(a) Determining Municipal Taxable Income for Taxpayers Who Are Not Individuals. “Municipal taxable income” for a taxpayer who is not an individual for the Municipality is calculated as follows:
“Income” reduced by “exempt income” to the extent otherwise included in income, multiplied by apportionment, further reduced by any “pre-2017 net operating loss carryforward” equals “municipal taxable income”.
(1) “Income” for a taxpayer that is not an individual means the “net profit” of the taxpayer.
A. “Net profit” for a person other than an individual is defined in Section 891.03(c)(23).
B. “Adjusted Federal taxable income” is defined in Section 891.03(c)(1) of this chapter.
(2) “Exempt income” is defined in Section 891.03(c)(11) of this chapter.
(3) “Apportionment” means the apportionment as determined by Section 891.06(b) of this chapter.
(4) “Pre-2017 net operating loss carryforward” is defined in Section 891.03(c)(32) of this chapter.
(b) Net Profit; Income Subject to Net Profit Tax; Alternative Apportionment. This division (b) applies to any taxpayer engaged in a business or profession in the Municipality unless the taxpayer is an individual who resides in the Municipality or the taxpayer is an electric company, combined company, or telephone company that is subject to and required to file reports under Ohio R.C. Chapter 5745.
(1) Except as otherwise provided in division (b)(2) and (f)(1) of this section, net profit from a business or profession conducted both within and without the boundaries of the Municipality shall be considered as having a taxable situs in the Municipality for purposes of municipal income taxation in the same proportion as the average ratio of the following:
A. The average original cost of the real property and tangible personal property owned or used by the taxpayer in the business or profession in the Municipality during the taxable period to the average original cost of all of the real and tangible personal property owned or used by the taxpayer in the business or profession during the same period, wherever situated.
As used in the preceding paragraph, tangible personal or real property shall include property rented or leased by the taxpayer and the value of such property shall be determined by multiplying the annual rental thereon by eight;
B. Wages, salaries, and other compensation paid during the taxable period to individuals employed in the business or profession for services performed in the Municipality to wages, salaries, and other compensation paid during the same period to individuals employed in the business or profession, wherever the individual’s services are performed, excluding compensation from which taxes are not required to be withheld under Section 891.05(b) of this chapter;
C. Total gross receipts of the business or profession from sales and rentals made and services performed during the taxable period in the Municipality to total gross receipts of the business or profession during the same period from sales, rentals, and services, wherever made or performed.
(2) A. If the apportionment factors described in division (b)(1) of this section do not fairly represent the extent of a taxpayer’s business activity in the Municipality, the taxpayer may request, or the Tax Administrator of the Municipality may require, that the taxpayer use, with respect to all or any portion of the income of the taxpayer, an alternative apportionment method involving one or more of the following:
1. Separate accounting;
2. The exclusion of one or more of the factors;
3. The inclusion of one or more additional factors that would provide for a more fair apportionment of the income of the taxpayer to the Municipality;
4. A modification of one or more of the factors.
B. A taxpayer request to use an alternative apportionment method shall be in writing and shall accompany a tax return, timely filed appeal of
an assessment, or timely filed amended tax return. The taxpayer may use the requested alternative method unless the Tax Administrator denies the request in an assessment issued within the period prescribed by Section 891.19(a) of this chapter.
C. A Tax Administrator may require a taxpayer to use an alternative apportionment method as described in division (b)(2)A. of this section only by issuing an assessment to the taxpayer within the period prescribed by Section 891.19(a) of this chapter.
D. Nothing in division (b)(2) of this section nullifies or otherwise affects any alternative apportionment arrangement approved by a Tax Administrator or otherwise agreed upon by both the Tax Administrator and taxpayer before January 1, 2016.
(3) As used in division (b)(1)B. of this section, “wages, salaries, and other compensation” includes only wages, salaries, or other compensation paid to an employee for services performed at any of the following locations:
A. A location that is owned, controlled, or used by, rented to, or under the possession of one of the following:
1. The employer;
2. A vendor, customer, client, or patient of the employer, or a related member of such a vendor, customer, client, or patient;
3. A vendor, customer, client, or patient of a person described in division (b)(3)A.2. of this section, or a related member of such a vendor, customer, client, or patient.
B. Any location at which a trial, appeal, hearing, investigation, inquiry, review, court-martial, or similar administrative, judicial, or legislative matter or proceeding is being conducted, provided that the compensation is paid for services performed for, or on behalf of, the employer or that the employee’s presence at the location directly or indirectly benefits the employer;
C. Any other location, if the Tax Administrator determines that the employer directed the employee to perform the services at the other location in lieu of a location described in division (b)(3)A. or B. of this section solely in order to avoid or reduce the employer’s municipal income tax liability. If a Tax Administrator makes such a determination, the employer may dispute the determination by establishing, by a preponderance of the evidence, that the Tax Administrator’s determination was unreasonable.
(4) For the purposes of division (b)(1)C. of this section, and except as provided in division (f)(1) of this section, receipts from sales and rentals made and services performed shall be sitused to a municipal corporation as follows:
A. Gross receipts from the sale of tangible personal property shall be sitused to the municipal corporation in which the sale originated. For the purposes of this division, a sale of property originates in a municipal corporation if, regardless of where title passes, the property meets any of the following criteria:
1. The property is shipped to or delivered within the municipal corporation from a stock of goods located within the municipal corporation.
2. The property is delivered within the municipal corporation from a location outside the municipal corporation, provided the taxpayer is regularly engaged through its own employees in the solicitation or promotion of sales within such municipal corporation and the sales result from such solicitation or promotion.
3. The property is shipped from a place within the municipal corporation to purchasers outside the municipal corporation, provided that the taxpayer is not, through its own employees, regularly engaged in the solicitation or promotion of sales at the place where delivery is made.
B. Gross receipts from the sale of services shall be sitused to the municipal corporation to the extent that such services are performed in the municipal corporation.
C. To the extent included in income, gross receipts from the sale of real property located in the municipal corporation shall be sitused to the municipal corporation.
D. To the extent included in income, gross receipts from rents and royalties from real property located in the municipal corporation shall be sitused to the municipal corporation.
E. Gross receipts from rents and royalties from tangible personal property shall be sitused to the municipal corporation based upon the extent to which the tangible personal property is used in the municipal corporation.
(5) The net profit received by an individual taxpayer from the rental of real estate owned directly by the individual or by a disregarded entity owned by the individual shall be subject to tax only by the municipal corporation in which the property generating the net profit is located and the municipal corporation in which the individual taxpayer that receives the net profit resides.
A municipal corporation shall allow such taxpayers to elect to use separate accounting for the purpose of calculating net profit sitused under this division to the municipal corporation in which the property is located.
(6) A. Except as provided in division (b)(6)B. of this section, commissions received by a real estate agent or broker relating to the sale, purchase, or lease of real estate shall be sitused to the municipal corporation in which the real estate is located. Net profit reported by the real estate agent or broker shall be allocated to a municipal corporation based upon the ratio of the commissions the agent or broker received from the sale, purchase, or lease of real estate located in the municipal corporation to the commissions received from the sale, purchase, or lease of real estate everywhere in the taxable year.
B. An individual who is a resident of a municipal corporation that imposes a municipal income tax shall report the individual’s net profit from all real estate activity on the individual’s annual tax return for that municipal corporation. The individual may claim a credit for taxes the individual paid on such net profit to another municipal corporation to the extent that such credit is allowed under Section 891.08(a) of this chapter.
(7) If, in computing a taxpayer’s adjusted Federal taxable income, the taxpayer deducted any amount with respect to a stock option granted to an employee, and if the employee is not required to include in the employee’s income any such amount or a portion thereof because it is exempted from taxation under Sections 891.03(c)(11)L. and (c)(34)A.4. of this chapter, by a municipal corporation to which the taxpayer has apportioned a portion of its net profit, the taxpayer shall add the amount that is exempt from taxation to the taxpayer’s net profit that was apportioned to that municipal corporation. In no case shall a taxpayer be required to add to its net profit that was apportioned to that municipal corporation any amount other than the amount upon which the employee would be required to pay tax were the amount related to the stock option not exempted from taxation.
This division applies solely for the purpose of making an adjustment to the amount of a taxpayer’s net profit that was apportioned to a municipal corporation under this section.
(8) When calculating the ratios described in division (b)(1) of this section for the purposes of that division or division (b)(2) of this section, the owner of a disregarded entity shall include in the owner’s ratios the property, payroll, and gross receipts of such disregarded entity.
(c) Consolidated Federal Income Tax Return.
(1) As used in this division (c):
A. “Affiliated group of corporations” means an affiliated group as defined in section 1504 of the Internal Revenue Code, except that, if such a group includes at least one incumbent local exchange carrier that is primarily engaged in the business of providing local exchange telephone service in this State, the affiliated group shall not include any incumbent local exchange carrier that would otherwise be included in the group.
B. “Consolidated Federal income tax return” means a consolidated return filed for Federal income tax purposes pursuant to section 1501 of the Internal Revenue Code.
C. “Consolidated Federal taxable income” means the consolidated taxable income of an affiliated group of corporations, as computed for the purposes of filing a consolidated Federal income tax return, before consideration of net operating losses or special deductions. “Consolidated Federal taxable income” does not include income or loss of an incumbent local exchange carrier that is excluded from the affiliated group under division (c)(1)A. of this section.
D. “Incumbent local exchange carrier” has the same meaning as in Ohio R.C. 4927.01.
E. “Local exchange telephone service” has the same meaning as in Ohio R.C. 5727.01.
(2) A. For taxable years beginning on or after January 1, 2016, a taxpayer that is a member of an affiliated group of corporations may elect to file a consolidated municipal income tax return for a taxable year if at least one member of the affiliated group of corporations is subject to the municipal income tax in that taxable year and if the affiliated group of corporations filed a consolidated Federal income tax return with respect to that taxable year.
1. The election is binding for a five-year period beginning with the first taxable year of the initial election unless a change in the reporting method is required under Federal law.
2. The election continues to be binding for each subsequent five-year period unless the taxpayer elects to discontinue filing consolidated municipal income tax returns under division (c)(2)B. of this section; or
3. A taxpayer receives permission from the Tax Administrator. The Tax Administrator shall approve such a request for good cause shown.
B. An election to discontinue filing consolidated municipal income tax returns under this section must be made in the first year following the last year of a five-year consolidated municipal income tax return election period in effect under division (c)(2)A. of this section. The election to discontinue filing a consolidated municipal income tax return is binding for a five-year period beginning with the first taxable year of the election.
C. An election made under division (c)(2)A. or B. of this section is binding on all members of the affiliated group of corporations subject to a municipal income tax.
(3) A taxpayer that is a member of an affiliated group of corporations that filed a consolidated Federal income tax return for a taxable year shall file a consolidated municipal income tax return for that taxable year if the Tax Administrator determines, by a preponderance of the evidence, that intercompany transactions have not been conducted at arm’s length and that there has been a distortive shifting of income or expenses with regard to allocation of net profits to the municipal corporation. A taxpayer that is required to file a consolidated municipal income tax return for a taxable year shall file a consolidated municipal income tax return for all subsequent taxable years unless the taxpayer requests and receives written permission from the Tax Administrator to file a separate return or a taxpayer has experienced a change in circumstances.
(4) A taxpayer shall prepare a consolidated municipal income tax return in the same manner as is required under the United States Department of Treasury regulations that prescribe procedures for the preparation of the consolidated Federal income tax return required to be filed by the common parent of the affiliated group of which the taxpayer is a member.
(5) A. Except as otherwise provided in divisions (c)(5)B., C., and D. of this section, corporations that file a consolidated municipal income tax return shall compute adjusted Federal taxable income, as defined in Section 891.03(c)(1) of this chapter, by substituting “consolidated Federal taxable income” for “Federal taxable income” wherever “Federal taxable income” appears in that division and by substituting “an affiliated group of corporation’s” for “a C corporation’s” wherever “a C corporation’s” appears in that division.
B. No corporation filing a consolidated municipal income tax return shall make any adjustment otherwise required under Section 891.03(c)(1) of this chapter to the extent that the item of income or deduction otherwise subject to the adjustment has been eliminated or consolidated in the computation of consolidated Federal taxable income.
C. If the net profit or loss of a pass-through entity having at least 80% of the value of its ownership interest owned or controlled, directly or indirectly, by an affiliated group of corporations is included in that affiliated group’s consolidated Federal taxable income for a taxable year, the corporation filing a consolidated municipal income tax return shall do one of the following with respect to that pass-through entity’s net profit or loss for that taxable year:
1. Exclude the pass-through entity’s net profit or loss from the consolidated Federal taxable income of the affiliated group and, for the purpose of making the computations required in Section 891.06(b) of this chapter, exclude the property, payroll, and gross receipts of the pass-through entity in the computation of the affiliated group’s net profit sitused to a municipal corporation. If the entity’s net profit or loss is so excluded, the entity shall be subject to taxation as a separate taxpayer on the basis of the entity’s net profits that would otherwise be included in the consolidated Federal taxable income of the affiliated group.
2. Include the pass-through entity’s net profit or loss in the consolidated Federal taxable income of the affiliated group and, for the purpose of making the computations required in Section 891.06(b) of this chapter, include the property, payroll, and gross receipts of the pass-through entity in the computation of the affiliated group’s net profit sitused to a municipal corporation. If the entity’s net profit or loss is so included, the entity shall not be subject to taxation as a separate taxpayer on the basis of the entity’s net profits that are included in the consolidated Federal taxable income of the affiliated group.
D. If the net profit or loss of a pass-through entity having less than 80% of the value of its ownership interest owned or controlled, directly or indirectly, by an affiliated group of corporations is included in that affiliated group’s consolidated Federal taxable income for a taxable year, all of the following shall apply:
1. The corporation filing the consolidated municipal income tax return shall exclude the pass-through entity’s net profit or loss from the consolidated Federal taxable income of the affiliated group and, for the purposes of making the computations required in Section 891.06(b) of this chapter, exclude the property, payroll, and gross receipts of the pass-through entity in the computation of the affiliated group’s net profit sitused to a municipal corporation;
2. The pass-through entity shall be subject to municipal income taxation as a separate taxpayer in accordance with this chapter on the basis of the entity’s net profits that would otherwise be included in the consolidated Federal taxable income of the affiliated group.
(6) Corporations filing a consolidated municipal income tax return shall make the computations required under Section 891.06(b) of this chapter by substituting “consolidated Federal taxable income attributable to” for “net profit from” wherever “net profit from” appears in that section and by substituting “affiliated group of corporations” for “taxpayer” wherever “taxpayer” appears in that section.
(7) Each corporation filing a consolidated municipal income tax return is jointly and severally liable for any tax, interest, penalties, fines, charges, or other amounts imposed by a municipal corporation in accordance with this chapter on the corporation, an affiliated group of which the corporation is a member for any portion of the taxable year, or any one or more members of such an affiliated group.
(8) Corporations and their affiliates that made an election or entered into an agreement with a municipal corporation before January 1, 2016, to file a consolidated or combined tax return with such municipal corporation may continue to file consolidated or combined tax returns in accordance with such election or agreement for taxable years beginning on and after January 1, 2016.
(d) Tax Credit for Businesses That Foster New Jobs in Ohio. The Municipality, by ordinance, may grant a refundable or nonrefundable credit against its tax on income to a taxpayer to foster job creation in the Municipality. If a credit is granted under this division (d), it shall be measured as a percentage of the new income tax revenue the Municipality derives from new employees of the taxpayer and shall be for a term not exceeding 15 years. Before the Municipality passes an ordinance granting a credit, the Municipality and the taxpayer shall enter into an agreement specifying all the conditions of the credit.
(e) Tax Credits to Foster Job Retention. The Municipality, by ordinance, may grant a refundable or nonrefundable credit against its tax on income to a taxpayer for the purpose of fostering job retention in the Municipality. If a credit is granted under this division (e), it shall be measured as a percentage of the income tax revenue the Municipality derives from the retained employees of the taxpayer, and shall be for a term not exceeding 15 years. Before the Municipality passes an ordinance allowing such a credit, the Municipality and the taxpayer shall enter into an agreement specifying all the conditions of the credit.
(f) (1) A. "Qualifying remote employee or owner" means an individual who is an employee of a taxpayer or who is a partner or member holding an ownership interest in a taxpayer that is treated as a partnership for federal income tax purposes, provided that the individual meets both of the following criteria:
1. The taxpayer has assigned the individual to a qualifying reporting location.
2. The individual is permitted or required to perform services for the taxpayer at a qualifying remote work location.
B. "Qualifying remote work location" means a permanent or temporary location at which an employee or owner chooses or is required to perform services for the taxpayer, other than a reporting location of the taxpayer or any other location owned or controlled by a customer or client of the taxpayer. "Qualifying remote work location" may include the residence of an employee or owner and may be located outside of a municipal corporation that imposes an income tax in accordance with this chapter. An employee or owner may have more than one qualifying remote work location during a taxable year.
C. "Reporting location" means either of the following:
1. A permanent or temporary place of doing business, such as an office, warehouse, storefront, construction site, or similar location, that is owned or controlled directly or indirectly by the taxpayer;
2. Any location in this state owned or controlled by a customer or client of the taxpayer, provided that the taxpayer is required to withhold taxes under of this chapter on qualifying wages paid to an employee for the performance of personal services at that location.
D. "Qualifying reporting location" means one of the following:
1. The reporting location in this state at which an employee or owner performs services for the taxpayer on a regular or periodic basis during the taxable year;
2. If no reporting location exists in this state for an employee or owner under division (f)(1)D.1. of this section, the reporting location in this state at which the employee's or owner's supervisor regularly or periodically reports during the taxable year;
3. If no reporting location exists in this state for an employee or owner under division (f)(1)D.1. or 2. of this section, the location that the taxpayer otherwise assigns as the employee's or owner'squalifying reporting location, provided the assignment is made in good faith and is recorded and maintained in the taxpayer's business records. A taxpayer may change the qualifying reporting location designated for an employee or owner under this division at any time.
(2) For tax years ending on or after December 31, 2023, a taxpayer may elect to apply the provisions of this division to the apportionment of its net profit from a business or profession. For taxpayers that make this election, the provisions of division (b) of this section apply to such apportionment except as otherwise provided in this division.
A taxpayer shall make the election allowed under this division in writing on or with the taxpayer's net profit return or, if applicable, a timely filed amended net profit return or a timely filed appeal of an assessment. The election applies to the taxable year for which that return or appeal is filed and for all subsequent taxable years, until the taxpayer revokes the election.
The taxpayer shall make the initial election with the tax administrator of each municipal corporation with which, after applying the apportionment provisions authorized in this division, the taxpayer is required to file a net profit tax return for that taxable year. A taxpayer shall not be required to notify the tax administrator of a municipal corporation in which a qualifying remote employee's or owner's qualifying remote work location is located, unless the taxpayer is otherwise required to file a net profit return with that municipal corporation due to business operations that are unrelated to the employee's or owner's activity at the qualifying remote work location.
After the taxpayer makes the initial election, the election applies to every municipal corporation in which the taxpayer conducts business. The taxpayer shall not be required to file a net profit return with a municipal corporation solely because a qualifying remote employee's or owner's qualifying remote work location is located in such municipal corporation.
Nothing in this division prohibits a taxpayer from making a new election under this division after properly revoking a prior election.
(3) For the purpose of calculating the ratios described in division (b)(1) of this section, all of the following apply to a taxpayer that has made the election described in division (f)(2) of this section:
A. For the purpose of division (b)(1)A. of this section, the average original cost of any tangible personal property used by a qualifying remote employee or owner at that individual's qualifying remote work location shall be sitused to that individual's qualifying reporting location.
B. For the purpose of division (b)(1)B. of this section, any wages, salaries, and other compensation paid during the taxable period to a qualifying remote employee or owner for services performed at that individual's qualifying remote work location shall be sitused to that individual's qualifying reporting location.
C. For the purpose of division (b)(1)C. of this section, and notwithstanding division (b)(4) of this section, any gross receipts of the business or profession from services performed during the taxable period by a qualifying remote employee or owner for services performed at that individual's qualifying remote work location shall be sitused to that individual's qualifying reporting location.
(4) Nothing in this division prevents a taxpayer from requesting, or a tax administrator from requiring, that the taxpayer use, with respect to all or a portion of the income of the taxpayer, an alternative apportionment method as described in division (b)(2) of this section. However, a tax administrator shall not require an alternative apportionment method in such a manner that it would require a taxpayer to file a net profit return with a municipal corporation solely because a qualifying remote employee's or owner's qualifying remote work location is located in that municipal corporation.
(5) Except as otherwise provided in this division, nothing in this division is intended to affect the withholding of taxes on qualifying wages pursuant to this chapter.
(Ord. 2015-O-026. Passed 11-24-15; Ord. 2023-O-34. Passed 12-12-23.)
Statutory reference:
Consolidated municipal tax return, see Ohio R.C. 718.06
Definitions, see Ohio R.C. 718.01
Fostering job retention; tax credits, see Ohio R.C. 718.151
Fostering new jobs; tax credits, see Ohio R.C. 718.15
Income subject to tax, see Ohio R.C. 718.02