(A) Bases.
(1) Resident employee.
(a) In the case of residents of the Village of McComb an annual tax of 1% is imposed on all salaries, wages, commissions, and other compensation earned during the effective period of this subchapter. For the purpose of determining the tax on the earnings of resident taxpayers taxed under Section 3, paragraph A of the Ordinance, 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.
(b) The following are items that are subject to the tax imposed by Section 3, paragraph A of the Ordinance:
1. Salaries, wages, bonuses and incentive payments earned by an individual whether directly or through an agent and whether in cash or in property for services rendered during the tax period as:
a. An officer, director or employee of a corporation (including charitable and other non-profit organizations), joint stock association, or joint stock company;
b. An employee (as distinguished from a partner or member) of a partnership, limited partnership, or association;
c. An employee (as distinguished from a proprietor) of a business, trade or profession conducted by an individual owner;
d. 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 of the State of Ohio or any of its political subdivisions or agencies thereof; or any foreign country or dependency except as provided in Section 3 of the Ordinance;
e. An employee of any other entity or person, whether based on hourly, daily, weekly, semimonthly, monthly, annual, unit of production or piece work rates; whether paid by an individual, partnership, association, corporation (including charitable and other non-profit corporations), governmental administration, agency, authority, board, body, branch, bureau, department, division, sub-division, section or unit, or any other entity;
2. 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 this subchapter, regardless of how computed or by whom or wheresoever paid.
a. 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.
b. Amounts received from an employer for expenses and used as such by the individual receiving them are not deemed to be compensation if the employee deducts such expenses of advances as such from his gross income for the purpose of determining his net profits taxable under federal law, and the employee is not required to include such receipts as income on his federal income tax return.
3. Fees, unless such fees are properly includable as part of the net profits of a trade, business, profession, or enterprise regularly carried on by an unincorporated entity owned or partly owned by said individual and such net profits are subject to the tax under Section 3, paragraph C of the Ordinance.
4. Other compensation, including tips, bonuses or gifts of any type, and including compensation paid to domestic servants, casual employees and other types of employees.
5. Payments made to employees by an employer as vacation pay, accumulated sick leave pay, severance pay, back pay, retroactive pay increases, or other supplemental wages are taxable. Payments made to an employee by an employer under a wage continuation plan during periods of disability or sickness are taxable as in third party sick pay and third party disability where the premium is paid by the employer.
(c) Where compensation is paid or received in property, its fair market value at the time of payment or receipt, shall be subject to the tax imposed by this subchapter and § 171.055 of these rules and regulations. Except in the case of a home or parsonage furnished by a church or an integral agency of a church to a duly ordained, commissioned, licensed, or designated minister, board, lodging, utilities, and similar items received by an employee in lieu of additional cash compensation shall be subject to the tax.
1. The gross parsonage or housing allowance paid by a church or an integral agency of a church to a duly ordained, commissioned, licensed, or designated minister shall be subject to the tax. A deduction or exclusion shall be allowed to the minister for personal home expenses and utilities as reported for federal income tax purposes and properly allocable to the income and expenses subject to these rules and regulations.
2. Board and lodging provided by the employer on the employer's premises shall not be considered wages or compensation if the employee is required to accept the board and lodging as a condition of employment.
3. Meals provided by the employer on the employer's premises for the convenience of the employer shall not be considered wages or compensation to the employee.
(2) Non-resident employee.
(a) In the case of individuals who are not residents of the village, there is imposed under Section 3, paragraph B of the Ordinance, a tax of 1% on all salaries, wages, commissions, and other compensation earned during the effective period of this subchapter for work done or services performed or rendered within the village 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 for which payment is made is immaterial.
(b) The items subject to tax under Section 3, paragraph B of the Ordinance are the same as those listed and defined in division (A)(1) above of this section. For the methods of computing the extent of such work or services performed within the village, in cases involving compensation for personal services partly within and partly without the village, see § 171.055(A)(6).
(3) Imposition of tax on net profits of associations, general partnerships, limited partnerships, limited liability companies (recognized or taxed as partnerships by the Federal Internal Revenue Service), limited liability partnerships and other unincorporated entities.
(a) In the case of associations, general partnerships, limited partnerships, limited liability companies (recognized or taxed as partnerships by the Federal Internal Revenue Service), limited liability partnerships, and other unincorporated entities that conduct business in, operate in, engage in, prosecute in, or carry on activities in the village, irrespective of whether such association has an office or place of business in the village, there is imposed an annual tax of 1 % on the net profits earned, accrued, or received during the effective period of this subchapter. The income attributable to the village shall be determined using the formula or separate accounting method provided for in Section 3 of the Ordinance and division (B) below of this section derived from sales made, work done, or services performed or rendered and business or other activities conducted in the village.
(b) In the case of a non-resident individual who is the sole owner of a limited liability company, sole proprietorship, or other unincorporated entity that conducts business in, operates in, engages in, prosecutes in, or carries on activities in the village, irrespective of whether such individual maintains an office or place of business in the village there is imposed an annual tax of 1% on the net profits earned, accrued, or received during the effective period of this subchapter. The income attributable to the village shall be determined using the formula or separate accounting method provided for in Section 3 of the Ordinance and division (B) below of this section derived from sales made, work done, or services performed or rendered and business or other activities conducted in the village.
1. A net loss sustained by an association, a non-resident individual, or other unincorporated entity shall be allocated to the village in the same manner as provided in divisions (A)(3)(a) or (b) above of this section for allocating net profits to the village.
2. In such case where the entire net profits of an association or other unincorporated entity are fully attributable to the village, the tax imposed on the entity shall constitute all the tax due from the entity's owners, partners, or members for their distributive shares of the net profits. Provided, however, the tax due must be paid by the association or other unincorporated entity and received by the Administrator. A tax return and payment of tax shall be required from any individual, owner, partner, or member having income subject to village tax, other than their distributive share of the net profits from the association. [For tax on that part of a resident owner's distributive share of net profits not taxed against the entity by the village, see division (A)(4) below].
(4) Imposition of tax on resident individual's distributive share of profits of an association, general partnership, limited partnership, limited liability company (recognized or taxed as a partnership by the Federal Internal Revenue Service), limited liability partnership, or other form of unincorporated entity, not attributable to the village. (See Article XVII for Credits)
(a) A resident individual who is the sole owner of a limited liability company, sole proprietorship, or other unincorporated entity shall disregard the business allocation formula and pay the tax on the entire net profits of the business entity irrespective of whether such entity has an office or place of business in the village or conducts business, derives sales, performs services, or performs work in the village.
(b) In the case of a resident individual who is a partner in a general partnership or limited liability partnership, a general partner in a limited partnership, a member in a limited liability company (recognized or taxed as a partnership by the Federal Internal Revenue Service) or part owner of an association, or other form of unincorporated entity, there is imposed an annual tax of 1% on such individual's distributive share of net profits earned, accrued or received during the effective period of this subchapter that is not attributable to the village under the method of allocation provided for in Section 3 of the Ordinance and division (B) below of this section, and not otherwise taxed against the entity by the village.
1. The distributive share of a net loss sustained by an association or other unincorporated entity shall be reported by the resident individual owner, partner, general partner, or member in the same manner prescribed in division(A)(4)(b) above.
2. If an association has an office or place of business in the village or conducts business, derives sales, performs services, or performs work in the village or is otherwise required to report income under this subchapter, no tax is imposed on the distributive shares of the association's income to partners, general partners, and/or members that are not individuals and the losses may not offset qualifying wages.
3. No tax is imposed on a limited partner's share of a limited partnership's profit. A limited partner of a limited partnership is not permitted to report his share of a limited partnership's loss.
(5) Imposition of tax on net profits of corporations and S corporations.
(a) In the case of corporations, whether domestic or foreign and whether or not such corporations have an office or place of business in the village, there is imposed an annual tax of 1% on the net profits earned, received or accrued during the effective period of this subchapter attributable to the village under the formula or separate accounting method provided for in this subchapter. No tax is imposed on a shareholder's share of an S corporation's profit. A shareholder of an S corporation is not permitted to report his share of an S corporation's loss.
(b) In determining whether a corporation is conducting a business or other activity in the village the provision of division (B) below of this section shall be applicable.
(c) Corporations which are required by the provision of R.C. §§ 5727.38 to 5727.41, inclusive, to pay an excise tax in any taxable year as defined by this subchapter, 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 this subchapter.
(6) Amplification. In amplification of the definitions contained in § 171.050 but not limitation thereof, the following additional information respecting net business profits is furnished:
(a) Net profits.
1. Net profits as used in this subchapter means net profits derived from any business, profession or other activity or undertaking carried on for profit or normally carried on for profit. See also § 171.050.
2. Net profits as disclosed on any return filed pursuant to the provisions of this subchapter 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 this subchapter). Net profits, shown on returns filed pursuant to this subchapter must be reconciled with the income reported to the Federal Internal Revenue Service.
(b) Gross receipts.
1. Gross receipts shall include but not be limited to income in the form of commissions, fees, and rentals from real and tangible personal property, and other compensation for work or services performed or rendered as well as income from sales of stock in trade.
2. From gross receipts there shall be deducted allowable expenses to arrive at the net profit subject to tax.
(c) Expenses. All ordinary, reasonable and necessary expenses of doing business, including reasonable compensation paid employees, shall be allowed but no deduction may be claimed for salary, withdrawal, or guaranteed payments of a proprietor or of the partners, general partners, members, or other owners of an association or other unincorporated business enterprise.
1. 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 return.
2. 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 an expense deduction hereunder.
3. 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.
4. Bad debts in a reasonable amount may be allowed in the year ascertained worthless and charged off, or at the discretion of the Administrator (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.
5. Only taxes directly connected with the business may be claimed as a business deduction. The following taxes are not deductible from income:
a. The tax under this subchapter;
b. Federal or other taxes based on income exclusive of the amount of Ohio franchise tax computed on the net worth basis;
c. Gift, estate, or inheritance taxes; and
d. Taxes for local benefits or improvements to property which tend to appreciate the value thereof.
6. In general, non-taxable income and expenses incurred in connection therewith are not to be considered in determining net profits. Income from intangibles, by way of dividends, interest and the like, shall not be included if such income is subject to taxation under the intangible personal property laws of the State of Ohio or is specifically exempt from taxation under said law.
7. If the taxpayer reports income that is non-taxable under this subchapter and such amounts are deducted in order to reconcile the 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 5% of non-taxable income.
8. Capital gains and capital losses from the sale, exchange or other disposition of property shall not be taken into consideration in arriving at net profits earned unless said gains or losses are derived as a normal part of a business operation such as, but not limited to a licensed real estate broker or real estate salesman. Any amount received on a sale or other disposition of tangible personal and real property used in business, in excess of book value, shall be treated as taxable income under this subchapter to the extent of depreciation allowable thereunder. The balance shall be treated as capital gain.
(7) Rentals from real property.
(a) 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.
(b) Rentals received by a taxpayer engaged in the business of buying and selling real estate shall be considered as part of business income.
(c) Real property, as the term is used in this regulation, shall include commercial property, residential property, farm property, and any and all other types of real estate.
(d) In determining the taxable income from rentals, the deductible expenses shall be of the same nature, extent and amount as are allowed by the Internal Revenue Service for federal income tax purposes.
(e) Residents of this municipality are subject to such taxation on the net income from rentals (to the extent above specified), regardless of the location of the real property owned.
(f) Non-residents of the municipality are subject to such taxation only if the real property is situated within this village.
(g) S corporations, general partnerships, limited partnerships, limited liability companies, limited liability partnerships, and other associations, subject to provisions of divisions(A) and (B) of this section, must include in gross receipts income from rentals and leases of real and tangible personal property.
(8) Patents and copyrights. Income from patents or 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 village tax. Such items shall be clearly disclosed on the attachment to be filed with the village tax return.
(B) Allocation of business profits. A request to change the method of allocation must be made in writing before the end of the taxable year.
(1) Separate accounting method.
(a) The net profits allocable to the village from business, professional or other activities conducted in the village by a non-resident individual, corporation, association, or other unincorporated entity may be determined from the records of the taxpayer, upon approval of the Administrator, if the taxpayer has bona fide records which disclose with reasonable accuracy what portion of his net profits is attributable to that part of his activities conducted within the village.
(b) If the books and records of the taxpayer are used as the basis for apportioning net profits rather than the business allocation formula, a statement must accompany the return explaining the manner in which such apportionment is made in sufficient detail to enable the Administrator to determine whether the net profits attributable to the village are apportioned with reasonable accuracy.
(c) In determining the income allocable to the village from the books and records of a taxpayer an adjustment may be made for the contribution made to the production of such income by headquarters activities of the taxpayer, whether such headquarters is within or without the village.
(2) Business allocation percentage method.
(a) Step 1. Ascertain the percentage which the average net book value of real and tangible personal property, including leasehold improvements, owned or used in the business and situated within the village is of the average net book value of all real and tangible personal property, including leasehold improvements, owned or used in the business wherever situated, during the period covered by the return.
1. The percentage of taxpayer's real and tangible personal property within the village is determined by dividing the average book value of such property within the village (without deduction of any encumbrances) by the average net book value of all such property within and without the village. In determining such percentage property rented to the taxpayer as well as real and tangible personal property owned by taxpayer must be considered.
a. The net book value of real and tangible personal property rented by taxpayer shall be determined by multiplying gross annual rents payable by eight.
b. GROSS RENTS means the actual sum of money or other consideration payable, directly or indirectly, by the taxpayer for the use or possession of property and includes:
i. Any amount payable for the use or possession of real and tangible personal property or any part thereof, whether designated as a fixed sum of money or as a percentage of sales profits or otherwise;
ii. Any amount payable as additional rent or in lieu of rent such as interest, taxes, insurance, repairs, or other amounts required to be paid by the terms of a lease or other arrangement.
(b) Step 2. Ascertain the percentage which the total wages, salaries, commissions and other compensation of employees within the village is of the total wages, salaries, commissions, and other compensation of all the taxpayer's employees within and without the village during the period covered by the return.
1. Salaries and reasonable compensation paid to owners or credited to the account of owners, members, or partners during the period covered by the return are considered wages for the purpose of this computation.
2. Wages, salaries, and other compensation shall be 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.
3. In the case of an employee who performs services both within and without the village the amount treated as compensation for services performed within the village 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 village.
b. In the case of an employee whose compensation depends on other results achieved, the proportion of the total compensation received which the value of his services within the village 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 his working time within the village is of his total working time.
(c) Step 3.
1. Ascertain the percentage which the gross receipts of the taxpayer derived from sales (products made and sold) and services rendered in the village is of the total gross receipts wherever derived during the period covered by the return.
2. The following sales shall be considered the village's sales:
a. All sales manufactured and sold within the village.
b. Charges for work done or services performed incident to a sale, whether or not included in the price of the property shall be considered gross receipts from such sale.
(d) Step 4. Add the percentages determined in accordance with steps 1, 2, and 3 and divide the total so obtained by the number of percentages used in ascertaining said total. The result so obtained is the business allocation percentage. In determining the average percentage, a factor shall not be excluded from the computation merely because said factor is found to be allocable entirely outside the village. A factor is excluded only when it does not exist anywhere.
(e) Step 5. The business allocation percentage determined in Step 4 above shall be applied to the entire taxable net profits of the taxpayer wherever derived to determine the net profits allocable to the village.
(3) Substitute method.
(a) In the event a just and equitable result cannot be obtained under the formula, the Administrator, upon application of the taxpayer, may substitute other factors in the formula or prescribe other methods of allocating net income calculated to effect a fair and proper allocation.
(b) Application to the Administrator to substitute other factors in the formula or to use a different method to allocate net profits must be made in writing before the end of the taxable year and shall state the specific grounds on which the substitution of factors or use of a different method is requested and the relief sought to be obtained. A copy thereof shall be served at the time of filing upon the taxpayer. No specific form need be followed in making such application. Once the taxpayer has filed under a substitute method, he must continue to so file until given permission to change by the Administrator.
(C) Operating loss carry forward.
(1) The portion of a net operating loss, based on income taxable under this subchapter, sustained in any taxable year allocable to the village may be applied against the portion of the profit of succeeding year(s) allocable to the village until exhausted but in no event for more than five taxable years. No portion of a net operating loss shall be carried back against net profits of any prior year and no losses may be offset against qualifying wages.
(2) In the event net profits are allocated both within and without the village, the portion of a net operating loss sustained shall be allocated to the village in the same manner as provided herein for allocating net profits to the village. The portion of a net operating loss to be carried forward shall be determined in the year the net operating loss is sustained, on the basis of the allocation factors applicable to that year. The same method of accounting and allocation must be used in the year to which an operating loss is earned as was used in the year in which the operating loss was sustained.
(3) A short fiscal year (a fiscal year of less than 12 months) in cases where there has been a change in the accounting period, where a new taxpayer selects a short fiscal year, or where a new taxpayer operates in the village for less than his full accounting period, shall be considered as a full taxable year.
(4) In any return in which a net operating loss deduction is claimed, a schedule must be attached showing:
(a) Year in which operating loss was sustained.
(b) Method of accounting and allocation used to determine portion of net operating loss allocable to the village.
(c) Amount of net operating loss used as a deduction in prior years.
(d) Amount of net operating loss claimed as a deduction in current year.
(5) The net operating loss of a business which loses its identity through merger, consolidation, etc., shall not be allowed as a carry-forward loss deduction by the surviving business entity.
(6) In the case of a net operating loss in the filing of consolidated returns, see division (D) below.
(D) Consolidated returns.
(1) Consolidated returns may be filed by a group of corporations who are affiliated through stock ownership. For a subsidiary corporation to be included in a consolidated return 80% of its stock must be owned by the other members of the affiliated group. A consolidated return must include all companies which are so affiliated.
(2) Once a consolidated return has been filed for any taxable year, the consolidated group must continue to file consolidated returns in subsequent years unless:
(a) Permission in writing is granted by the Administrator to file separate returns.
(b) A new corporation other than a corporation created or organized by a member of the group during the taxable year.
(c) A corporation member of the group is sold or exchanged. Liquidating a corporation or merging one of the corporations of the group into another will not qualify the group for filing separate returns.
(3) (a) If a corporation becomes a member of the group during the taxable year the consolidated return must include the income for the entire taxable year of the common parent corporation and any subsidiaries which were members of the group for the entire year, plus the income of each subsidiary which becomes a member of the group during the year for the period beginning with the date it became a member of the group, separate returns must be filed for that subsidiary. When a subsidiary ceases to be a member of the affiliated group, the consolidated return must include the income of such subsidiary for the period during which it was a member of the group, but for the period after it ceases to be a member of the group, separate returns must be filed. If a corporation has been a member of the affiliated group for less than one month of the taxable year, it may be considered as not being part of the group. Similarly, a subsidiary may be considered as being a member of the group during the entire taxable year of the group if period during which it was not a member of the group does not exceed one month.
(b) If a subsidiary is a member of the consolidated group for only part of a taxable year, the income considered to be earned in such fractional part of the year shall be that portion of the net income for the entire year which the number of days it was a member of the group bears to the total number of days in the taxable year.
(4) In determining the allocation fraction where a corporation becomes a member of the group or ceases to be a member of the group during the taxable year, the property fraction (Step 1 of the formula) shall be determined on the basis of the average net book value of the property during the period such corporation was a member of the group. The rental portion of the fraction, however, shall be computed at eight times the annual rent. The gross receipts and wage fraction shall be based on the actual figures.
(5) All subsidiary corporations must agree in writing to the filing of the consolidated return as they will be liable for the tax as well as will the parent corporation.
(6) The net operating loss carryover of a corporation that filed a separate return in a prior year may be earned over to the consolidated return but will be limited in amount to the amount of that same corporation's net income included in the consolidation. The net operating loss carryover from a separate year shall be deducted first before application of the allocation fraction. After application of the allocation fraction the consolidated net operating loss carryover allocated to the village shall be allowed.
(7) In consolidating the net income, the taxable income of each corporation shall be computed in accordance with provisions governing the taxable income of separate corporations except that there shall be eliminated unrealized profits and losses in transactions between members of the affiliated group.
(8) In determining expenses that are not allowable because they are allocable to non-taxable income such calculations shall be based on the consolidated net income. As an example, intercompany dividends which are eliminated in the consolidation will not be taken into consideration in determining non-taxable income.
(Ord. O-2015-28, passed 11-23-2015; Am. Ord. passed 9-9-2019)