) Form to refer the taxpayer for an audit by ODT.
718.85(A)(1) Form prescribed by the tax commissioner for annual return filing.
(B) Form to allow the taxpayer to be excused from electronic filing and to file by some other method.
718.92(A) Form for filing an amended tax return under this section.
718.94(A) Form for municipalities to report tax credits under RC and
*List may not be all inclusive

24. Changes to your Municipal Tax Ordinance
You must notify your Law Director, Solicitor, or Legal Counsel immediately that Municipal Tax Ordinance changes are required to be made. Look for the strike-through and underlined text in the following sections, and be sure that your corresponding Municipal Tax Ordinance sections are amended accordingly. (Note: Strike-through text is language that has been deleted; underlined text is new language) – Starts on page – Starts on page – Starts on page – Starts on page – Starts on page 427 Note: was not included in the OML Sample Ordinance, so no change is needed. However, if your Municipal Tax Ordinance is different from the OML Sample, you need to check to see if this section needs to be changed in your Municipal Tax Ordinance. YOU DO NOT NEED TO INCLUDE Sections through in your Municipal Tax Ordinance. These sections are for use by the tax commissioner in administrating the municipal tax for businesses who have chosen to file with the State. They are not allowed to be used by municipalities and could cause confusion if added to your ordinance.

25. What is Left? What is left on their wish list they haven’t gotten yet?
SERPs
Withholding tax
Residency – Bright line test
Net profit filings – no filing required if no tax obligation
Businesses to be exempt from paying taxes at all
More centralized collection
Non-Residents – pay taxes at resident level only
Full reciprocity among all municipalities
What will the next tax bill contain?
Anything from the list above???
Corrections from the budget bill
Corrections from HB5
New tax items we haven’t thought of yet

26. Are You Scared Yet?
If you’re not scared yet, you should be! The coalition has found an administration willing to implement the following:
Forced 5 year NOL
Eliminated throwback language
Destroyed the occasional entrance language
Change the way audits/reviews/assessments are all done
Required more certified mail
Implemented the first part of centralized collection
Assessed a filing fee for businesses filing through the State
Created a entirely new section of 718 and now are forcing us to treat taxpayers with two separate sets of code

27. What Do You Do Now?
Its time to go home and talk to your administration.
You need to make them aware of the harmful items in the language and how it will affect your municipality.
You need to organize your municipality to become engaged in the fight.
Have your Mayor/Manager speak with others in your area.
Now is the time we need to stand together and take legal action.
You can’t sit back and say let the large cities fight, this is an all municipalities hands on deck fight.
If you/we do nothing, then before you know it there will be a new tax bill with more centralized collections, that may even include Withholding!