Ohio Municipal Tax Reform Needed

Posted on: June 26, 2013 12:00 pm
Tags: Ohio municipal city tax reform h.b. 5

Larry F. Warner Jr CPA - Stephenson & Warner Inc.,

Ohio is one of the few states in the nation that allows municipalities to tax its residents (individuals and businesses).  Ohio has over 600 cities and most of those have a local income tax.  Unfortunately, they can all tax income somewhat differently.  Trying to comply with so many different local tax rules has left many residents and employers extremely frustrated and subject to fines and penalties for not complying.  The differing rules from city to city has made Ohio less attractive to some businesses looking to relocate here.  Below are some of the rules that vary from city to city:

1)     If a business or rental property owner suffers a loss in a year, that loss can be carried forward to offset income infuture years. However the carryforward varies from zero to 15 years depending on the city.

2)     Tax return due dates and extension time periods are different among the cities.

3)     Businesses that are organized as S-corporations or Partnerships may or may not have to file a tax return to report theirprofit or loss.  If the business does not have to report, then the owner does, but this depends on each city’s own rule.

4)     Who is defined as a “resident” and subject to tax can vary from city to city.

5)     Most importantly, what income is taxable differs amongst the cities.  Some tax stock options, some don’t.  Some tax gambling income, some don’t.

Currently, H.B. 5 seeks to make Ohio’s municipal income tax system simpler, fairer and more predictable.  The bill would establish one set of rules that would apply to all Ohio cities and reduce the administrative hassles that many Ohio residents are subjected to.  We encourage you to visit http://www.munitaxreform.org/ to learn more about H.B. 5 and the reform it would bring.  As tax preparers, our time to prepare the city tax returns sometimes exceeds our time on a client’s federal tax return, just because we have to research each city’s rules.  Reform in this area would help most if not all Ohio residents.