United States

Should Ohio businesses opt in to the state-run municipal tax system?


On June 30, 2017, Gov. John Kasich signed House Bill 49, the state’s 2018 fiscal-year budget that included a number of changes to the municipal net profits tax. One of the standout changes was a new election to participate in the Ohio Department of Taxation’s (ODOT) central administration of municipal net profits tax returns beginning in 2018. Should Ohio businesses subject to multiple municipal income taxes elect to register for the new system?

Businesses electing to use the state-administered system may file municipal net profits tax returns, estimated payments and extension requests through the Ohio Business Gateway (OBG) for the over 500 municipalities that impose the net profits tax, including those currently administered by the Regional Income Tax Agency and Central Collection Agency. Furthermore, any adjustments, assessments or disputes will be governed by the ODOT, applying the rules and regulations enacted through recent municipal tax reform. 

Sole proprietors will be prohibited from using the state-administered system. However, and unlike from the current municipality-administrated system, consolidated filers, non-apportioning businesses, pass-through entities reporting income on behalf of shareholders, and certain short-year filers will be eligible to participate in the state-administered system. Additionally, businesses will be able to complete a one-time registration for the state-administered system that will cover all municipalities. Electing taxpayers must electronically file or submit a paper registration before the first day of the third month of their taxable year, e.g., calendar year taxpayers will need to opt-in on or before March 1, 2018, for the 2018 taxable year. Taxpayers opting into the state-administered system will need to notify the municipal corporations in which they were subject to the tax in the previous year. 

Conceptually, the state-administered system simplifies municipal tax filings through electronic filing of a single form encompassing all of the business’ active municipalities. However, taxpayers should understand that this is the first year of a new and ambitious effort to combine various tax data for filing among 500 municipalities. The ODOT is currently working with multiple tax preparation software providers to efficiently import data from the tax preparation software into the OBG centralized filing system. Accordingly, some taxpayers may experience complications with uploading tax data to the new system making open communication with ODOT crucial to mutually beneficial initiative.

Taxpayers should evaluate their current filing position in considering the benefits of participation in the centralized filing system. It is anticipated that additional information regarding the state-administered municipal net profits tax will be available on the OBG site in early 2018. Taxpayers can learn more about the municipal net profit tax and the state-administered system here. Ohio municipal taxpayers should contact their tax advisors with questions about the new state-administered municipal tax election. 

Brian Schneider

Senior Manager

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