171.03 IMPOSITION OF TAX.
(a) Rate. Subject to the provisions of Section 171.16, an annual tax for the purposes specified in Section 171.01 shall be and is hereby levied on and after May 1, 1968, at the rate of one-half percent (0.5%) per annum, on and after January 1, 1981, at the rate of one percent (1%) per annum, on and after January 1, 2002, at the rate of one and one-half percent (1.5%) per annum upon the following:
(1) Resident Employee. On all qualifying wages, including sick and vacation pay, bonuses, commissions, grievance pay, incentive payments, settlements, stock options, severance pay, any pay as part of an employee buyout or wage continuation plan, other compensation, and other taxable income earned or received by residents of the City.
A. For the purpose of determining the tax on the earnings of resident taxpayers taxed under Section 171.03, the sources 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 items are subject to the tax:
1. Qualifying wages, including sick and vacation pay, bonuses, commissions, grievance pay, incentive payments, settlements, stock options, severance pay, any pay as part of an employee buyout or wage continuation plan, other compensation, and other taxable income earned or received 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 any form of unincorporated enterprise owned by two or more persons;
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 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 171.03(g);
e. An employee of any other entity or person, whether based upon hourly, daily, weekly, semi-monthly, monthly, annual, unit of production or piece work rates; and 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, subdivision, section or unit, or any other entity.
2. Commissions earned by an individual directly or through an agent and whether in cash or in property for services rendered during the effective period of this chapter, 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 not as compensation, 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 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 tax return.
c. 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 under Section 171.03(a)(3) or 171.03(a)(4), they shall not be taxed under Section 171.03(a)(1).
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 171.03(a)(3).
4. Other compensation, including but not limited to: tips, bonuses, gifts or prizes of any type connected with employment or in lieu of pay, and including compensation paid to domestic servants, casual employees and other types of employees.
5. Employer paid premiums for group term life insurance to the extent taxable for federal income tax purposes.
6. Payments made to an employee by an employer as sick leave, holiday pay, vacation pay, or qualifying wages under any other wage continuation plan during periods of disability, sickness or absence from work are taxable when paid.
7. Payments made to an employee for sick or disability pay, whether paid by the employer to the employee or through a third party, are taxable if the amount appears on a W-2 form and the employer or third party has paid the premium for this insurance coverage.
8. Contributions by an employee or on behalf of an employee from gross wages into employer or third party trusts, non- qualified retirement plans, nonqualified deferred compensation plans or programs or qualified retirement plans, as permitted by any provisions of the Internal Revenue Code and which are excludable from gross wages for federal tax purposes are not and never have been excludable from qualifying wages subject to the City income tax (401k plans and similar plans).
9. Sums deducted from gross wages or other compensation for retirement purposes (deferred compensation plans and similar plans) are taxable.
10. The ordinary income portion of a stock option, employee stock purchase plan or other compensation received in the form of property to the extent that it is shown on a W-2 as ordinary income and is includable on the taxpayer’s federal income tax return.
11. Incentive payments and/or settlement payments, no matter how described, including but not limited to payments to induce early retirement.
12. Car allowance, personal use of employer-provided vehicle.
13. Payment made to an employee by an employer for moving or relocation in excess of federal allowance.
14. Payments to an employee by an employer as separation or severance payouts (including, but not limited to sick pay, vacation pay, separation pay, termination pay, early retirement incentives and/or settlement payments) and reportable as earned income are taxable when paid if applicable tax has not previously been paid.
15. Trusts not made pursuant to employee’s retirement.
16. Supplemental unemployment compensation benefits described in Section 3402 (o)(2) of the Internal Revenue Code.
17. Grievance pay and strike pay.
18. Any monies withheld from employees’ wages by a non- profit organization on a voluntary basis for the purchase of "TAX SHELTER ANNUITIES" under the provisions of Internal Revenue Code, Section 401 shall be considered as income for determination of wages, subject to the City income tax.
19. All other earned compensation. If income appears on a W-2 form and is not shown to be an exception in accordance with Section 171.03(g) hereof, it shall be considered other compensation and therefore taxable to the individual.
20. Losses from the operation of a business or profession are not deductible from employee earnings but may be carried forward as provided in Section 171.03(e).
C. 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.
1. 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.
2. Housing for clergy shall not be considered as wages or compensation earned.
(2) Nonresident Employee. On all qualifying wages, including sick and vacation pay, bonuses, commissions, grievance pay, incentive payments, settlements, stock options, severance pay, any pay as part of an employee buyout or wage continuation plan, other compensation, and other taxable income earned or received by nonresidents for work done or services performed or rendered in the City or as a result of employment in the City whether such compensation or remuneration is received or earned directly or through an agent and whether paid in cash or in property.
A. The location of the place from which payment is made is immaterial.
C. The City shall not tax the compensation of an individual if all of the following apply:
1. The individual does not reside in the City;
2. The compensation is paid for personal services performed by the individual in the City on twelve (12) or fewer days during the calendar year;
3. In the case of an individual who is an employee, the principal place of business of the individual’s employer is located outside the City and the individual pays tax on compensation described in subsection (a)(2)C.2., to the municipality, if any, in which the employer’s principal place of business is located, and no portion of that tax is refunded to the individual.
4. The individual is not a professional entertainer or professional athlete, the promoter of a professional entertainment or sports event, or an employee of such a promoter, as a may be reasonably defined by the City.
D. For purposes of the 12-day calculation, “Day” means any part of a 24-hour calendar day where compensation is earned in the City.
E. Beginning with the thirteenth (13) day, the individual shall no longer be considered an occasional entrant and is liable for taxes on income earned for the first twelve (12) days.
(3) A. Resident Unincorporated Business. On the portion attributable to the City of the net profits earned by all resident associations, unincorporated businesses, pass-through entities, professions or other entities, derived from sales made, work done, services performed or rendered or business or other activities conducted in the City.
1. The tax imposed on resident associations, unincorporated businesses, pass-through entities, professions or other unincorporated entities owned by two or more persons is upon the entities rather than the individual members or owners thereof, but the tax imposed on an unincorporated resident entity owned by one person is upon the individual owner.
2. The tax imposed by Section 171.03(a)(3) is imposed on all resident unincorporated entities having net profits attributable to the City under the business apportionment percentage formula provided for in this chapter, regardless of where the owner or owners of such resident unincorporated business entity reside.
3. Resident associations, unincorporated businesses, pass- through entities, professions or other unincorporated entities owned by two or more persons, all of whom are residents of the City, may disregard the business apportionment percentage formula provided for in this chapter and pay the tax on their entire net profits thereof if no apportionment by the entity to another taxing municipality exists. In such case, the tax paid by the entity shall constitute all tax due from the owners or members of the entity for their distributive share of the net profits from the entity; however, an additional return shall be required from any such owner or member having taxable income other than the distributive share of the net profits from the entity.
4. The tax imposed shall not apply to income derived within the City by any person from interstate commerce if the only business activities within the State of Ohio by or on behalf of such person, are either, or both of the following:
a. Solicitation of orders by such person, or his representative, in the State of Ohio for sales of tangible personal property, which orders are sent outside of the State of Ohio for approval or rejection, and, if approved, are filled by shipment or delivery from a point outside the State of Ohio; and
b. The solicitation of orders by such person, or his representative in the State of Ohio, in the name of or for the benefit of a prospective customer of such person, if orders by such customer to such person to enable such customer to fill orders resulting from such solicitations are orders described in subsection (a)(3)A.4.a. above; provided, however, that the provisions of this subsection shall not apply to any corporation which is incorporated under the laws of the State of Ohio or any individual who is domiciled in or a resident of the State of Ohio. For the purpose of this subsection a person shall not be considered to have engaged in a business activity within the State of Ohio during any taxable year merely by reason of sales in the State of Ohio, or the solicitation of orders for sales within the State of Ohio, of tangible personal property on behalf of such person by one or more independent contractors, or by reason of the maintenance of an office within the State of Ohio by one or more independent contractors whose activities on behalf of such person in the State of Ohio consist solely of making sales, or soliciting orders for sales of tangible personal property. For the purposes of this subsection the term "independent contractor" means a commission agent, broker, or other independent contractor who is engaged in selling, or soliciting orders for sales of tangible personal property for more than one principal and who holds himself out as such in the regular course of his business activities. For the purpose of this subsection, the term "representative" does not include an independent contractor.
B. Resident’s Distributive Share of Profits of a Resident Unincorporated Business Entity, Not Attributable to the City. On the portion of the distributive share of the net profits earned by a resident owner of a resident association, unincorporated business entity, pass-through entity, profession or other unincorporated entity not attributable to the City and not levied against such resident association, unincorporated business entity, pass-through entity, profession or other unincorporated entity by the City or any other taxing municipality at the same or higher rate.
1. A resident individual who is sole owner of a resident unincorporated entity shall pay the tax on the entire net profits of his resident unincorporated business entity. If allocation to another municipality exists, the taxpayer may qualify for credit for tax paid to another locality under Section 171.14.
2. In the case of a resident individual partner or part owner of a resident unincorporated entity, the tax is imposed on such individual's distributive share of net profits not attributable to the City, under business apportionment percentage formula provided for in Section 171.03(b), and not taxed against the entity.
(4) A. Nonresident Unincorporated Business. On the portion attributable to the City of the net profits earned by all nonresident associations, unincorporated businesses, pass-through entities, professions or other unincorporated entities, derived from sales made, work done, services performed or rendered or business or other activities conducted in the City, whether or not such nonresident association, unincorporated business, pass-through entity, profession or other unincorporated entity has an office or place of business in the City.
1. The tax imposed on nonresident associations, unincorporated businesses, pass-through entities, professions or other unincorporated entities owned by two or more persons is upon the entities rather than the individual members or owners thereof.
2. The tax imposed by Section 171.03(a)(4) is imposed on all nonresident unincorporated entities having net profits attributable to the City under the business apportionment percentage formula provided for in this chapter, regardless of where the owner or owners of such nonresident unincorporated business entities reside.
3. Nonresident associations, unincorporated businesses, pass- through entities, professions or other unincorporated entities owned by two or more persons, all of whom are residents of the City, may disregard the business apportionment percentage formula provided for in this chapter and pay the tax on their entire net profits thereof if no apportionment by the entity to another taxing municipality exists. In such case, the tax paid by the entity shall constitute all tax due from the owners or members of the entity for their distributive share of the net profits from the entity; however, an additional return shall be required from any such owner or member having taxable income other than the distributive share of the net profits from the entity.
B. Resident’s Distributive Share of Profits of a Nonresident Unincorporated Business Entity, Not Attributable to the City. On the portion of the distributive share of the net profits earned by a resident owner of a nonresident association, unincorporated business entity, pass-through entity, profession or other unincorporated entity not attributable to the City and not levied against such nonresident association, unincorporated business entity, pass-through entity, profession or other unincorporated entity by the City or any other taxing municipality at the same or higher rate.
1. A resident individual who is sole owner of a nonresident unincorporated entity shall pay the tax on the entire net profits of his resident unincorporated business entity. If allocation to another municipality exists, the taxpayer may qualify for credit for tax paid to another locality under Section 171.14.
2. In the case of a resident individual partner or part owner of a nonresident unincorporated entity, the tax is imposed on such individual's distributive share of net profits not attributable to the City, under business apportionment percentage formula provided for in Section 171.03(b), and not taxed against the entity.
(5) Net Profits of Corporations. On the portion attributable to the City of the net profits earned by all corporations, whether domestic or foreign, that are not pass-through entities derived from sales made, work done or services performed or rendered or business or other activities conducted in the City, whether or not such corporations have an office or place of business in the City.
A. The tax is imposed on the net profits attributable to the City under the business apportionment percentage formula provided for in this chapter.
B. In determining whether a corporation is conducting a business or other activity in the City, the provisions of the Rules and Regulations of this chapter shall be applicable.
C. A corporation whose sole business location is within the City shall be considered a resident City corporation and shall disregard the business apportionment percentage formula and pay the tax on the entire net profits of the corporate entity, unless allocation to another taxing municipality exists.
D. Corporations which are required by the provisions of Ohio Revised Code 5727.38 to 5727.41, inclusive, to pay an excise tax in any taxable year as defined by this chapter, 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 chapter.
(6) Amplification. In amplification of the definition contained in Section 171.02 herein, but not in limitation thereof, the following additional information respecting net business profits is furnished.
A. Net Profits.
1. “Net profit” for a taxpayer other than an individual means adjusted federal taxable income and “net profit” for a taxpayer who is an individual means the individual’s profit, other than amounts described in Section 171.03(e), required to be reported on schedule C, schedule E, or schedule F.
2. “Adjusted federal taxable income” means a C corporation’s federal taxable income before net operating losses and special deductions as determined under the Internal Revenue Code, adjusted as defined in Section 171.02 herein.
B. Gross Receipts.
1. Gross receipts shall include but not be limited to income in the form of commissions, fees, directors’ fees, subpay, profit sharing from nonqualified plans, 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. Gross receipts shall include ordinary income from Form 4797.
C. Expenses.
1. 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.
2. 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. 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.
3. 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.
4. 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.
5. Bad debts in a reasonable amount may be allowed in the year ascertained worthless and charged off, or at the discretion of the Tax 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.
6. 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 this chapter; (2) federal or other taxes based upon income; (3) gift, estate or inheritance taxes; (4) taxes for local benefit or improvements to property which tend to appreciate the value thereof; and (5) self-employment taxes for unincorporated businesses or other entities, including credit for employment taxes as allowed for federal tax purposes.
7. If the taxpayer reports income that is non-taxable under this chapter and such amounts are deducted in order to reconcile the municipal return with the taxpayer’s federal return, expenses attributable to this non-taxable income shall not be allowed as a deduction from the remaining taxable income. The expenses attributable to such non-taxable income shall be:
a. Five percent (5%) of the non-taxable income. Non- taxable income given capital gain treatment on the federal return, from which attributable expenses were already deducted, is not subject to the foregoing.
8. An employee who is paid on a commission or other compensation basis and who pays his business expense from his commissions or other compensation, without reimbursement from his employer, may deduct from his gross commissions or other compensations, business expenses allowed by the Internal Revenue Service for federal income tax purposes but only to the extent said expenses are incurred in earning commissions or other compensations subject to the tax imposed by this chapter. Business expenses allowed shall be those expenses allowed to be claimed on the federal Form 2106 and upon the request of the Tax Administrator, verifiable with supporting schedules and/or receipts. Failure to produce the supporting schedules and/or receipts upon request of the Tax Administrator shall result in disallowance of the expenses in question. No expenses claimed on federal Form Schedule A, Itemized Deductions shall be allowed.
9. Income from the sale of, or lease of mineral rights are not taxable and expenses or loss in connection therewith are not deductible for tax purposes except in cases where taxpayer conducts the activities by which the minerals are extracted from the land.
10. Funds allocated by employers to qualified plans of employees are not taxable to the employees if the employees have no vested right in the money so allocated.
11. 401(k), IRA, SEP, KEOGH plans or any other type of deferred compensation plans shall not be allowed as a deduction against income for unincorporated entities or the like as allowed for federal purposes.
12. Deductions shall not be allowed for self-employed health insurance against income as allowed for federal or state tax purposes for unincorporated entities or the like.
13. Expenses incurred while attending educational courses may not be deducted from wages.
14. Moving expenses included in gross earnings shall be an allowance as a deductible expense. No deduction will be allowed if the taxpayer does not provide the federal Form 3903 for his moving deductions. Only moving expenses incurred, as part of income included in gross earnings, will be allowed.
15. In general, all business expense recognized and to the extent allowed as such for the purpose of determining federal income tax will be recognized and allowed for determining City income tax under the provisions of this chapter. However, contributions are not considered as an ordinary and necessary expense of doing business and are disallowed as an expense.
(7) Rentals From Real Property.
A. The rental of real estate is ordinarily a business activity, and the income from such rentals are taxable, provided, however, where the taxpayer's entire rental activity produces gross rentals of less than two hundred fifty dollars ($250.00) per month, it will be prima facie evidence that such rental activities are not a business activity. If gross rentals equal or exceed two hundred fifty dollars ($250.00) per month, the entire net income from rentals is taxable. 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.
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 the Rules and Regulations of this chapter, shall include commercial property, residential property, farm property, and any and all 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 the City are subject to taxation upon the net income from rentals (to the extent above specified), regardless of the location of the real property owned. However, if any such property is located outside the City, and is subject to another municipal income tax, credit shall be claimed in accordance with Section 171.14.
F. Nonresidents of the City are subject to such taxation only if the real property is situated within the City.
G. To be considered non-taxable as ground rents, the property must be under perpetual leasehold by the terms of which the lessor performs no services of any type, including the payment of taxes on the property.
H. Businesses owning or managing real estate are taxed only on that portion of income derived from property located in the City.
(8) Royalties. Income in the form of royalties is taxable if taxpayer's activities produced the publication or other product, the sale of which produces the royalties.
(9) Gambling Winnings. On all income received as gambling winnings as reported on Internal Revenue Service Form W-2G, Form 5754 and/or any other form required by the Internal Revenue Service that reports winnings from gambling. Gambling includes but is not limited to bingo, keno, slot machines, casino games, horse racing, dog racing, jai alai, sweepstakes, wagering pools, lotteries, prizes and any other wagering transactions.
(10) Non-employee compensation.
(11) Fellowships, scholarships, stipends and grants, to the extent that they are taxable for federal income tax purposes.
(b) Apportionment of Business Profits for Businesses Both In and Outside the City Boundaries. This section does not apply to taxpayers that are subject to and required to file reports under Chapter 5745, of the Ohio Revised Code. Except as otherwise provided in subsection (c) of this section, net profit from a business or profession conducted both within and without the boundaries of a municipal corporation shall be considered as having a taxable situs in such municipal corporation for purposes of municipal income taxation in the same proportion as the average ratio of the following:
(1) Business Apportionment Percentage Formula. Multiply the entire net profits of the business by a business apportionment percentage formula to be determined by:
A. STEP 1. Ascertain the percentage which the average original cost of the real and tangible personal property, including leasehold improvements, owned or used by the taxpayer in the business or profession and situated within the City during the taxable period is 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.
1. As used in the preceding subsection, 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 (8). The percentage of taxpayer's real and tangible personal property within the City is determined by dividing the average original cost of such property within the City (without deduction of any encumbrances) by the average original cost of all such property within and without the City.
2. 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:
a. 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;
b. 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.
3. A residence may not be considered an office unless a portion thereof is used exclusively for business purposes and is reached by a separate entrance in an exterior wall which does not serve as the entrance to the balance of the building.
B. STEP 2. Ascertain the percentage which the total wages, salaries, including sick and vacation pay, bonuses, commissions, incentive payments, settlements, stock options, grievance pay, severance pay, any pay as part of an employee buyout or wage continuation plan and other forms of compensation paid during the taxable period to persons employed in the business or profession for services performed in the City is to the total wages, salaries, including sick and vacation pay, bonuses, commissions, incentive payments, settlements, stock 6options, grievance pay, severance pay, any pay as part of an employee buyout or wage continuation plan and other forms of compensation paid during the same period to persons employed in the business or profession, wherever their services are performed, excluding compensation that is not taxable by the municipal corporation under Section 718.011 of the Ohio Revised Code.
1. Salaries, wages, including sick and vacation pay, bonuses, commissions, incentive payments, settlements, stock options, grievance pay, severance pay, any pay as part of an employee buyout or wage continuation plan and other forms of compensation subject to the City income tax paid owners or credited to the account of owners or partners during the period covered by the return are considered wages for the purpose of this computation.
2. Salaries, wages, including sick and vacation pay, bonuses, commissions, incentive payments, settlements, stock options, grievance pay, severance pay, any pay as part of an employee buyout or wage continuation plan and other forms of compensation subject to the City income tax 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 City the amount treated as compensation for services performed within the City 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 City.
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 City 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 City is of his total working time.
d. Provided, however, all employees regularly connected with or working out of a place of business maintained by the taxpayer in the City who perform 75% or more of their services within the City be considered employees within the City.
4. Nonresident professional persons shall use the factor of days spent within the City to total working days. All employees regularly connected with or working out of a place of business maintained by the taxpayer outside the City who perform 25% or less of their services within the City shall be considered employees outside the City. (The provisions of this subsection are not applicable in determining the tax liability of a nonresident who works in and outside the City.)
C. STEP 3. Ascertain the percentage which the gross receipts of the business or profession from sales made and services performed during the taxable period in the City is to gross receipts of the business or profession during the same period from sales and services, wherever made or performed.
1. The following sales shall be considered City sales:
a. All sales made through retail stores located within the City to purchasers within or without the City except such of said sales to purchasers outside the City that are directly attributable to regular solicitations made outside the City personally by taxpayer's employees.
b. All sales of tangible personal property delivered to purchasers within the City regardless of where title passes if shipped or delivered from a stock of goods at an office, store, warehouse, factory, or place of storage located within the City.
c. All sales of tangible personal property delivered to purchasers within the City regardless of where title passes even though transported from a point outside the City if the Taxpayer is regularly engaged through its own employees in the solicitation or promotion of sales within the City and the sales directly or indirectly result from such solicitation or promotion.
d. All sales of tangible personal property shipped from an office, store, warehouse, factory or place of storage within the City to purchasers outside the City if the taxpayer is not, through its own employees regularly engaged in the solicitation or promotion of sales at the place of delivery.
e. 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.
f. In the application of the foregoing subsections a carrier shall be considered the agent of the seller, regardless of the FOB point or other conditions of the sale, and the place at which orders are accepted or contracts legally consummated shall be immaterial. Solicitation of customers outside the City by mail or phone from an office, or place of business within the City shall not be considered a solicitation of sales outside the City.
g. Nonresident professional persons shall use the factor of the City billings over total billings.
D. STEP 4. Adding together the percentages determined in accordance with Section 171.03 (a), (b) and (c), herein or such of the aforesaid percentages as are applicable to the particular taxpayer, and dividing the total so obtained by the number of percentages used in deriving such total. The result so obtained is the business apportionment percentage.
1. A factor is applicable even though it may be apportioned entirely in or outside the City. A factor is excluded only when it does not exist anywhere.
2. Provided, however, that in the event a just and equitable result cannot be obtained under the business apportionment percentage formula provided for herein, the Tax Administrator, upon application of the taxpayer, shall have the authority to substitute other factors or methods calculated to effect a fair and proper apportionment.
E. STEP 5. The business apportionment 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 apportioned to the City.
(2) Substitute Method.
A. In the event a just and equitable result cannot be obtained under the business apportionment percentage formula, the Tax Administrator, upon application of the taxpayer, shall have the authority to substitute other factors in the business apportionment percentage formula or prescribe other methods of apportioning net income calculated to effect a fair and proper apportionment.
B. Application to the Tax Administrator to substitute other factors in the business apportionment percentage formula or to use a different method to apportion net profits must be made in writing before the end of the tax 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 or Tax Administrator as the case may be. No specific form need be followed in making such application. Once a taxpayer has filed under a substitute method, he must continue to so file until given permission to change by the Tax Administrator.
C. The decision of the Tax Administrator on subsections (2)A. and (2)B., hereof may be appealed by the taxpayer to the Board of Review, which shall have the power to affirm, reverse or modify such decision of the Tax Administrator.
(3) Professional And Personal Service. In the case of professional people and others furnishing personal services, if their only place of business is within the City all their net profits shall prima facie be attributable to the City.
(c) Except as otherwise provided in subsection (d) hereof, net profit from rental activity not constituting a business or profession shall be subject to tax only by the municipal corporation in which the property generating the net profit is located.
(d) This section does not apply to individuals who are residents of the Municipality and, except as otherwise provided in Section 718.01 of the Ohio Revised Code, the Municipality may impose a tax on all income earned by residents of the Municipality to the extent allowed by the United States Constitution.
(e) Net Operating Loss (NOL).
(1) A. The portion of a net operating loss sustained in any taxable year, apportioned to the City, may be applied against the portion of the profit of succeeding taxable years apportioned to the City, until exhausted, but in no event for more than the three (3) taxable years immediately following the year in which the loss occurred. No portion of a net operating loss shall be carried back against net profits of any prior year.
B. A short fiscal year (a fiscal year of less than twelve (12) months) brought about by a change in accounting period, a new taxpayer selecting a short fiscal year, or a taxpayer operating in the City for less than his full accounting period, shall be considered as a full taxable fiscal year for purposes of loss carry-forward.
(2) A. The portion of a net operating loss sustained shall be apportioned to the City in the same manner as provided herein for apportioning net profits to the City. 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 apportionment factors applicable to that year.
B. The same method of accounting and apportionment must be used in the year to which an operating loss is carried as was used in the year in which the operating loss was sustained.
(3) The Tax Administrator shall provide by Rules and Regulations the manner in which such net operating loss carry-forward shall be determined.
(4) With respect to a return combining taxable income from two or more sources, the following rules shall be applied:
A. The net operating loss sustained by a business or profession is not deductible from employee earnings, but may be carried forward as provided in subsection (e)(1) hereof.
B. If a taxpayer is engaged in two or more taxable business activities to be included in the same return, the net loss of one unincorporated business activity (except any portion of a loss reportable for municipal income tax purposes to another taxing municipality) may be used to offset the profits of another for purposes of arriving at overall net profits.
(5) The loss from an unincorporated business subject to income tax from a taxing municipality or J.E.D.D. shall be applied as follows:
A. The loss must first be applied to the taxing municipality in full. To the extent that the tax rate for the City exceeds the tax rate of such taxing municipality, a portion will be currently deductible against other unincorporated entities in the current year or be available to be carried forward.
B. The portion of loss allowable is calculated by taking the difference in tax rates expressed as a percentage and multiplying it by the current year loss. For example, if a business is located in a taxing municipality with a tax rate of 1% with a loss of $10,000 the loss allowable against City business income is $3,300 (ie. 1.5% - 1% = .5%. .005 divided by .015 = .333. $10,000 x .333 = $3,330). The remaining loss is only allowable against the other taxing municipality.
(6) In any return in which a net operating loss deduction is claimed, a schedule should be attached showing:
A. Year in which net operating loss was sustained.
B. Method of accounting and apportionment, used to determine portion of net operating loss apportioned to the City.
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.
(7) The net operating loss of a taxpayer, which loses its identity through merger, consolidation, etc., shall not be allowed as a carry-forward loss deduction to the surviving or new taxpayer.
(f) Consolidated Returns.
(1) A consolidated return may be filed by a group of corporations who are affiliated through stock ownership if that affiliated group filed for the same tax period a consolidated return for federal income tax purposes pursuant to Section 1501 of the Internal Revenue Code. A consolidated return must include all companies that are so affiliated.
(2) Once a consolidated return has been filed for any taxable year, consolidated returns shall continue to be filed in subsequent years unless:
A. Permission in writing is granted by the Tax Administrator to file separate returns.
B. A new corporation other than a corporation created or organized by a member of the group has become 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.
(g) Exceptions. The following shall not be considered taxable:
(1) Military pay or allowances of members of the armed forces of the United States and of members of their reserve components, including the Ohio National Guard.
(2) Income of any religious, fraternal, charitable, scientific, literary, or educational institutions enumerated in Section 718.01 of the Ohio Revised Code to the extent that such income is derived from tax exempt real estate, tax exempt tangible or intangible property or tax exempt activities.
A. Any association or organization falling in the category listed in the preceding paragraph is required to file declarations and final returns and remit the taxes levied under this chapter on all net profits from activities, the income from which is not specifically exempt from taxation in Section 718.01 of the Ohio Revised Code.
B. Where such non-profit association or organization conducts income- producing business both within and without the corporate limits, it shall calculate its profits apportioned to the City under the method or methods provided above.
(3) Income from intangibles by way of dividends, interest and the like, if such income is subject to taxation under the intangible personal property laws of the State of Ohio, are specifically exempt from municipal taxation under said law.
(4) Compensation paid under Section 3501.28 or 3501.36 of the Ohio Revised Code to a person serving as a precinct official, to the extent that such compensation does not exceed one thousand dollars ($1,000) annually. Such compensation in excess of one thousand dollars ($1,000) may be subject to taxation. The payer of such compensation is not required to withhold City tax from that compensation.
(5) Compensation paid to an employee of a transit authority, regional transit authority, or regional transit commission created under Chapter 306 of the Ohio Revised Code for operating a transit bus or other motor vehicle for the authority or commission in or through the City, unless the bus or vehicle is operated on a regularly scheduled route, the operator is subject to such a tax by reason of residence or domicile in the City, or the headquarters of the authority or commission is located within the City.
(6) The income of a public utility when that public utility is subject to the tax levied under Section 5727.24 or 5727.30 of the Ohio Revised Code, except a municipal corporation may tax the following, subject to Chapter 5745 of the Ohio Revised Code:
A. The income of an electric company or combined company;
B. The income of a telephone company.
C. As used in division (g)(6) of this section, “combined company”, “electric company”, and “telephone company” have the same meanings as in Section 5727.01 of the Ohio Revised Code.
(7) The rental value of a home furnished to a minister of the gospel as part of his compensation, or the rental allowance paid to a minister of the gospel as part of his compensation, to the extent used by him to rent or provide a home pursuant to Section 107 of the Internal Revenue Code.
(9) An S corporation shareholder’s distributive share of net profits of the S corporation, other than any part of the distributive share of net profits that represents wages as defined in Section 3121(a) of the Internal Revenue Code or net earnings from self-employment as defined in Section 1402(a) of the Internal Revenue code, to the extent such distributive share would not be allocated or apportioned to this state under division (B)(1) and (2) of Section 5733.05 of the Ohio Revised Code if the S corporation were a corporation subject to the taxes imposed under Chapter 5733 of the Ohio Revised Code.
(10) Employee compensation that is not “qualifying wages” as defined in Section 718.03 of the Ohio Revised Code.
(11) Compensation attributable to a plan or program described in Section 125 of the Internal Revenue Code.
(12) Proceeds from welfare benefits, unemployment insurance benefits or similar payments received from local, state or federal government or charitable or religious groups.
(13) Proceeds of social security benefits, qualified retirement plans as defined by the Internal Revenue Service, annuities, insurance, worker's compensation, permanent disability benefits, compensation for non-punitive damages for physical personal injuries and like reimbursement, not including damages for loss of profits.
(14) Compensation for damage to property by way of insurance or otherwise.
(15) Gains from involuntary conversion, cancellation of indebtedness, interest on federal obligations, items of income already taxed by the State of Ohio from which the City is specifically prohibited from taxing and income of a decedent’s estate during the period of administration (except such income from the operation of a business).
(16) Alimony is not taxed to the recipient if exempt for federal income tax purposes nor is it allowed as a deduction by the payer.
(17) If exempt for federal income tax purposes, fellowship and scholarship grants are also exempt from the city tax.
(18) Generally, the above noted items in this section are the only forms of income not subject to the tax. Any other income, benefits, or other forms of compensation would be assumed to be taxable.
(Ord. 2003-96E. Passed 12-23-03; Ord. 2015-40. Passed 11-24-15.)