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2016Regional Income Tax Agency
Municipal Income Tax
Seminar
Welcome!
Speaker: Don Smith
CPE
Today’s session = 3 hours
Based on 50 contact minutes/hour
If you did NOT REGISTER before TODAY
Please do so at Welcome Table
CPE Certificates available after seminar
Refreshment, Facilities & Phones
Beverages & Cookies
Men’s and Ladies’ Rooms
“Smart” phones
Today’s Agenda
Welcome & “Administrivia”
New Member Update
MeF – New Partners
HB 5 Update
Wrap-Up
Adjourn
Question & Answer Period
Please hold questions until AFTER each presenter is finished
Will address as many as possible
Q&A session, time permitting, prior to adjournment
Will summarize and distribute via email
Locate Today’s Presentations
Posted to our website
- Resources
- Videos & Presentations
New Members
and
Current Member
Updates
New Members
Conesville
Ravenna
Solon
Empire
Effective 01/01/15
New Members
EastlakeHolland
Trimble
Conesville
Ravenna
Solon
Empire
Peninsula
Effective 07/01/15
New Members
EastlakeHolland
Trimble
Amanda
Conesville
Ravenna
Solon
Empire
Peninsula
Effective 9/01/2015
New Members
EastlakeHolland
Trimble
Amanda
Lowellville
Conesville
Ravenna
Solon
Empire
Peninsula
Effective 10/1/2015
New Members
Bellefontaine
EastlakeHolland
Trimble
Amanda
Lowellville
Rocky River
Ashley
Wadsworth
Ney
Bethel
Conesville
Ravenna
Solon
Empire
Peninsula
Effective 01/01/16
RITA Welcomes...
MUNICIPALITY COUNTY TAX
RATE
CREDIT
FACTOR
CREDIT
RATE
DATE
JOINED
Village of Conesville
(New Tax)Coshocton 1.00% - - 01/01/15
Village of Empire
(New Tax)Jefferson 1.00% 100% 1.00% 01/01/15
City of Ravenna Portage 2.00% 100% 2.00% 01/01/15
City of Solon Cuyahoga 2.00% 100% 2.00% 01/01/15
City of Eastlake Lake 2.00% 100% 2.00% 07/01/15
Village of Holland Lucas 2.25% 100% 2.25% 07/01/15
Village of Peninsula Summit 2.00% 100% 2.00% 07/01/15
Village of Trimble
(New Tax)Athens 1.00% - - 07/01/15
Village of Amanda
(New Tax)Fairfield 1.00% - - 09/01/15
RITA Welcomes...
MUNICIPALITY COUNTYTAX
RATE
CREDIT
FACTOR
CREDIT
RATE
DATE
JOINED
Village of Lowellville Mahoning 2.00% 100% 2.00% 10/01/15
Village of Ashley
(New Tax)Delaware 1.00% - - 01/01/16
Village of Bethel
(New Tax)Clermont 0.50% - - 01/01/16
Village of Ney
(New Tax) Madison 1.00% - - 01/01/16
City of Bellefontaine Logan 1.333% 50% 1.333% 01/01/16
City of Rocky River Cuyahoga 2.00% 100% 1.50% 01/01/16
City of Wadsworth Medina 1.40% 100% 1.00% 01/01/16
New JEDDs and JEDZs
Scioto Twp. JEDD /
Grove City Pickaway 2.00% - - 01/01/15
Holland Springfield
Twp. JEDZ/ HollandLucas 1.50% - - 07/01/15
Boston Twp. Peninsula
JEDD / PeninsulaSummit 2.00% - - 07/01/15
Tax Rate Changes
BalticTax Rate INCREASE to 1.5% Credit Factor 100%
Credit Rate 1.5% Effective 01/01/16
CedarvilleTax Rate INCREASE to 1.25% Credit Factor 100%
Credit Rate 1.25% Effective 07/01/15
Cleveland
Heights
Tax Rate INCREASE to 2.25% Credit Factor 50%
Credit Rate 1.0% Effective 01/01/16
DanvilleTax Rate INCREASE to 1.5% Credit Factor 0%
Credit Rate 0% Effective 01/01/16
RavennaTax Rate INCREASE to 2.25%, Credit Factor 100%
Credit Rate 2.25% Effective 07/01/15
WaynesvilleTax Rate DECREASE to 0.5% Credit Factor 0%
Credit Rate 0% Effective 01/01/16
Credit Changes
Brecksville Credit Factor DECREASED to 87.5%
Effective 01/01/15
Belle Center Credit Factor DECREASED to 50%
Effective 01/01/16
Bellefontaine Credit Factor DECREASED to 50%
Effective 01/01/16
CenterburgCredit Factor DECREASED to 0%
Effective 01/01/16
Fredericktown Credit Factor DECREASED to 50%
Effective 01/01/15
Johnstown Credit Factor DECREASED to 0%
Effective 07/01/15
Credit Changes
North Lewisburg Credit Rate DECREASED to 0%
Effective 01/01/16
Piketon Credit Rate DECREASED to 0%
Effective 01/01/16
Rossford Credit Rate DECREASED to 0%
Effective 01/01/16
Sabina Credit Factor DECREASED to 50%
Effective 01/01/16
Sherwood Credit Factor DECREASED to 0%
Effective 01/01/16
Wakeman Credit Factor DECREASED to 0%
Effective 01/01/16
Brecksville OfficeRegional Income Tax Agency10107 Brecksville RoadBrecksville, Ohio 441418:00 am-5:00 pm Monday-Friday
Worthington OfficeRegional Income Tax Agency760 Lakeview Plaza Blvd, Suite 400Worthington, Ohio 430858:00 am-5:00 pm Monday-Friday
Cleveland Heights OfficeRegional Income Tax Agency40 Severance CircleCleveland Heights, Ohio 441188:30 am-5:00 pm Monday-Friday
Youngstown OfficeRegional Income Tax Agency20 Federal Plaza West, Suite M-14Youngstown, Ohio 44503-14978:00 am-5:00 pm Monday-Friday
Lake County - Mentor OfficeRegional Income Tax AgencyMentor Municipal Center8500 Civic Center Boulevard Mentor, Ohio 440608:00 am-1:00 pm & 1:30-4:30 pmTuesday & Thursday
RITAOffice
Locations
New Youngstown Location
Summer of 2016
2761 Salt Springs Rd. Youngstown, OH 44509
RITA Extended Walk-In Hours
Brecksville Office & Worthington Office
**Saturday**
9:00 am – noon
February 27
March 5, 12, 19 and 26
April 2, 9 and 16
Lake County – Mentor Office
**Friday**
8:00 am - 1:00 pm & 1:30 pm - 4:30 pm
April 1, 8, and 15
Monday April 18th from 8:00 am - 4:30 pm
RITA Extended Telephone Hours
1 (800) 860-7482Monday & Thursday
5:00 pm – 6:00 pm
February 22 through March 24
Monday, Tuesday & Thursday
5:00 pm – 6:00 pm
March 28 through April 7
Saturday
9:00 am – noon
February 27 through April 16
Tax Week
8:00 am – 7:00 pm
April 11 through April 15 and April 18
On-Site
Taxpayer
Assistance
City of Bellefontaine
City Hall
135 N. Detroit St.
Bellefontaine, Ohio 43311
3/3/2016
9:00 am – 4:00 pm
City of Pataskala
City Hall
621 W. Broad St.
Pataskala, Ohio 43062
3/8/2016
12:00 pm - 6:00 pm
City of Mt. Healthy
Mt. Healthy City Park Community Room1541 Hill AvenueMt. Healthy, Ohio 452313/9/20161:00 pm – 7:00 pm
City of Willoughby
City Hall
1 Public Square
Willoughby, Ohio 44091
3/10/2016
1:00 pm – 7:00 pm
City of North Ridgeville
Council Chambers
7307 Avon Belden
Road North Ridgeville,
Ohio 44039
3/15/2016
1:00 pm – 7:00 pm
City of Waterville
City Hall
25 North Second St.
Waterville, Ohio 44094
3/16/2016
1:00 pm- 7:00 pm
On-Site
Taxpayer
Assistance
Village of Holland
Lodge at Strawberry
Acres
950 S. McCord Rd.
Holland, Ohio 43528
3/22/2016
9:00 am – 4:00 pm
City of Streetsboro
Council Chambers
9184 State Route 43
Streetsboro, Ohio
44241
3/23/2016
9:00 am – 4:00 pm
City of Rocky River
Don Umerley Civic
Center
21016 Hilliard Blvd.
Rocky River, Ohio 44116
3/24/2016
1:00 pm- 7:00 pm
City of Wadsworth
City Hall
120 Maple St.
Wadsworth, Ohio 44281
4/2/2016
9:00 am – 4:00 pm
MeF Update
MeF Update
RITA has begun to receive tax filings via the
IRS MeF* process
We are certifying and will continue to certify tax
partners.
*Modernized e-File
Tax Partners - 2016
Form 37 Update
Form 37 Changes
• Added residence status check boxes and updated move section.
Form 37 changes
• Added tip box for computing lines 5b-6 if credit rate is 0%
Form 37 changes• Updated instructions and form to reflect new minimum
estimates and due dates for 2016.
• Due dates for estimates are 4/15, 6/15, 9/15 and 12/15 .
• Minimum estimate is now $200 for all RITA municipalities.
• If Taxpayers wish to be billed for amounts less than $200, complete
line 20a.
• If line 20a left blank, RITA will compute an estimate for the Taxpayer,
and if that computed estimate exceeds $200 it will be billed.
House Bill 5 -- Agenda
“First-Ups”
Occasional Entrant
Net Operating Loss Carryforward and Offsets
RITA Website
H.B. 5 First - Ups
---Speaker---
Amber Greenleaf
Some of the “First-Ups” Under H.B. 5:
New Employer Withholding Requirements:
Withholding filing thresholds.
If amount required to be withheld > $2,399 in the previous calendar year or >$200 during any month of the prior calendar quarter -- remit monthly.
All others remit quarterly.
BUT, municipalities may require withholding on a semi-monthly basis if withholding > $11,999 in the previous calendar year or > $1,000 in any month of the prior calendar quarter.
Due dates moved to the 15th.
If monthly -- due the 15th of the following month.
If quarterly-- due the 15th of the month following the end of the quarter.
Annual reconciliation is due on last day of February for the prior year withholdings.
“First-Ups” Cont.: 2016 Estimates:
Individual / Net Profit -- Quarterly estimated payments are not required unless the estimated tax liability for the year is $200 or more (after withholding and credits).
New estimated payment due dates.
1st quarter due April 15th
2nd quarter due June 15th
3rd quarter due September 15th
4th quarter due December 15th
Safe Harbors.
90% of current year tax liability;
100% of prior year tax liability (assuming a full year); or
The taxpayer was not domiciled in the municipal corporation on January 1st of the taxable year.
“First-Ups” Cont.:
Minimum Thresholds:
Individual / Net Profit Returns -- No remittance of tax is
required with the return if the amount shown to be due is
$10 or less.
Refunds -- Will not be issued for $10 or less.
If taxpayer is unable to get a refund due to threshold,
RITA will carryforward as a credit.
Postmark:
Returns and payments are timely if post-marked on or
before the due date.
“First-Ups” Cont.:
Lottery / Gambling:
Includes lottery, sweepstakes, gambling and sports winnings, winnings from games of chance, and prizes and awards.
No threshold.
Professional gamblers (for federal tax purposes) may deduct losses and expenses.
Residential? Non-residential / point of sale? Both?
Ex. Cleveland’s Ordinance: On all income derived from prizes, awards, gaming, wagering, lotteries or other similar games of chance by a resident from whatever source and from anywhere derived and by a nonresident from whatever source when the prize, award, gaming, wagering, lottery or other similar game of chance takes place in the City. For purposes of this statute, the purchase of a lottery ticket or similar instrument shall be deemed to occur in the City when said instrument is purchased in the City.
“First-Ups” Cont.:
Penalty/ Interest Rates:
Non-payment of Tax Penalty.
Flat 15% of the unpaid tax for individuals and net profit filers (includes unpaid estimated tax).
Flat 50% penalty for employer withholding.
Late Filing Penalty.
$25 per month for each failure to timely file, up to $150 (for all returns except estimated taxes).
Non-payment of Tax Interest Rate.
Federal short-term rate, plus 5% (individual, net profit and withholding).
The same rate of interest is payable to taxpayers on late-issued refunds.
Makes all penalties discretionary.
H.B. 5 Assessments:
“Assessment” defined:
A written finding by a municipal tax administrator that
commences a taxpayer’s time to appeal to the local board
of tax review.
AND – additional requirements:
“ASSESSMENT” printed at the top in all capital
letters;
Advises taxpayer of appeal rights and how to
appeal.
H.B. 5 Assessments: Examples of Assessments:
Full or partial denial of refund requests on
amended returns.
Denial of taxpayer’s request to use a method other
than the statutorily prescribed method for
allocating net profits to a municipality, or tax
administrator’s requirement.
Requiring net profit filers to make a consolidated
filing.
H.B. 5 Assessments:
Assessments are NOT:
Billing statements;
Requests for additional information;
Informal notices denying refund request on
originally filed returns;
Notifications of math errors; or
Other general correspondence.
EMPLOYER WITHHOLDING
AND THE OCCASIONAL
ENTRANT RULE –Employers and Employees Be Aware!
Presented by: Amy Arrighi43
House Bill 5 Changes to the
Occasional Entrant Rules
Extends from 12 to 20 the number of days an employee
must be working in a municipality before tax must be
withheld.
Requires withholding from the 21st day forward, not
back to the first day.
Defines a “day” for purposes of determining when an
employee has reached 20 days working in a municipality.
Shifts much of the tracking burden to the employee.
Exceptions for “small employers”.
44
Withholding – Small Employers
The small employer withholding rules:
A small employer is an employer whose gross receipts the previous year totaled less than $500,000.
Gross receipts are from all sources, including intangible income, grants, and expense reimbursements (so payments made to a common paymaster to cover the related party’s payroll are included in gross receipts). Hospitals, universities, governments cannot be a small
employer.
To qualify for the small employer withholding rules, the employer must have a fixed location in Ohio.
45
Withholding – Small Employers
The rule:
A small employer with a fixed location in Ohio
withholds municipal income tax as if all of the wages of
all employees were earned for work performed at the
fixed location.
46
Withholding – Small Employers
The small employer withholding rules (example 1):
Joe’s Plumbing’s only location in Ohio is in
Cleveland.
Joe’s Plumbing’s gross revenue from all sources last
year was $325,000.
Joe’s Plumbing employs seven full-time employees
who unclog drains in Cleveland, Cleveland Heights,
Beachwood, Parma, and Rocky River.
Each employee worked 40 days in each of the
above municipalities.47
Withholding – Small Employers
The small employer withholding rules (example 1):
Joe’s Plumbing withholds Cleveland tax on all
qualifying wages of all employees.
Because the wages of Joe’s employees are not subject
to withholding in Cleveland Heights, Beachwood,
Parma and Rocky River those wages are exempt from
tax in these communities UNLESS an employee
receives a refund from Cleveland.
If an employee obtains a “days out” refund from
Cleveland, tax is due to the other communities on all
wages earned there. 48
Withholding – Small Employers
The small employer rules (example 1)
Joe’s Plumbing employs Matt.
Joe’s Plumbing withholds Cleveland tax on all of Matt’s wages.
The wages Matt earned performing work on 40 days in Cleveland Hts., 40 days in Beachwood, 40 days in Parma and 40 days in Rocky River are exempt from tax in those communities BUT
If Matt receives a days out refund from Cleveland for the 160 days he worked outside of Cleveland, he now owes tax to those communities for ALL days he performed work in these communities (20 days is not a factor).
49
Withholding – Small Employers
The small employer withholding rules (example 2):
Joe’s Plumbing’s only location in Ohio is in Richfield
Township.
Joe’s Plumbing’s gross revenue from all sources last
year was $325,000.
Joe’s Plumbing employs six full-time employees who
unclog drains in Brecksville, Broadview Heights, North
Royalton, Peninsula and Macedonia (each imposing a
2% tax).
Each of the six employees worked 30 days in each of
the above municipalities. 50
Withholding – Small Employers
The small employer withholding rules (example 2):
Joe’s Plumbing withholds municipal tax as if
all work performed by all employees was in
Richfield Township (thus, Joe’s Plumbing
does not withhold workplace tax).
51
Withholding – Small Employer The small employer withholding rules (example 2)
Joe’s employee Matt is a resident of Garfield Heights.
Garfield Heights imposes a 2% income tax on
residents and allows a 100% credit for tax paid to other
municipalities, up to 2%.
Matt’s wages earned performing work in Brecksville,
Broadview Heights, North Royalton, Peninsula and
Macedonia are exempt from tax in those communities
but are subject to tax in his residence community.
Matt suddenly has no workplace withholding beginning
in 2016 due to the small employer withholding rules.
52
Withholding – Small Employers
The small employer withholding rules (example 2):
If Matt earns $38,000 as a plumber he will owe Garfield
Hts. $760 when he files his TY 2016 return.
Failure to pay this when due could subject Matt to a
penalty of $114 (15% of the tax due).
Possible solutions -
Matt may ask Joe’s Plumbing to withhold residence tax
for him. Joe’s Plumbing can say “no”.
Matt should establish and pay an estimate to Garfield
Heights to avoid this situation. 53
Withholding – Small Employers
The small employer withholding rules (example 3):
MegaSecurity is the world’s largest provider of on-
site security guards.
MegaSecurity has only one fixed location in Ohio
which is within the city limits of Sandusky.
MegaSecurity’s 2015 gross revenue was in the
billions.
MegaSecurity has 257,492 employees worldwide.
54
Withholding – Small Employers
The small employer withholding rules (example 3):
MegaSecurity employs 7,847 employees in Ohio.
Only 123 of MegaSecurity’s employees work in
Sandusky at the company’s fix location and at various
client sites.
The remaining 7,724 employees work mostly in
Cleveland, Columbus, Toledo and Cincinnati and most
have never set foot in the Sandusky office.
55
Withholding – Small Employers
The small employer withholding rules (example 3):
Effective January 1, 2016, for the legitimate business
purpose of liability management, MegaSecurity
incorporates a subsidiary, MegaSecurity Ohio and
transfers all of its Ohio employees to MegaSecurity
Ohio.
MegaSecurity Ohio, a separate legal entity, takes over
the Sandusky fixed location.
MegaSecurity Ohio had gross revenue in 2015 of $0 (it
didn’t exist in 2015).
56
Withholding – Small Employers
The small employer withholding rules (example 3):
Is MegaSecurity Ohio with its 7,847 employees a
small employer?
Does MegaSecurity Ohio have a fixed location in
Ohio?
How does MegaSecurity Ohio withhold under the
small business withholding rules as written?
57
Withholding – 20 Day Rule
The basic Occasional Entrant Rule:
Extends from 12 to 20 the number of days an individual
must perform services in a municipality before the
employer is required to withhold tax.
If the threshold is not exceeded, the employer withholds
only for the employee’s “principal place of work” if that
location is within a municipality.
If the 20-day threshold is exceeded, the employer is not
responsible for the withholding for the first 20 days.
Exceptions exist for small employers, certain “worksite
locations” and “presumed worksite locations”. 58
Withholding – 20 Day Rule
The basic Occasional Entrant Rule (example 1):
So if John’s principal place of work is in Grove City,
and he works 7 days in Columbus, and his employer
correctly withholds Grove City tax on his wages
earned in Columbus, and
John is a Bexley resident, then
John’s wages earned in Columbus are exempt
income as far as Columbus is concerned unless John
requests a refund of the Grove City tax withheld on
those wages earned in Columbus.
59
Withholding – 20 Day Rule
The basic Occasional Entrant Rule (example 1):
Because John is a Bexley resident, John owes
Bexley tax on all of his qualifying wages including
those qualifying wages earned in Columbus that
were exempt income as far as Columbus is
concerned.
Bexley’s normal rules for granting residents credit
for taxes paid to another municipality would apply.
60
Withholding – 20 Day Rule
The basic Occasional Entrant Rule (example 2):
However, if Jane’s principal place of work is in
Prairie Township, and she works 7 days in
Columbus, and her employer correctly withholds no
tax on her wages earned in Columbus, and
Jane is a Bexley resident, then
Jane’s wages earned in Columbus are exempt
income as far as Columbus is concerned.
61
Withholding – 20 Day Rule
The basic Occasional Entrant Rule (example 2):
Because Jane is a Bexley resident, she owes
Bexley tax on all of her qualifying wages, even
those wages that were exempt from Columbus
withholding under the Occasional Entrant Rule.
62
Withholding – 20 Day Rule
The nuts and bolts of the Occasional Entrant Rule:
What is an employee’s “principal place of work”?
The fixed location in Ohio to which the employee is
required to report for duty on a regular and ordinary
basis.
If no fixed location applies, then it’s the Ohio
“worksite location”, such as a construction site or
temporary job site, to which the employee is
required to report for duty on a regular and ordinary
basis.63
Withholding – 20 Day Rule
The nuts and bolts of the Occasional Entrant Rule:
What is an employee’s “principal place of work”?
If no fixed location applies and no worksite location
applies, then the principal place of work is the
location in Ohio at which the employee spends the
greatest number of days in a calendar year
performing services for the employer.
64
Withholding – 20 Day Rule
The nuts and bolts of the Occasional Entrant Rule:
For purposes of counting days for the Occasional
Entrant Rule, an employee works in only one
municipality each day.
The municipality in which the employee was
deemed to have spent the most time working
compared to other municipalities is the
municipality in which the employee worked that
day for purposes of counting up to 20 days.
65
Withholding – 20 Day Rule
The nuts and bolts of the Occasional Entrant Rule:
Time spent traveling to and from job sites and picking
up goods or making deliveries is considered time
spent working at the employee’s principal place of
work.
However, if the employee delivers and installs goods
(i.e. “affixes to real property”), then the time spent
installing the goods is time spent working in the
municipality where delivery was made.
66
Withholding – 20 Day Rule
An exception to the Occasional Entrant Rule:
Employees working at a “Presumed Worksite Location”
If the employer can reasonably expect to be
providing services at a jobsite in a municipality for
more than 20 days during the year, the employer
must withhold on all qualifying wages earned by
employees working at that jobsite, even on those
wages earned by employees whom the employer
knows will work less than 20 days in the municipality.
67
Withholding and the Occasional Entrant Rule
Municipalities and employers may enter into agreements
to simplify withholding.
Nothing in H.B. 5 will “undo” existing agreements
between municipalities and employers to simplify
withholding.
Employers can elect to withhold where the work is
actually being performed for all days that it is being
performed.
68
Withholding and the Occasional Entrant Rule Takeaways (Employees):
When preparing your individual clients’ TY 2015 returns ask to see a few paystubs for 2016.
Has anything changed? Does the client still have withholding? Has the municipality of withholding changed?
How will any change in withholding impact the client’s TY 2016 tax situation at the municipal level? Should an estimate be declared for TY 2016 in the resident community?
It is up to your clients as employees to track their work locations if “days out” refunds will be sought.
Understand that a days out refund from one community may result in tax due to another.
69
Withholding and the Occasional Entrant Rule Takeaways (Employers):
The law is supposed to make withholding easier for
employers – and shifts much of the tracking burden to
employees. HOWEVER, employers still are required to
certify days out refund requests.
Understand how, if at all, your withholding obligations may
be different now.
Consider withholding residence tax if a change in
withholding will cause a significant change in your
employees’ residence tax obligations.
Understand that you can elect to not follow the occasional
entrant rules and withhold where the tax is actually due. 70
Withholding Under House Bill 5
Questions
71
NEW STATE MANDATES:Net Operating Loss Carryforwards and
Phase-in Provisions
Individual Schedule Income & Loss
Offsets
Presented by:
Robert G. Meaker, Chief of Tax Operations
RITA
AGENDA
Net Operating Loss Carryforward (“NOL CF”)
Requirements
NOL CF Phase-ins
Municipal Income Tax Net Operating Loss Review
Committee
Schedule Income Offsets for Residents
NOL CF Requirements
HB 5 provides for a state‐wide five year carryforward for
NOLs incurred in taxable years beginning after 2016.
Applies to losses incurred in taxable years beginning on
or after January 1, 2017, and then carried forward to future
taxable years.
NOL CFs apply to:
1) Business Net Profits
2) Schedule C, E, & F income of Non-residents earned
in taxing municipalities
3) All Schedule income of Residents of taxing
municipalities.
NOL CF Requirements
NOL CFs do not include unutilized losses resulting from
basis limitations, at‐risk limitations, or passive activity
loss limitations.
Losses that are not reportable on Federal Schedule E Part II
are not included in current year taxable income or allowed to be
carried forward.
Applies to Partners and S Corporation shareholders.
NOL CFs may not be used to offset qualifying wages.
NOL CF Requirements
NOL CF Provision is phased in:
Taxpayers may only claim 50% of the available NOL
carryforward during years 2018 through 2022.
100% utilization of NOL CFs delayed until tax year 2023.
TPs may carry forward any “unutilized” NOLs for 5 years.
From technical clarification in State Budget Bill (HB 64) on how
unutilized NOL CFs are handled in regards to the bill’s NOL CF phase-
in provisions.
See “declining balance method” examples below
Phase-in provisions also apply to NOL CF related to Schedule
income of residents and non-residents
NOL CF Requirements
Pre‐2017 NOLs are permitted to be carried forward to the
extent already allowed by municipalities.
The 50% phase-in limitation does not apply to pre‐2017
NOLs.
Pre‐2017 NOLs must be utilized before utilizing new
NOLs generated after tax year 2016.
Post 2016 NOL carry‐forwards are calculated and applied
on a pre‐apportionment basis.
NOL CF - Pre HB5 vs. Post HB5
NOL CF Phase-in Examples
Example 1 – Muni Currently Does Not Allow NOL CF
NOL CF Phase-in Examples
Example 2 – Muni Currently Allows NOL CF
NOL CF Phase-in Examples
Example 3 – Muni Currently Allows NOL CF
NOL CF Phase-in ExamplesExample 4 – Muni Currently Allows NOL CF
40% of TP's Income is Apportionable to Muni Each Yr Step 1 Step 2 Actual
2016 2017 2018 2019 2019 2019 2020 2021 2022 2023
Total Net Profit (Loss) for Tax Year - Pre Apportionment -$25,000 -$4,000 $20,000 $8,000 $3,000 $8,000 -$45,000 $90,000 $2,000 $16,000
Net Profit (Loss) for Tax Year - Post Apportionment 40% -$10,000
Utilized Post 2016 NOL CF from Tax Year 2017 -$2,000 -$2,000 -$1,000 -$500 -$16,000
Utilized Post 2016 NOL CF from Tax Year 2020 -$22,500 -$1,500
(50% Limitation Applies for NOLs incurred post 2016)
Pre Apportionment Muni Taxable Income $0 $0 $20,000 $8,000 $1,000 $6,000 $0 $66,500 $0 $0
Apportionment % 40.00% 40.00% 40.00% 40.00%
$8,000 $3,200 $2,400 $26,600
Pre-2017 NOL CF Available -$8,000 -$2,000 -$2,000
Municipal Taxable Income $0 $1,200 $400 $26,600
Unutilized 2017 NOL CF -$4,000 -$4,000 -$2,000 -$2,000 -$1,000 -$500 *
Unutilized 2020 NOL CF -$45,000 -$22,500 -$21,000 -$5,000
-$10,000 -$10,000 -$2,000
Amount of Unutilized 2017 NOL CF Available for Next Tax
Year -$2,000 -$2,000 -$1,000 -$1,000 -$500 *
Amount of Unutilized 2020 NOL CF Available for Next Tax
Year -$22,500 -$11,250 -$21,000 -$5,000
* 5-year CF period expired in 2022 for Tax Yr 2017 NOLs
Please refer to
spreadsheet handout in
your folder.
Municipal Income Tax NOL Review
Committee
Municipal Income Tax Net Operating Loss
Review Committee
Purpose:
Evaluate and quantify the potential fiscal impact to
municipalities of the NOL carryforward provisions
contained in HB 5.
Municipal Income Tax NOL Review
Committee11 Committee members:
2 from House, appointed by the Speaker of the House;
2 from the Senate, appointed by Senate President;
3 representing municipal income taxpayers, appointed by
Speaker;
3 representing municipal corporations that levy an income tax
in 2016 (at least 2 of which do not allow NOLs), appointed by
Senate President.
1 appointed by the Governor; appointee will chair the
Committee.
Members shall be appointed not later than March 1, 2015 (?)
Municipal Income Tax NOL Review
CommitteeEvaluate and quantify the potential fiscal impact to municipalities of the NOL
carryforward provisions contained in HB 5.
Quantifying the potential fiscal impact:
On or before November 30, 2015 (?) the Committee shall provide a
method that municipalities will use to estimate actual/projected municipal tax
revenue for tax years 2012 – 2018. (Committee not formed yet)
Municipalities will then estimate actual/projected municipal income tax
revenue for tax years 2012 – 2018 that would have resulted if a 5-year NOL had
existed during those years for losses incurred in tax years 2011 – 2013.
“Each municipal corporation that levies an income tax in 2011, 2012, or
2013 shall report…” their revenue findings to the Committee on or before
September 30, 2016.
Municipal Income Tax NOL Review
Committee
Written report due on or before May 1, 2017
If the Municipal Income Tax NOL Review Committee
(Committee) receives information from a “representative
sample” of taxing municipalities, then they will review the
info submitted.
The report shall be submitted specifically to the Speaker
and Minority Leader of the House, and the President and
Minority Leader of the Senate.
The Committee shall cease to exist on May 1, 2017.
Municipal Income Tax NOL Review
Committee
“Representative sample” consists of:
At least 3 or more cities with more than 250,000 population.
5 cities/villages with higher ratio of business taxpayers to
resident individual taxpayers, relative to the state average.
5 cities/villages with higher ratio of resident individual
taxpayers to business taxpayers, relative to the state average.
After reviewing the information, the Committee will calculate
the total revenue effects reported by the “representative
sample”.
The Committee’s report will contain recommendations to
address revenue shortfalls.
Resident Schedule Income & Loss Offsets
Allows for current year offsetting of all Schedule income
and losses of residents of taxing municipalities only for
residence tax purposes.
i.e. All Schedule Income & Losses are in “one bucket” for
offsetting purposes.
Includes Schedule C, E & F owned by the resident.
Includes pass-through income & losses of the resident.
S Corporation limitations for residence tax purposes still
apply – Income or losses of S corporations do not flow to
an owner unless the owner lives in a municipality that
voted in 2003 or 2004 to permit taxation of S corporation
owners.
Resident Schedule Income & Loss Offsets
Net “Schedule Bucket Losses” cannot offset
Qualifying Wages.
NOL CF & Phase-in Provisions apply when net total “Schedule
Bucket” is loss.
NOL CF cannot offset Qualifying Wages.
Does not apply to Schedule income earned by non-
residents in non-resident municipality.
Non-residents must file and pay on Schedule C, E & F income
in municipality where income is earned.
NOL CF & Phase-in Provisions apply.
Resident Schedule Income & Loss Offsets
Example 1 – RITA Resident Tax Year 2015
“Two Bucket Method”
Unapportioned Schedule Activity -“Bucket 1”
Cleveland Heights Resident
Schedule C loss in Cleveland Heights – ($10,000)
Township Schedule E rental income - $25,000
Florida Partnership distributive share loss - ($6,000)
= Total Unapportioned income of $9,000
Resident Schedule Income & Loss Offsets
Example 1 – RITA Resident Tax Year 2015
Apportioned Schedule Activity -“Bucket 2”
Cleveland Heights Resident
Taxing Muni A Partnership – $15,000
Taxing Muni B Rental – ($22,000)
Taxing Muni C Rental – $4,000
= Total Apportioned Loss of ($3,000)
Resident Schedule Income & Loss Offsets
Example 1 Continued – RITA Resident Tax Year 2015
“Two Bucket Method”
Residence Non-taxing Total Taxing Muni Taxing Muni Taxing Muni Total
Muni Locations Unapportioned A B C Apportioned
Cleveland Heights $(10,000) $ (10,000)
Township A $ 25,000 $ 25,000
Florida $ (6,000) $ (6,000)
Total Unapportioned ("Bucket 1") $ 9,000
Taxing Muni A $ 15,000 $ 15,000
Taxing Muni B $ (22,000) $ (22,000)
Taxing Muni C $ 4,000 $ 4,000
Total Apportioned ("Bucket 2") $ (3,000)
Net Unapportioned Schedule Income Subject to Res Tax $ 9,000
Apportioned Loss Subject to CH's Current 5-Yr NOL CF $ (3,000)
Resident Schedule Income & Loss Offsets
Example 1 Continued – RITA Resident Tax Year 2015
Cleveland Heights Resident
Total Taxable Residence Schedule Income = $9,000
Resident Schedule Income & Loss Offsets
Example 2 – RITA Resident Under HB 5 “One Bucket
Method” Tax Year 2016
Cleveland Heights Resident
Schedule C loss in Cleveland Heights – ($10,000)
Township Schedule E rental income - $25,000
Florida Partnership distributive share loss - ($6,000)
Taxing Muni A Partnership – $15,000
Taxing Muni B Rental – ($22,000)
Taxing Muni C Rental – $4,000
=Net Total of $6,000 Subject to Residence Tax
Resident Schedule Income & Loss Offsets
Example 2 Continued – RITA Resident Under HB 5
“One Bucket Method” Tax Year 2016
Residence Non-taxing Taxing Muni Taxing Muni Taxing Muni Total
Muni Locations A B C
Cleveland Heights $(10,000) $ (10,000)
Township A $ 25,000 $ 25,000
Florida $ (6,000) $ (6,000)
Taxing Muni A $ 15,000 $ 15,000
Taxing Muni B $ (22,000) $ (22,000)
Taxing Muni C $ 4,000 $ 4,000
Net Total Schedule Income Subject to Residence Tax $ 6,000
Non-resident Pass-through Income &
Losses
Some municipalities currently permit nonresident owners
to file tax returns that offset income and losses of multiple
Pass-through entities (“PTEs”) operating in the
municipality.
In most instances, such municipalities do not permit a
carryforward of NOLs.
Under HB 5, PTEs must file and pay municipal income
tax at the entity level for Ohio municipalities.
Each of those PTEs will be permitted to carryforward any NOLs
for five years.
QUESTIONS????
Thank you!
RITA Website Updates
Effective Filing Season 2016
---Speaker---
Alicia Kline
Please note some minor changes to our Net Profits Tax
Return Form 27
1 Small Business Check Box
2 Separate P O Box for returns that have a payment
Form 17 Reconciliation of Income Tax Withheld:
• Additional Section for companies who file and pay on behalf
of other companies – Common Paymasters, PEO’s, etc.
PRINTABLE TAX TABLE
Thank-you for your attention!Questions?
Wrap-Up
Speaker: Don Smith
2016: Next Steps
Forms and Instructions
Educational MaterialsTax Preparers
Tax Payers
Municipalities
Communication via e-mail
Reminder
CPE Certificate
Complete the survey
Register for e-mailwww.RITAOhio.com
Thank you!