Administration’s Proposed Budget Includes Two Significant Municipal Income Tax Changes

On January 30^th, Governor Kasich summarized his proposed two-year budget.

Relative to municipal net profit taxes, the Administration wants the Ohio Department of Taxation (department) to administrator the municipal net profits tax going forward as opposed to the roughly 600 cities that currently administer the tax.  Thus business taxpayers will file a single net profits tax return with the department through the Ohio Business Gateway.  The department will process all corresponding tax payments and credit each city accordingly.  The Administration proposes to task the department with all other related administrative functions such as:  rule making, prescribing forms, auditing taxpayers, issuing assessments, processing refunds, hearing appeals, and certifying debts.  Each city will pay the department a 1.0% administrative fee.  Cities would retain control over setting their tax rate and offering tax credits.  Cities will continue to administer their employer withholding tax and individual income tax.

Perhaps of equal importance to retailers, the budget proposal eliminates the municipal net profits tax “throwback rule.”  The elimination of this rule is on-balance a positive development for retailers.

The Council and Vorys are evaluating the merits of the department administering the municipal net profits tax.