(a) Resident Individuals.
(1) In the case of residents of Lorain, an annual tax of two percent (2%), subject to the allocation under the provisions of Section 191.11(a), and one-quarter of one percent (¼ of 1%), subject to allocation under the provisions of Section 191.11(b), is imposed on all salaries, wages, commissions and other compensation earned and received, or earned and accrued during the effective period of the Ordinance. Effective January 1, 2010 through December 31, 2014, an additional temporary annual tax of one-quarter of one percent (¼ of 1%), subject to allocation under the provisions of Section 191.11(a) shall be imposed on all such income for the purposes of providing general operating funds and equipment for the City of Lorain.
For the purpose of determining the tax on earnings of resident taxpayers under the Rate and Income Taxable Section of the Ordinance, the source of earnings and the place or places in or at which the services were rendered are immaterial. All such earnings, wherever earned, are taxable. The location of the place from which payment is made or where payment is received is immaterial.
(Ord. 102-12. Passed 7-2-12.)
(Ord. 102-12. Passed 7-2-12.)
(2) The following are items, which are subject to the tax imposed by this Ordinance.
A. Salaries, wages, bonuses and incentive payments earned by an individual whether directly or through an agent whether in cash or in property for services rendered during the tax period as:
1. An officer or employee of a corporation (including charitable and other non-profit organizations).
2. An employee (as distinguished from a partner or member) of a partnership, limited partnership, fiduciary or any form of unincorporated enterprise owned by two or more persons.
3. An employee (as distinguished from a proprietor) of a business, trade or profession conducted by an individual owner.
4. An officer or employee (whether elected, appointed or commissioned) of the United States Government or of a corporation created and owned or controlled by the United States Government, or any of its agencies, or any foreign country or dependency, except military pay exempted as stated in Section 191.05(a).
5. An employee of any other entity or person, whether based on hourly, daily, weekly, semi-monthly, monthly, annual, unit of production or piece-work rates.
B. Commissions earned by a taxpayer whether directly or through an agent and whether in cash or in property for services rendered during the effective period of the Ordinance, regardless of how computed or by whom or wheresoever paid
1. If amounts received as a drawing account exceed the commissions earned and the excess is not subject to the demand of the employer for repayment, the tax is payable on the amounts received as a drawing account (but not then on the commissions also).
2. Amounts received from an employer for expenses and used as such by the individual receiving them are not deemed to be compensation if the employer deducts such expenses or advances as such from his gross income for the purposes of determining his net profits taxable under federal law and the employee is not required to include such receipts as income (or has directly offsetting business expenses) on his federal income tax return.
3. If commissions are included in the net earnings of the trade, business, profession, enterprise or activity, carried on by an unincorporated entity of which the individual receiving such commission is owner or part owner and therefore, subject to the tax on the net profits provisions of the Ordinance, they shall not be taxed under the provisions relating to salaries, wages or commissions earned.
C. Fees, including Director's fees, unless fees are properly includable as part of the net profits of a trade, business, profession, or enterprise regularly carried by an unincorporated entity owned or partly owned by said individual and such net profits are subject to the tax under the net profits provision of the Ordinance.
D. Other compensation shall include:
1. Tips received by waiters and others.
2. Bonuses.
3. Gifts or gratitudes in connection with employment.
4. Compensation paid to domestic servants, casual employees and other types of employees.
5. Benefits resulting from employers assuming a tax imposed on employees.
6. Fellowships, grants or stipends paid to a graduate in the full amount, except that amount allocated in writing for tuition, books and laboratory fees shall be excluded.
7. Dismissal or severance pay.
8. Incentive payments.
9. Retirement and Other Plans – Employee contributions to retirement plans are neither excludable nor deductible by the employee. Withholding applies to the employee's full compensation unreduced by an employee's contribution to a retirement plan. The same rules apply with respect to other amounts withheld from employees and contributed to other types of plans.
10. If an employer pays into a tax shelter plan on behalf of an employee in lieu of paying said amount as wages, said payments are considered additional compensation to the employee and are subject to withholding.
11. Royalty Income – Income earned by a taxpayer from Patents and Copyrights, royalty interest in the production of an oil or gas well, whether managed, extracted or operated by the taxpayer individually or through an agent or other representative, shall be included in the computation of the net profits from a business activity to the extent that such royalty interest constitutes a business activity of the taxpayer. Where the gross income received by a taxpayer from a royalty interest in the production of an oil or gas well in a taxable year exceeds three thousand dollars ($3,000), it shall be prima facie evidence that the income was derived from a business activity of such taxpayer and the net income from royalty interest shall be subject to tax.
12. Deferred Compensation.
13. Profit- sharing plans.
14. If the income appears on Form W-2 and is not defined in Section 191.03 as non-taxable income, it shall be considered other compensation and therefore, taxable to a resident individual.
15. The employer's income derived from finance and carrying charges associated with their consumer' accounts receivable.
16. Group term life insurance protection over fifty thousand dollars ($50,000) taxed on the entire cost.
17. Vacation, sickness, etc. Payments made by an employer to an employee during periods of absence from work are taxable when paid and at the tax rate in effect at the time of payment, regardless of the fact that such payments may be labeled sick leave or sick pay, disability, vacation, terminal pay, etc., and may not be excluded from taxable income by an employer or a non-resident employee.
18. Where compensation is paid or received in property, its fair market value, at the time of receipt, shall be subject to the tax and to withholding. Board, lodging and similar items received by an employee in lieu of additional cash compensation shall be included in earnings at their fair market value: except that in the case of domestics and other employees whose duties require them to live at their place of employment or assignment, board and lodging shall not be considered as wages or compensation earned.
19. In the case of domestics and other employees whose duties require them to live at their place of employment or assignment, board and lodging shall not be considered as taxable compensation.
20. Stock options given as compensation and when exercised regardless of the treatment by the I.R.S. the employer would be required to withhold on the difference between the fair market value and the amount paid by the employee.
Employers must withhold municipal income tax on the exercise of non-qualified stock options if the employee acquired the option as compensation or in lieu of wages.
21. "Over the Road Drivers, and Others" with similar situations, reporting to a terminal, office, etc. in the City of Lorain must have a minimum of twenty-five percent (25%) of wages withheld and allocated to the City of Lorain.
(Ord. 152-94. Passed 12-19-94.)
22. All income received as gambling winnings as reported on IRS Form W-2G, Form 5754 and/or any other Form required by the Internal Revenue Service that reports winnings from gambling.
(Ord. 23-04. Passed 3-1-04.)
23. An S Corporation shareholder’s distributive share of net profits of the S Corporation.
(Ord. 96-04. Passed 7-6-04.)
24. All income received as sweepstakes prize winnings over the amount of six hundred dollars ($600.00).
(Ord. 157-11. Passed 10-17-11.)
(b) Non-Resident Individuals. In the case of individuals who are not residents of the City of Lorain, there is imposed under this Ordinance a tax on all salaries, wages, commissions and other compensation earned and received or earned and accrued on and after the effective date of the Ordinance for work done or services rendered or performed within Lorain, whether such compensation or remuneration is received or earned directly or through an agent and whether paid in cash or in property. The location of the place from which payment is made or where payment is received is immaterial.
The items subject to tax under the Rate and Income Taxable Section of the Ordinance are the same as those listed and defined in Section 191.03(a)(2). For the methods of computing the extent of such work or services performed within a taxing community in cases involving compensation for personal services partly within and partly without Lorain, see Section 191.07(b)(5).
(Ord. 152-94. Passed 12-19-94.)
(Ord. 152-94. Passed 12-19-94.)
The annual rate of tax imposed by this section shall be two percent (2%), subject to allocation under the provisions of Section 191.11(a), and one-quarter of one percent (¼ of 1%) subject to allocation under the provisions of Section 191.11(b), during the effective period of the Ordinance. Effective January 1, 2010 through December 31, 2014, an additional temporary annual tax of one-quarter of one percent (¼ of 1%), subject to allocation under the provisions of Section 191.11(a), shall be imposed on all such income for the purposes of providing general operating funds and equipment for the City of Lorain.
(Ord. 102-12. Passed 7-2-12.)
(Ord. 102-12. Passed 7-2-12.)
(c) Resident Unincorporated Business.
(1) In the case of resident unincorporated businesses, professions, enterprises, undertakings or other entities conducted, operated, engaged in, prosecuted or carried on, irrespective of whether such taxpayer has an office or place of business in his resident community, there is imposed an annual tax on the net profits earned during the effective period of the Ordinance attributable to the resident community determined by the separate accounting method or formula provided for in Section 191.04, derived from sales made, work done or services performed or rendered and business or other activities conducted in the resident community.
(Ord. 152-94. Passed 12-19-94.)
The annual rate of tax imposed by this section shall be two percent (2%), subject to allocation under the provisions of Section 191.11(a), and one-quarter of one percent (¼ of 1%) subject to allocation under the provisions of Section 191.11(b), during the effective period of the Ordinance. Effective January 1, 2010 through December 31, 2014, an additional temporary annual tax of one-quarter of one percent (¼ of 1%), subject to allocation under the provisions of Section 191.11(a), shall be imposed on all such income for the purposes of providing general operating funds and equipment for the City of Lorain.
(Ord. 102-12. Passed 7-2-12.)
(Ord. 102-12. Passed 7-2-12.)
(2) The tax imposed on resident unincorporated entities is upon the entities rather than the individual members or owners thereof. (For tax on that part of a resident owner's distributive share of net profits not taxed against the entity by the City of Lorain, see Section 191.03(c)(5).)
(3) The tax imposed by the Ordinance is imposed on all resident unincorporated entities having net profits attributable to the City of Lorain determined by a method of allocation provided in Section 191.04 regardless of where the owner or owners of such resident unincorporated business entity reside.
(4) Resident unincorporated entities owned by one or more persons, all of whom are residents of the City of Lorain, having all income allocable to this City or having income allocable to other municipalities not levying a similar tax, shall disregard the method of allocation provided for in the Ordinance and pay the City of Lorain the tax on the entire net profits thereof.
Payments of the tax by the entity on the entire net profits thereof shall constitute payment of all tax due from the owner or members thereof on their distributive shares of the entity net profits. Separate individual returns and Declaration of Estimated Tax still must be filed by the owners or members of the entity even though these persons have no other taxable income.
(5) In the case of an individual who is a resident, partner or owner of a resident unincorporated entity, there is imposed an annual tax on such individual's distributive share of net profits earned and received or earned and accrued, not taxed against the entity by this City.
(d) Non-resident Unincorporated Business.
(1) In the case of non-resident unincorporated businesses, professions, enterprises, undertakings or other activities conducted, operated, engaged in, prosecuted or carried on in the Municipality, there is imposed an annual tax on the net profits earned and received or earned and accrued during the effective period of the Ordinance determined by a method of allocation in Section 191.04, derived from sales made, work done or services performed or rendered and business or other activities conducted in the Municipality.
(Ord. 152-94. Passed 12-19-94.)
The annual rate of tax imposed by this section shall be two percent (2%), subject to allocation under the provisions of Section 191.11(a), and one-quarter of one percent (¼ of 1%) subject to allocation under the provisions of Section 191.11(b), during the effective period of the Ordinance. Effective January 1, 2010 through December 31, 2014, an additional temporary annual tax of one-quarter of one percent (¼ of 1%), subject to allocation under the provisions of Section 191.11(a), shall be imposed on all such income for the purposes of providing general operating funds and equipment for the City of Lorain.
(Ord. 102-12. Passed 7-2-12.)
(2) The tax imposed on non-resident unincorporated entities is upon the entities rather than the individual members or owners thereof. (For tax on that part of a resident owner's distributive share of net profits not taxed against the entity, see Section 191.03(d)(4)).
(3) The tax imposed by the Ordinance is imposed on all non-resident unincorporated entities having net profits attributable to this Municipality determined by a method of allocation provided in Section 191.04, regardless of where the owners of such non-resident unincorporated business reside.
(4) In the case of an individual who is a resident, partner or owner of a non-resident unincorporated entity, there is imposed an annual tax on such individual's distributive share of net profits earned and received or earned and accrued, and not taxed against the entity by this Municipality.
(e) Corporations.
(1) In the case of corporations, whether domestic or foreign and whether or not such corporations have an office or place of business in Lorain, there is imposed an annual tax on the net profits earned during the effective period of the Ordinance attributable to Lorain under the formula of separate accounting method provided for in the Ordinance.
(Ord. 152-94. Passed 12-19-94.)
The annual rate of tax imposed by this section shall be two percent (2%), subject to allocation under the provisions of Section 191.11(a), and one-quarter of one percent (¼ of 1%) subject to allocation under the provisions of Section 191.11(b), during the effective period of the Ordinance. Effective January 1, 2010 through December 31, 2014, an additional temporary annual tax of one-quarter of one percent (¼ of 1%), subject to allocation under the provisions of Section 191.11(a), shall be imposed on all such income for the purposes of providing general operating funds and equipment for the City of Lorain.
(Ord. 102-12. Passed 7-2-12.)
(2) In determining whether a corporation is conducting a business or other activity in the taxing community, the provisions of Section 191.02 shall be applicable.
(3) Corporations, which are required by the provisions of Section 5727.38 to 5727.41, inclusive of the Ohio Revised Code, to pay an excise tax in any taxable year as defined by the Ordinance, may exclude that part of their gross receipts upon which the excise tax is paid. In such case, expenses incurred in the production of such gross receipts shall not be deducted in computing net profits subject to the tax imposed by the Ordinance.
(f) Effective Period of Tax.
(1) The tax imposed by the rate and income taxable section of the Ordinance shall be levied, collected and paid with respect to salaries, wages, bonuses, incentive payments, commissions, fees and other compensation earned during the effective period of the Ordinance.
(2) The tax imposed by said rate and income taxable section of the Ordinance, with respect to net profits of trade, businesses, professions, enterprises, undertakings and other activities is on the net profits earned during the effective period of the Ordinance.
(g) Amplification. In amplification of the definition contained in Section 191.02 but not in limitation thereof, the following additional information respecting net business profits is furnished.
(1) Net profits.
A. Net profits as used in the Ordinance and these regulations means net profits derived from any business, profession, or other activity or undertaking carried on for profit or normally carried on for profit.
B. Net profits as disclosed in any return filed pursuant to the provisions of the Ordinance shall be computed by the same accounting method used in reporting net income to the Federal Internal Revenue Service providing such method does not conflict with any provisions of the Ordinance.
C. Income from patents and copyrights is not to be included in net profits subject to the tax if the income from such patents or copyrights is subject to the State Intangible Tax. Conversely, such a State Intangible Tax is not deductible in determining City tax. Such items shall be clearly disclosed on an attachment to be filed with the City tax return.
(2) Expenses. All ordinary and necessary expenses of doing business, including reasonable compensation paid employees, shall be allowed but no deduction may be claimed for salary or withdrawal of a proprietor or of the partners, members or other owners of an unincorporated business or enterprise.
A. 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 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. Provided, however, that loss on the sale, exchange or other disposition of depreciable property or real estate, used in the taxpayer's business shall not be allowed as a deductible expense.
B. Current amortization of emergency facilities under the provisions of the Internal Revenue Code, if recognized as such for Federal Income Tax purposes, may be included as a deduction expense hereunder.
C. Where depreciable property is voluntarily destroyed, only the cost of such demolition and the undepreciated balance thereof will be allowed as an expense in the year of such demolition, to the extent allowable for Federal Income Tax purposes.
D. Bad debts in a reasonable amount may be allowed in the year ascertained worthless and charged off: or if the reserve method is used, a reasonable addition to the reserve may be claimed, but in no event shall the amount exceed the amount allowable for Federal Income Tax purposes.
E. Only taxes directly connected with the business may be claimed as a deduction. If for any reason the income from property is not subject to the tax, then taxes on and other expenses of said property are not deductible. In any event, the following taxes are not deductible from income:
1. The tax under the Ordinance;
2. Federal or other taxes based upon income;
3. Gift, estate or inheritance taxes; and
4. Taxes or assessments for direct benefits or improvements to property which tend to appreciate the value thereof.
F. In general, non-taxable income and expenses incurred in connection therewith are not to be considered in determining net profits.
G. If the taxpayer reports income that is non-taxable under the Ordinance and such amounts are deducted in order to reconcile the taxing community's tax return with the taxpayer's Federal Income Tax return, expenses attributable to this non-taxable income shall not be allowed. In the absence of records showing the actual expenses attributable to such non-taxable income, and upon approval of the administrator, such amount shall be deemed to equal five percent (5%) of such non-taxable income.
H. Corporate contributions not to exceed five percent (5%) made to qualified charitable organizations recognized as such by the Internal Revenue Service will be permitted as business expense.
I. Capital gains and losses from sales, exchange or other disposition of property shall not be taken into consideration in arriving at net profits earned. Any amount received on a sale or other disposition of tangible personal property used in business, in excess of book value, shall be treated as taxable income under the Ordinance to the extent of depreciation allowable (under the Ordinance). The balance shall be treated as capital gain. Gains or losses from involuntary conversion shall not be taken into consideration on arriving at net profits. (Ord. 152-94. Passed 12-19-94.)