(a) Resident Employees. In the case of the residents of the Municipality, an annual tax of one and one-half percent is imposed on all salaries, wages, commissions and other compensation, including employer-paid sick pay, supplemental unemployment benefits, employer-paid life insurance premiums and profit-sharing distributions, which shall also be considered regular earned income on all tax returns in the Municipality, earned or accrued on and after July 1, 1991. For the purpose of determining the tax on the earnings of resident taxpayers, taxed under Section 880.02(a)(1), the source of the earnings and the place or places in or at which the services were rendered are immaterial. All such earnings, wherever earned or paid, are taxable.
The following are items which are subject to the tax:
(1) Salaries, wages, bonuses or incentive payments received by an individual, whether directly or through an agent and whether in cash or in property, for services rendered on and after July 1, 1991:
A. As an officer, director or employee of a corporation (including charitable and other non-profit corporations), joint stock association or joint stock company;
B. As an employee (as distinguished from a partner or member) of a partnership, limited partnership, or any other form of unincorporated enterprise owned by one or more persons;
C. As an employee (as distinguished from the proprietor) of a business, trade or profession conducted by an individual owner;
D. As an officer or employee (whether elected, appointed or commissioned) of a governmental administration, agency, arm, authority, board, body, branch, bureau, department, division, subdivision, section or unit of the State of Ohio or any of the political subdivisions thereof;
E. As an officer or employee (whether elected, appointed or commissioned) of a governmental administration, agency, arm, authority, board, body, branch, bureau, department, division, subdivision, section or unit of the United States Government or of a corporation created and owned, or controlled by the United States Government or any of its agencies;
F. As an employee of any other entity or person.
(2) Wages, bonuses, or incentive payments received by an individual, whether directly or through an agent and whether in cash or in property, for services rendered on and after July 1, 1991:
A. Whether based upon hourly, daily, weekly, semi-monthly, monthly, annual, unit of production or piece-work rates; and
B. Whether paid by an individual, limited partnership, partnership, association, corporation (including charitable and other non-profit corporations), governmental administration, agency, arm, authority, board, body, branch, department, division, subdivision, section or unit, or any other entity.
(3) Commissions received by a taxpayer, whether directly or through an agent and whether in cash or in property, for services rendered on and after July 1, 1991, regardless of how computed, by whom or wheresoever paid.
If amounts received as a drawing account exceed the commissions earned, the tax is payable on the gross amounts received.
Amounts received from an employer by way of expenses and not by way of compensation, and used as such by the individual receiving them, are not deemed to be compensation if the employer deducts such expense advances as such from his or her gross income for the purpose of determining his or her net profits taxable under the Ordinance.
If such commissions are included in the net earnings of a trade, business, profession, enterprise or activity regularly carried on by such individual and therefore subject to tax under Section 880.02(a)(3), they shall not again be separately taxed. In such case, such net earnings shall be taxed as provided in subsection (i) hereof.
(4) The receipt of fees and other compensation for personal services rendered shall be deemed to be subject to taxation under the Ordinance.
(5) Domestic servants are subject to Municipal tax under the Ordinance, but are not subject to withholding provisions. That is to say, the domestic will report earnings and pay the tax directly to the Grafton Income Tax Department.
(b) Nonresidents. In the case of individuals who are nonresidents of the Municipality, there is imposed under the Ordinance an annual tax of one and one-half percent on all salaries, wages, commissions and other compensation, earned or accruing on and after July 1, 1991, for work done or services performed or rendered within the Municipality, whether such compensation or remuneration is received or earned directly or through an agent and whether paid in cash or in property.
The items subject to tax under this section are the same as those listed and defined in subsection (a) hereof. For methods of computing the extent of such work or services performed within the Municipality, and cases involving compensation for personal services partly within and partly outside the Municipality, see Section 880.21.
(c) Net Business Profits of Residents.
(1) In the case of trades, businesses, professions, other activities, enterprises or undertakings conducted, operated, engaged in, prosecuted or carried on by residents of the Municipality, there is imposed an annual tax of one and one-half percent on the net profits earned or accruing on and after July 1, 1991.
(2) For the purpose of construing Section 880.02(a)(3) and (4), the term "resident" will ordinarily be construed to have reference to the business entity itself, as distinguished from the partners, proprietors or other participants in its profits.
(3) Generally, a partnership, association or other unincorporated enterprise owned by two or more persons will be taxed as an entity. However, in the case of a nonresident partnership, association or unincorporated enterprise which cannot be reached or taxed directly by the Municipality, or if only part of its earnings may be directly taxed, then in either such case, resident partners, co-owners, proprietors or other participants in the profits thereof must include in their declaration and tax return or returns their distributive shares of such profits, or portion thereof not taxed to the business enterprise as an entity, and must pay the tax thereon.
(4) The tax imposed under Section 880.02(a)(3) is levied upon the entire net profits of the resident trade, business, profession, other activity, enterprise, or undertaking, wherever earned, paid or accrued and regardless of the fact that any part of such business or professional activity may have been conducted at or through a place or places of business located outside the Municipality.
(d) Net Business Profits of Nonresidents.
(1) In the case of a nonresident individual, partnership, association, fiduciary or other entity (other than a corporation) engaged in the conduct, operation or prosecution of any trade, business, profession, enterprise, undertaking or other activity, there is imposed an annual tax of one and one-half percent on the net profits (earned or accruing on and after July 1, 1991) of such trade, business, profession, enterprise, undertaking, or other activity if, and to the extent, conducted in or derived from activity in the Municipality.
(2) A nonresident entity, within the meaning of Section 880.02(a)(5) which has a branch or branches, office or offices and/or store or stores, warehouse, or other place or places in which the entity's business is transacted, located in the Municipality, shall be considered to be conducting, operating, prosecuting, or carrying on a trade, business, profession, enterprise, undertaking or other activity to the full extent of the sum total of all transactions originating or consummated in, by or through such Municipal branch, office, store, warehouse or other place of business, including: A. billings made on such transactions, B. services rendered, C. shipments made, D. goods, chattels, merchandise, etc., sold, or E. commissions, fees or other remuneration or payments earned.
(3) In the case of the partnership, association, or other unincorporated business owned by one or more persons the tax, generally, shall be upon said partnership, association, or business enterprise as an entity and not ordinarily upon the partners or members thereof. However, the provisions of subsection (c) hereof are applicable to render taxable against such resident partners or members their distributive share of any profits of such nonresident entity not taxable under the Ordinance.
(4) In determining the proportion or amount of the taxable net profits of a nonresident business entity having a place or places of business within and outside the Municipality, such business entity may at its option use and apply the business allocation percentage formula referred to in Section 880.02(b) and as set forth in detail in subsection (f) hereof.
(e) Net Business Profits of Corporations.
(1) In the case of a corporation doing business in the Municipality, whether domestic or foreign, and whether domiciled in the Municipality or elsewhere, there is imposed an annual tax of one and one-half percent on that part of the net profits (earned or accruing on and after July 1, 1991) of such corporation which is earned by such corporation as a result of work done or services performed or rendered and business or other activities conducted in the Municipality.
(2) The provisions of paragraph (d)(2) hereof are applicable to such corporations.
(3) A corporation doing business both within and outside the Municipality may, in determining the part of the net profits which are taxable under Sections 880.01 et seq., at its option:
A. Use the usual accounting system of the taxpayer corporation, so long as said usual accounting system shall be one acceptable to the Federal Internal Revenue Department as evidenced by acceptance and approval of income tax returns filed therein; or
B. Use the business allocation percentage formula set forth in Section 880.02(b).
(f) Business Allocation Percentage.
(1) Generally. At the option of a corporate taxpayer or of a nonresident business entity, such taxpayers may, but are not obliged to, use the formula set forth in Section 880.02(b) to compute the percentage of their entire net profits (derived from activities both within and outside the Municipality) which is taxable under the Ordinance, and to determine the tax payable to the Municipality hereunder.
If the taxpayer did not have a place of business outside the Municipality during the period covered by any declaration and/or return required under the Ordinance, its business allocation percentage is 100 percent; in other words, the taxpayer is required to pay a tax of one and one-half percent on the entire net profits of the business.
If the taxpayer had a place or places of business outside the Municipality and was doing business in the Municipality during such period, the business allocation percentage shall be computed on the basis as set forth in Section 880.02(b).
The business allocation percentage is computed by determining the percentages A. which Municipal real and tangible personal property bears to all real and tangible personal property (including that situated in the Municipality) of a taxpayer wheresoever situated; B. which Grafton business sales bear to a taxpayer's entire business sales wheresoever derived (including those derived from the Municipality); and C. which payrolls paid by a taxpayer within the Municipality bear to a taxpayer's entire payroll wheresoever paid (including Municipal payrolls); adding together the three percentages so arrived at, and dividing the total by three.
However, if one of the factors (property, sales or payrolls) is missing, the other two percentages are added and the sum is divided by two, and if two of the factors are missing, the remaining percentage is the business allocation percentage.
EXAMPLE 1:
Corporation having places of business in Grafton, Detroit and Cleveland.
Grafton real and tangible personal property: $10,000.
All real and personal property (Grafton, Detroit and Cleveland): $100,000.
Percentage: 10%.
Grafton sales: $15,000. All sales: $75,000. Percentage: 20%.
Grafton payroll: $6,000. All payroll: $20,000. Percentage: 30%.
Business Allocation Percentage: 10% plus 20% plus 30% divided by 3 equals 20%
EXAMPLE 2:
Same corporation owning no real or tangible personal property anywhere.
Grafton sales: $15,000. All sales: $75,000. Percentage: 20%.
Grafton payroll: $6,000. All payroll: $20,000. Percentage: 30%.
Business Allocation Percentage: 20% plus 30% divided by 2 equals 25%.
EXAMPLE 3:
Same corporation owning real and tangible personal property in Grafton valued at $10,000 and owning no real or tangible personal property outside Grafton. Other factors same as in Examples 1 and 2.
Business Allocation Percentage: 100% plus 20% plus 30% divided by 3 equals 50%.
After determining such business allocation percentage, the tax shall be determined by applying that percentage to the entire net profits of the taxpayer, wherever derived (thus arriving at the taxable net profit), and computing one and one-half percent of the resultant taxable net profit.
In case it shall appear to the Clerk-Treasurer that any income or capital of the taxpayer is improperly or inaccurately reflected, the Clerk- Treasurer may adjust items of income, expenses, deductions and capital, and disregard assets in computing any allocation percentage, provided that any income directly traceable thereto is also excluded from entire net income, so as equitably to determine the tax.
(2) Explanation of "property factor". The percentage of the taxpayer's real and tangible personal property within the Municipality is determined by dividing the net book value (during the period covered by the report) of such property within the Municipality, without deduction of any encumbrances, by the average net book value similarly computed, of all such property within and without the Municipality. Only property owned by the taxpayer is considered in determining such percentage.
(3) Explanation of sales factor. Receipts from the following are allocable to the Municipality:
A. Work done and performed or services rendered in the Municipality.
B. Rentals from property situated in the Municipality, where the rental of such property is a usual or normal part of the taxpayer's business activity.
C. For the purpose of determining business allocation percentage, no account shall be given to receipts, within or without the Municipality, of income derived from intangibles (including stocks, bonds, royalties and the like) the income of which is taxable under the statutes of the State of Ohio.
D. Compensation and other receipts for work done or services performed within the Municipality are allocable to the Municipality and taxable under the Ordinance. All amounts so received, credited or charged by taxpayer in payment for such work or services are so allocable, irrespective of whether done or performed by employees or agents of the taxpayer or by any other person. It is immaterial where such amounts were payable or where they were received.
Commissions or fees received by the taxpayer are allocated to the Municipality if the services for which the commissions were paid were performed in the Municipality. If the taxpayer's services for which commissions or fees were paid were performed for the taxpayer by salesmen or other agents or employees attached to or working out of a Grafton place of business of the taxpayer, the taxpayer's services will be deemed to have been performed in the Municipality.
Where a lump sum is received by the taxpayer in payment for services within and without the Municipality, the amount attributable to services within Municipality is to be determined on the basis of the relative values of, or amounts of time spent in the performance of, such services within and without the Municipality.
E. Receipts from the sale of capital assets (property not held by the taxpayer for sale to customers in the regular course of business) are not business receipts. Receipts from the sale of real property held by the taxpayer as a dealer for sale to customers in the regular course of business are business receipts and are allocable to the Municipality if the real property was situated in the Municipality. Receipts from the sale of intangibles included in business capital, held by the taxpayer as a dealer for sale to customers in the regular course of business, are business receipts and are allocable to the Municipality if the sales were made in Municipality or through a regular place of business of the taxpayer in the Municipality.
(4) Payroll factor. The percentage of the taxpayer's payroll allocable to the Municipality is determined by dividing the wages, salaries and other personal service compensation of the taxpayers' employees within the Municipality during the period covered by the report, by the total amount of compensation of all taxpayer's employees during such period.
Wages, salaries and other compensation are computed on the cash or accrual basis in accordance with the method of accounting used in the computation of the entire net income of the taxpayer.
Employees within the Municipality usually include all employees regularly connected with or working out of a place of business maintained by the taxpayer in the Municipality.
However, where an employee performed services both within and without the Municipality, the amount treated as compensation for services performed within the Municipality shall be deemed to be A. in the case of an employee whose compensation depends directly on the volume of business secured by him, such as a salesman on a commission basis, the amount received by him for the business attributable to his efforts within the Municipality; B. in the case of an employee whose compensation depends on other results achieved, the proportion of the total compensation which the value of his services within the Municipality bears to the value of all his services; and C. in the case of an employee compensated on a time basis, the proportion of the total amount received by him which the working time employed in the Municipality bears to the total working time.
(5) Adjustment of business allocation percentage formula. Generally, the business allocation percentage formula will result in a fair apportionment of the taxpayer's net profits within and without the Municipality. However, due to the peculiar circumstances of certain businesses, the formula may work a hardship in some cases or result in a tax evasion in others, thus not do justice to the taxpayer or the Municipality. Accordingly, in such cases, the Clerk-Treasurer may substitute factors calculated to bring about a fair and proper allocation in any case where the taxpayer has adopted the optional use of the business allocation percentage formula.
(g) Effective Dates.
(1) The tax referred to in subsections (a) and (b) hereof shall first be levied, collected and paid with respect to the salaries, wages, bonuses, incentive payments, commissions, fees and/or other compensation earned on and after July 1, 1991.
(2) The tax referred to in subsections (c), (d) and (e) hereof, with respect to net profits of trades, businesses, professions, enterprises, undertakings, and other activities, shall first be levied, collected and paid with respect to such net profits earned or accrued (in accordance with the regular accounting system of a taxpayer as approved by the Director of Internal Revenue) from and after July 1, 1991.
(3) See subsection (h) hereof for provisions relating to fiscal year returns.
(h) Fiscal Years. Where the fiscal year of a trade, business, profession, enterprise, undertaking and/or other activity differs from the calendar year, the tax shall be applicable to the net profits of the fiscal year, but for the first fiscal year with respect only to such portion thereof as was earned on and after July 1, 1991.
A fiscal year will be recognized only if it has been or may be recognized as such by the Director of Internal Revenue for the purpose of Federal Income Tax.
(i) Net Business Profits Generally. In amplification of the definition of the term "net profits," as set forth in Section 880.01, but not in limitation thereof, the following additional information and requirements respecting net business profits are furnished:
(1) Where necessary to properly reflect income, inventories must be used. The basis of pricing used for the purpose of the Federal Income Tax must in each instance be used.
(2) Where the books and records are kept on an "accrual basis", "long- term contract basis", or "installment basis", and said basis is used in the filing of Federal Income Tax Returns, the same basis must be used for the purpose of this tax.
(3) If the return is made on a "cash basis", gross profit shall include A. commissions, fees and interest earned, plus B. the gross profit or loss from sales of merchandise, chattels, goods, wares, securities, notes, choses-in-action and services, except as hereinafter provided.
(4) If the return is made on an "accrual basis", gross profit shall include A. commissions, fees and interest earned, plus B. the gross profit or loss from sales of merchandise, chattels, goods, wares, securities, notes, choses-in-action and services, except as hereinafter provided.
(5) From gross profit there shall be subtracted allowable expenses to arrive at the net profits subject to the tax.
(6) All ordinary and necessary expenses of doing business, including reasonable compensation paid to employees, shall be allowed (but no deduction may be claimed for "salary" or withdrawals of a proprietor or of the partners, members or other co-owners of an unincorporated business or enterprise).
(7) If not claimed as part of the cost of goods sold or elsewhere in the return filed, there may be claimed and allowed a reasonable deduction for depreciation, depletion, obsolescence, losses resulting from theft or casualty not compensated for by insurance or otherwise, of property used in the trade or business, but the amount may not exceed that recognized for the purpose of the Federal Income Tax.
(8) Bad debts in a reasonable amount may be allowed in the year ascertained worthless and charged off, but in no event shall the amount allowed exceed the amount recognized as a deduction for the purpose of the Federal Income Tax.
(9) Only taxes directly connected with the taxpayer's business may be claimed as a deduction. If for any reason the income from property is not subject to tax, then the tax on any other expenses of said property are not deductible. In any event, the following taxes are not deductible from income:
A. The tax under the Ordinance;
B. Any Federal taxes based upon income;
C. Gifts, estate or inheritance taxes; and
D. Taxes and/or special assessments for local benefits or improvements to property which tend to appreciate the value thereof.
(10) Capital gains and losses (including gains or losses from the sale, exchange, or other disposition of depreciable business property, and real property used in the taxpayer's trade or business) shall not be taken into consideration in arriving at net profits earned.
(11) If the taxpayer is a non-resident, only the amount of net profits applicable to the activities of the business in the Municipality shall be subjected to tax. If the nonresident taxpayer's records do not disclose the actual net profits for the Municipal branch, office, store, or activity, separately, then the basis of allocation shall be disclosed in the return. If such basis of allocation is not deemed correct, in view of all the known circumstances, the Clerk-Treasurer will make a reallocation based upon gross receipts or any other basis which shall, under the circumstances of the case, more accurately reflect the net profits.
(12) In general, all business expenses recognized and to the extent allowed as such for the purpose of determining Federal Income Tax will be recognized and allowed for determining the Municipal income tax under the provisions of this chapter. However, all expenses connected with the acquisition or carrying of securities, the income from which is not recognized as taxable under this chapter, may not be deducted in determining taxable net profits hereunder.
(13) In general, unearned income is not to be included in computing the tax levied hereunder. Income from intangibles by way of dividends, interest and the like, should not be included if the property from which such income is derived is subject to taxation under the Intangible Personal Property Tax Laws of the State of Ohio, or is specifically exempted from taxation under said laws.
(14) Rentals received by the taxpayer are to be included only if and to the extent that the rental, ownership, management or operation of the real estate from which such rentals are derived (whether so rented, managed or operated by the taxpayer individually or through agents or other representatives) constitutes a business activity of the taxpayer in whole or in part.
Following are the circumstances under which, in any instance, the rental of any real property shall or shall not be deemed to be a "business activity":
A. Where the gross monthly rental of any and all real properties, regardless of number and value, aggregates in excess of one hundred dollars ($100) per month, it shall be prima facie evidence that the rental, ownership, management or operation of such properties is a business activity of such taxpayer, and the net income of such rental property shall be subject to tax; provided that in the case of commercial property, the owner shall be considered engaged in a business activity when the rental is based on a fixed or fluctuating percentage of gross or net sales, receipts or profits of the lessee, whether or not such rental exceeds one hundred dollars ($100) per month; provided further that in the case of farm property, the owner shall be considered engaged in a business activity when he shares in the crops or when the rental is based on a percentage of the gross or net receipts derived from the farm, whether or not the gross income exceeds one hundred dollars ($100) per month; and provided further that the person who operates a rooming house shall be considered in business whether or not the gross income exceeds one hundred dollars ($100) per month.
B. In determining the amount of gross monthly rental of any real property, periods during which (by reason of vacancy or any other cause) rentals are not received shall not be taken into consideration by the taxpayer.
C. Rentals received by a taxpayer engaged in the business of buying and selling real estate shall be considered as part of business income.
D. Real property, as the term is used in these Regulations, shall include commercial property, residential property, farm property, and any and all other types of real estate.
E. In determining the taxable net income from rentals, the deductible expenses shall be of the same nature, extent and amount as are allowed by the Internal Revenue Department for Federal Income Tax purposes.
F. Residents of the Municipality are subject to taxation upon net income from rentals (to the extent above specified) on all properties located in the Municipality, and on all properties located outside the Municipality, the net income of which is not subject to municipal income tax in said other community. In the case of residents of the Municipality, if the net income of properties located outside the Municipality is subject to municipal income tax in another community, then said net income will not be subject to the Municipal income tax in Grafton.
Nonresidents of the Municipality are subject to such taxation only if the real property is situated within the Municipality. Nonresidents, in determining whether gross monthly rentals exceed one hundred dollars ($100), shall take into consideration only real estate situated within the Municipality.
(15) Income from royalties or copyrights is not to be included.
(j) Reconciliation With Federal Return. In a form satisfactory to the Clerk- Treasurer, there shall be submitted with each return filed by a taxpayer subject to the Federal Income Tax, a reconciliation between the amount shown in the return filed with the Clerk-Treasurer and the business income reported to the Federal Internal Revenue Department.
If, as a result of a change made in business income by the Federal Internal Revenue Department, or by a judicial decision, an additional amount will result as owing to the Municipality, a report of such change shall be filed by the taxpayer within thirty days after receipt of the final notice of such change from the Federal authorities or after final decision of a court adjudicating any such Federal Income Tax liability.
(Res. 580. Passed 12-8-70; Ord. 86-081. Passed 11-18-86; Ord. 00-024. Passed 8-1-00; Ord. 00-025. Passed 8-1-00.)