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The tax imposed by the chapter is effective as to income and profits earned, received or accruing on and after January 1, 1999. Payroll deductions must be made against all income, salaries, wages, commissions, bonuses and other compensation earned, received or accruing on and after that date. See § 880.11(b) for the breakdown of taxes levied and the allocation of funds.
(Ord. 43-2004, passed 12-20-2004)
(a) Resident.
(1) In the case of the residents of the city, an annual tax of 1.25% is imposed on all income, salaries, qualifying wages, commissions and other compensation earned, accrued, received or deferred on and after the effective period of this chapter. For the purpose of determining the tax, the source of the earnings and the place or places in or at which the services were rendered is immaterial. All such earnings, wherever earned or paid, are taxable. The location of the place from which the payment is made, or where the payment is received, is immaterial.
A. "Qualifying wages" means wages, as defined in IRC § 3121(a), without regard to any wage limitations, adjusted as follows:
1. Deduct any amount included in wages if the amount constitutes compensation attributable to a plan or program described in IRC § 125.
2. Add the following amounts:
a. Any amount not included in wages solely because the employee was employed by the employer prior to April 1, 1986;
b. Any amount not included in wages because the amount arises from the sale, exchange or other disposition of a stock option, the exercise of a stock option, or the sale, exchange or other disposition of stock purchased under a stock option. This division applies only to those amounts constituting ordinary income.
c. Any amount not included in wages if the amount is an amount described in IRC § 401(k) or § 457. This division applies only to employee contributions and employee deferrals.
d. Any amount that is supplemental unemployment compensation benefits described in IRC § 3402(o)(2) and not included in wages.
B. The definition for "qualifying wage" is effective for taxable years beginning on and after January 1, 2004.
(2) The following is a non-inclusive list of items which are subject to the tax:
A. Income, including but not limited to qualifying wages, commissions and other compensation that is subject to Medicare withholding in accordance with IRC § 3121(a), whether directly or through an agent, and whether in cash or in property for services rendered during the tax period as an officer, director or employee of a corporation (including charitable and other nonprofit organizations), or association or any other entity or person; 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 military pay exempted as stated in § 880.06.
B. Commissions earned by a taxpayer whether directly or through an agent and whether in cash or in property, for services rendered during the effective period of this chapter, regardless of how computed, by whom or whosoever paid.
C. Fees, unless the fees are properly included 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 the individual (e.g., fees which are taxable are those fees received by a director or officer of a corporation).
D. Other compensation includes but is not limited to:
1. Tips received by waiters, waitresses and others;
2. Bonuses;
3. Monetary gifts and gratuities in connection with employment;
4. Compensation paid to domestic servants. See division (a)(2)G. of this section for withholding requirement;
5. Fellowships, grants or stipends paid to a graduate student in the full amount, except that any amount, allocated in writing for tuition, books and laboratory fees, shall be excluded;
6. Dismissal pay, severance pay, reduction-in-force pay, and other forms of termination pay;
7. Incentive payments;
8. If an employer pays into a tax shelter plan on behalf of an employee in lieu of paying the amount as wages, the payments are considered additional compensation to the employee and are subject to withholding tax;
9. Money received from covenants not to compete;
10. Severance pay;
11. Jury fees;
12. Witness fees;
13. Contributions to retirement plans are taxable when deferred. Withholding applies to the full compensation;
14. Income deemed taxable per Federal Code § 89 or its substantial equivalent;
15. Ordinary gains reported on federal Form 4797;
16. Stock options are taxable when exercised. The tax is due to the municipality of the workplace and/or residence (i.e., if full credit is not given by the resident municipality) at the time of the purchase. The amount of taxable income is the difference between the price paid for the stock and the fair market value of the stock at the time of purchase;
17. Disqualifying disposition of an incentive stock option. The taxpayer is responsible for payment of the tax if, at the time of the disqualifying disposition, the municipal income tax was not withheld by the corporation with respect to whose stock the option has been issued.
E. Vacation, sickness, third-party sick pay, or any other types of payments made under a wage or salary continuation plan, including "sub" pay received from a union in lieu of wages during periods of absence from work, which are taxable when paid. Payments made by an employer to an employee during periods of absence from work are taxable when paid and at the tax rate in effect at the time of the payment.
F. 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 compensation shall be included in earnings at their fair market value.
G. In the case of domestics and other employees whose duties require them to live at their place of employment or assignment, board and lodging shall not be considered as taxable compensation. However, domestic servants are subject to the city income tax under this chapter. See § 880.07 for estimated payment requirement.
H. Over-the-road drivers and others with similar situations, reporting to a terminal, office and the like in the city must have a minimum of 25% of their wages withheld and allocated to the city where their terminal, office and the like is located.
I. Income generated from any illegal federal, state or municipal transaction.
J. Lottery, games of chance, gambling and sports winnings are taxable. Deductions shall be allowed against gambling and sports winnings if the taxpayer is considered a professional gambler for federal income tax purposes. If the taxpayer is not considered a professional gambler for federal income tax purposes, a per-prize deduction equal to the amount of income of the prize from lottery, games of chance, gambling, and sports winnings, or a deduction of $1,999.99 per prize, whichever is less, shall be allowed. If the income is payable to the taxpayer in more than one year, the deduction applies only in the first year in which the income is received.
K. When a resident or nonresident receives compensation for services for sales of real estate or insurance from an employer whose situs is the city, that total compensation is taxable at the city's tax rate and is payable to the city. The site of the property sold or residence of the purchaser of insurance has no bearing on the taxing of the compensation.
(b) Nonresident employee.
(1) In the case of individuals who are nonresidents of the city, there is imposed under this chapter an annual tax of 1.25% on all income, salaries, qualifying wages, commissions and the other compensation, earned, accrued, received or deferred on or after the effective date of this chapter, for work done or services rendered or performed within the city, whether the compensation or remuneration is received or earned directly or through an agent and whether paid in cash or property. The location of the place from which payment is made is immaterial.
(2) The items subject to tax under this section are the same as those listed and defined in division (a)(2) of this section that relate to employment. For methods of computing the extent of the work or services performed within the city, and cases involving compensation for personal services partly within and partly outside the city, see § 880.07(c).
(3) Twelve-day occasional entrant rule:
A. A nonresident individual who works in the city 12 or fewer days per year shall be considered an occasional entrant, and shall not be subject to the city municipal income tax for those 12 days. For purposes of the 12-day calculation, any portion of a day worked in the city shall be counted as one day worked in the city.
B. Beginning with the thirteenth day, the employer of the individual shall begin withholding city income tax from remuneration paid by the employer to the individual, and shall remit the withheld income tax to the city in accordance with the requirements of this chapter. Since the individual can no longer be considered to have been an occasional entrant, the employer is further required to remit taxes on income earned in the city by the individual for the first 12 days.
C. If the individual is self-employed, it shall be the responsibility of the individual to remit the appropriate income tax to the city.
D. The 12-day occasional entry rule does not apply to entertainers or professional athletes, their employees or individuals who perform services on their behalf, or to promoters and booking agents of the entertainment events and sporting events.
(c) Resident unincorporated businesses.
(1) In the case of resident unincorporated businesses, professions, enterprises, undertakings or other entities conducted, operated, engaged in, prosecuted or carried on, irrespective of whether the taxpayer has an office or place of business in the city, there is imposed an annual tax of 1.25% on the net profits earned and/or received during the effective period of this chapter attributable to the city, determined by the method or formula provided for in § 880.04, derived from sales made, work done or services performed or rendered and business or other activities conducted in the city.
(2) The tax imposed on resident associations or other unincorporated entities is upon the entities rather than the individual members or owners thereof. For tax on that part of a resident owner's distributive share of net profits not taxed against the entity, see division (d) of this section.
(3) The tax imposed by this chapter is imposed on all resident unincorporated entities having net profits attributable to the city under the method of allocation provided for in this chapter, regardless of where the owner or owners of the resident unincorporated business entity resides.
(4) Resident unincorporated entities owned by one or more persons, all of whom are residents of the city, and having all income allocable to the city or having any income allocable to other municipalities not levying a similar tax, shall disregard the method of allocation provided for in this chapter and pay to the city the tax on the entire net profits thereof. Payment of the tax by the entity on the entire net profits thereof shall constitute payment of all the tax due from the owners or members thereof on their distributive shares of the entity's net profits.
(d) Resident’s distributive share of profits of a resident unincorporated business entity, not attributable to the city. In the case of a resident individual who is a member, partner, shareholder/ owner or part owner of a resident unincorporated entity, there is imposed a 1.25% tax on the individual’s distributive share of net profits earned during the effective period of this chapter not attributable to the city under the method of the allocation provided for in this chapter, and not taxed against the entity; provided, however, that if any portion thereof is allocable to another municipality, credit for tax due or paid to the other municipality shall be claimed in accordance with § 880.10.
(e) Nonresident unincorporated businesses.
(1) In the case of nonresident unincorporated businesses, professions, enterprises, undertakings or other activities conducted, operated, engaged in, prosecuted or carried on, there is imposed an annual tax of 1.25% on the net profits earned and/or received during the effective period of this attributable to the business’s activity derived from activity in the city.
(2) A nonresident unincorporated business entity which has a branch or branches, office or offices and/or store or stores, warehouse, or other place or places in which the entity's business is transacted, located in the city, shall be considered to be conducting, operating, prosecuting or carrying on a trade, business, profession, enterprise, undertaking or other activity to the full extent of the sum total of all transactions originating or consummated in, by or through the city branch, office, store, warehouse or other place of business, including:
A. Billings made on such transactions;
B. Services rendered;
C. Shipments made;
D. Goods, chattels, merchandise and the like sold;
E. Commissions, fees or other remuneration.
(3) In determining the proportion or amount of the taxable net profits of a nonresident unincorporated business entity having a place or places of business within and outside of the city, the business entity may at its option use and apply the business allocation percentage formula set forth in § 880.04(b).
(f) Resident’s share of profits of a nonresident unincorporated business entity not attributable to the city. In the case of a resident individual who is a member, partner, owner or part owner of a nonresident unincorporated entity, there is imposed a 1.25% tax on the individual’s distributive share of net profits earned during the effective period of this chapter not attributable to the owner’s resident community under the method of allocation provided for in this chapter; provided however, that the resident shall be entitled to credit for tax paid to another taxing municipality in accordance with § 880.10.
(g) Corporations.
(1) In the case of a corporation (including S corporation) doing business in the city, whether domestic or foreign, and whether domiciled in the city or elsewhere, there is imposed an annual tax of 1.25% on that part of the net profits earned, accrued and/or received during the effective period of this chapter of such corporations, which is earned by the corporations as a result of work done or services performed or rendered and business or other activities conducted in the city.
(2) The provisions of division (e)(2) of this section are applicable to the corporations.
(3) A corporation doing business both within and outside the city shall, in determining the part of the net profits, which are taxable under this chapter, calculate its net profit attributable to the city in accordance with § 880.04.
(4) Corporations which are required by the provisions of R.C. §§ 5727.38 to 5727.41 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 from their net profits for that taxable year. In this case, expenses incurred in the production of the gross receipts shall not be deducted in computing net profits subject to the tax imposed by the chapter.
(h) Effective period of tax.
(1) The tax imposed by the rate and income taxable section of this chapter shall be levied, collected and paid with respect to income, salaries, wages, bonuses, incentive payments, commissions, fees and other compensation earned during the effective period of this chapter.
(2) The tax imposed by the rate and income taxable section of this chapter, with respect to net profits of trade, businesses, professions, enterprises, undertakings and other activities is on the net profits earned, accrued and/or received during the effective period of this chapter.
(i) Amplification. Net profits ("adjusted federal taxable income") means, for tax years 2004 and later, a C corporation's federal taxable income before net operating losses and special deductions as determined under the Internal Revenue Code, adjusted as follows:
(1) Deduct intangible income to the extent included in federal taxable income. The deduction shall be allowed regardless of whether the intangible income relates to assets used in a trade or business or assets held for the production of income.
(2) Add an amount equal to 5% of intangible income deducted under division (i)(1) of this section, but excluding that portion of intangible income directly related to the sale, exchange or other disposition of property described in § 1221 of the Internal Revenue Code.
(3) Add any losses allowed as a deduction in the computation of federal taxable income if the losses directly relate to the sale, exchange, or other disposition of an asset described in IRC § 1221 or § 1231.
(4) A. Except as provided in division (i)(4)B. of this section, deduct income and gain included in federal taxable income to the extent the income and gain directly relate to the sale, exchange or other disposition of an asset described in IRC § 1221 or § 1231.
B. Division (i)(4)A of this section does not apply to the extent the income or gain is income or gain described in IRC § 1245 or § 1250.
(5) Add taxes on or measured by net income allowed as a deduction in the computation of federal taxable income.
(6) In the case of a real estate investment trust and regulated investment company, add all amounts with respect to dividends to, distributions to or amounts set aside for or credited to the benefit of investors and allowed as a deduction in the computation of federal taxable income.
(7) If the taxpayer is not a C corporation and is not an individual, the taxpayer shall compute adjusted federal taxable income as if the taxpayer were a C corporation, except:
A. Guaranteed payments and other similar amounts paid or accrued to a partner, former partner, member or former member shall not be allowed as a deductible expense; and
B. Amounts paid or accrued to a qualified self-employed retirement plan with respect to an owner or owner-employee of the taxpayer, amounts paid or accrued to or for health insurance for an owner or owner-employee, and amounts paid or accrued to or for life insurance for an owner or owner-employee shall not be allowed as a deduction.
(j) Consolidated returns.
(1) Any affiliated group which files a consolidated return for federal income tax purposes pursuant to § 1501 of the Internal Revenue Code may file a consolidated return with the city. However, once the affiliated group has elected to file a consolidated return or a separate return with the city, the affiliated group may not change their method of filing in any subsequent tax year without written approval from the city.
(2) In the case of a corporation that carries on transactions with its stockholders or with other corporations related by stock ownership, interlocking directorates or some other method, or in case any person operates a division, branch, factory, office, laboratory or activity within the city constituting a portion only of its total business, the Finance Director shall require such additional information as he or she may deem necessary to ascertain whether net profits are properly allocated to the city by reason of transactions with stockholders or with other corporations related by stock ownership, interlocking directorates, or transactions with the division, branch, factory, office, laboratory or activity of by some other method, he or she shall make such allocation as he or she deems appropriate to produce a fair and proper allocation of net profits to the city.
(k) Loss carry-forward. Loss carry-forward shall not be permitted.
(Ord. 43-2004, passed 12-20-2004; Ord. 48-2005, passed 12-5-2005)
(a) Business allocation percentage method.
(1) Net profit from a business or profession conducted both within and without the boundaries of the city shall be considered as having a taxable status in the city for purposes of income taxation in the same proportion as the average ratio of:
A. The average original cost (i.e., the total costs as shown on the federal return less allocable depreciation as shown on the entity's federal return as filed) of the real and tangible personal property owned or used by the taxpayer in the business or profession in the city 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.
1. As used in division (a)(1)A. of this section, "real property" shall include property rented or leased by the taxpayer and the value of that property shall be determined by multiplying the annual rental thereon by eight.
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, including:
a. Any amount paid 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; and
b. Any amount paid 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. Salaries, wages, commissions and other compensation paid during the taxable period to persons employed in the business or profession for services performed in the city to salaries, wages, commissions and other compensation paid during the same period to persons employed in the business or profession, wherever their services are performed. Wages, salaries and other compensation shall be included to the extent that they represent qualifying wages.
1. Salaries and reasonable compensation paid to 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, commissions 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 taxable income or loss 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 or her, such as a salesperson on a commission basis, the amount received by him or her for the business attributable to his or her 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 or her services within the city bears to the value of all his or her services; and
c. In the case of an employee compensated on a time basis, the proportion of the total amount received by him or her, which is working time within the city, is of his or her total working time.
C. Gross receipts of the business or profession from sales made and services performed during the taxable period in the city to gross receipts of the business or profession during the same period from sales and services, wherever made or performed.
(2) As used in division (a)(l)C. of this section, "sales made in the city" means:
A. All sales of tangible personal property which is delivered within the city, regardless of where title passes if shipped or delivered from a stock of goods within the city.
B. All sales of tangible personal property which is delivered 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 result from the solicitation or promotion.
C. All sales of tangible personal property which is shipped from an office, store, warehouse, factory or place within the city to purchasers outside the city, regardless of where title passes if the taxpayer is not, through its own employees, regularly engaged in the solicitation or promotion of sales at the place where delivery is made. All solicitation of customers outside of the city by mail, telephone, fax, electronic mail or other electronic media from an office or place of business within the city shall be considered a solicitation of "sales within the city".
D. 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 the sales.
E. In the application of the foregoing divisions a carrier shall be considered the agent of the seller regardless of the freight on board point or other conditions of the sale; and the place at which orders are accepted or contracts legally consummated shall be immaterial.
(3) Add the percentages determined in accordance with division (a)(1) of this section, or such of the aforesaid percentages as may be applicable to the particular taxpayer's business, and divide the total so obtained by the number of percentages used in ascertaining the 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 the factor is found to be allocable entirely outside the city. A factor is excluded only when it does not exist anywhere.
(4) The business allocation percentage determined in division (a)(3) of this section shall be applied to the entire taxable net profits of the taxpayer wherever derived to determine the net profits allocable to the city.
(b) Substitute method.
(1) In the event that the foregoing apportionment formula does not produce an equitable result, another basis may be substituted, under uniform regulations, so as to produce the result.
(2) If the taxpayer makes application to the Finance Director to substitute other factors in the formula, or to use a different method to allocate net profits, the application must be made, in writing, not less than 60 days before the due date of the annual return without regard to extension, 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. No specific form need be followed in making the application. If, pursuant to a taxpayer's request, a substitute method of allocation is authorized by the Finance Director, a statement must be attached to the annual return for the year of change describing the substitute method of allocation and setting forth the date the substitute method was authorized by the Finance Director.
(3) If the Finance Director approves the use of books and records as a substitute method, the following shall apply:
A. The net profits allocable to the city from business, professional or other activities conducted in the city by corporations or unincorporated entities (whether resident or nonresident) may be determined from the records of the taxpayer only if the taxpayer has bona fide records which disclose with reasonable accuracy what portion of his or her net profits is attributable to that part of his or her activities conducted within the city.
B. If the books and records of the taxpayer are used as the basis for apportioning net profits, a statement must accompany the return explaining the manner in which the apportionment is made in sufficient detail to enable the Administrator to determine whether the net profits attributable to the city are apportioned with reasonable accuracy.
C. In determining the income allocable to the city from the books and records of a taxpayer, an adjustment may be made for the contribution made to the production of the income by headquarters activities of the taxpayer, whether the headquarters is within or without the city.
(Ord. 43-2004, passed 12-20-2004)
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 the rentals are derived (whether so rented, managed or operated by taxpayer individually or through agents or other representatives) constitutes a business activity of the taxpayer in whole or in part. Following are the circumstances under which, in any instance, the rental of any real property shall or shall not be deemed to be a business activity:
(a) Where the gross monthly rental of any and all real properties, regardless of number and value, aggregates in excess of $100 per month, it shall be prima facie evidence that the rental, ownership, management or operation of the properties is a business activity of the taxpayer, and the net income of the rental property shall be subject to tax; provided that in case of commercial property, the owner shall be considered engaged in a business activity when the rental is based on a fixed or fluctuating percentage of gross or net sales, receipts or profits of the lessee, whether or not the rental exceeds $100 per month; and provided, further, that in case of farm property, the owner shall be considered engaged in a business activity when he or she shares in the crops or when the rental is based on a percentage of the gross or net receipts derived from the farm, whether or not the gross income exceeds $100 per month; and provided, further, that the person who operates a rooming house shall be considered in business whether or not the gross income exceeds $100 per month.
(b) In determining the amount of gross monthly rental of any real property, periods during which (by reason of vacancy or any other cause) rentals are not received shall not be taken into consideration by the taxpayer.
(c) Rentals received by a taxpayer engaged in the business of buying and selling real estate shall be considered as part of business income.
(d) Real property, as the term is used in this chapter, shall include commercial property, residential property, farm property, and any and all other types of real estate.
(e) In determining the taxable net income from rentals, the deductible expense shall be of the same nature, extent and amount as are allowed by the Internal Revenue Service for federal income tax purposes. Passive losses as deemed by the IRS Code are not deductible in this determination.
(f) Residents of the city are subject to taxation upon net income from rentals, to the extent above specified, on all properties located in the city, and on all properties located outside the city, the net income of which is not subject to city income tax in the other community. In the case of residents of the city, if the net income of properties located outside the city is subject to city income tax in another community, then the taxpayer shall be allowed a credit for the amount paid by him or her on his or her behalf in the other municipality. This credit is to be applied only to the extent of the tax assessed by the city. Nonresidents of the city are subject to this taxation only if the real property is situated within the city. Nonresidents, in determining whether gross monthly rentals exceed $100 shall take into consideration only real estate situated within the city.
(g) Income from royalties or copyrights is not to be included.
(Ord. 43-2004, passed 12-20-2004)
(a) Exemptions, specific. The following income is exempt from the tax imposed by this chapter:
(1) Pay or allowance of active members of the Armed Forces of the United States and of members of their reserve components, including the Ohio National Guard. This exception includes not only the military pay and allowances received by the members themselves, but also military pay and allowances, such as dependency allowances, received by another person and by reason of the member's service. Any bonus or additional compensation paid to a person by the United States, State of Ohio, or any other state for active service in the Army, Navy or Air Force shall also be exempt from tax.
(2) The income of religious, fraternal, charitable, scientific, literary or educational institutions is exempt from the tax imposed by this chapter to the extent that the income is derived from tax-exempt real estate, tax-exempt tangible or intangible property or tax exempt activities, and only to the extent that the income is exempt from federal income tax. The income and profits of organizations exempt from federal income tax under § 501(a) of the Internal Revenue Code shall be exempt from taxation under this chapter.
(3) Payments for the relief of poverty, unemployment insurance benefits, old age pensions or similar payments, including permanent disability benefits received from local, state or federal government or charitable, religious or educational organizations, are exempt from the tax imposed by this chapter. The exempted benefits include all types of payments and allowances made or given by the governments or organizations for the relief or correction of poverty, unemployment, delinquency, problems of health or advanced age, lack of education and similar problems. The exempted benefits include but are not limited to: aid to dependent children and the aged; rent, food and clothing allowances or subsidies; job training allowances; Social Security and Medicare benefits; and workers' compensation benefits.
(4) Salaries and wages not considered received by the individual member but by the religious order of organization under a vow of poverty are exempt from the tax imposed by this chapter.
(5) Housing allowances for clergy to the extent that allowance is used to provide a home are exempt from the tax imposed by this chapter. The clergy must be duly ordained, commissioned or licensed by a religious body.
(6) Gratuities not in the nature of compensation for services rendered.
(7) Disability benefits (not under a wage continuation plan), including the proceeds of health and accident insurance and similar benefits received after an employee has reached the employer's minimum retirement age, and that is reported to the retired employee on federal Form 1099-R or its substantive equivalent.
(8) Inheritances.
(9) Scholarships and student grants-in-aid, but not fellowships described in § 880.03(a)(2)D.5.
(10) Death benefits, retirement benefits, payments from IRS qualified retirement plans or similar retirement plans and/or pensions, annuities and similar payments made to a retired employee or to the beneficiary of an employee under a retirement program or plan after termination of employment and retirement of the employee.
(11) Gifts not in connection with services rendered or work performed are exempt.
(12) Cash or property received under a will or under the Statute of Descent and Distribution is not taxable.
(13) Receipts by bona fide charitable, religious and educational organizations and associations, when those receipts are from seasonal or casual entertainment, amusement; sports events and health and welfare activities, when any such are conducted by charitable, religious or educational organizations or associations, are exempt from the tax imposed by this chapter. This exemption refers only to the receipts of the organization and not to the compensation of employees.
(14) Alimony received. Support payments made by one spouse for the benefit of the other spouse or children in connection with any divorce or separation, whether or not awarded by the court, shall be deemed "alimony" for purposes of this exemption.
(15) Personal earnings of any individual under 18 years of age are exempt from the tax imposed by this chapter. However, for the year in which they become 18, the individual is subject to tax from their birth date until the end of the year.
(16) Compensatory damages from personal injuries or otherwise is exempt from the tax imposed by this chapter. Punitive damages are not exempt from taxation.
(17) Gains from involuntary conversion, cancellation of indebtedness, interest on federal obligations, items of income already taxed by the State of Ohio which the city is specifically prohibited from taxing, and income of a decedent's estate during the period of administration (exempt income from the operation of a business) are exempt from the tax imposed by this chapter.
(18) Compensation paid under R.C. § 3501.28 or § 3501.36 to a person serving as a precinct election official, to the extent that the compensation does not exceed $1,000 annually.
(19) Salaries, wages, commissions, other compensation, other income and net profits, the taxation of which is prohibited by the United States Constitution or any Act of Congress limiting the power of the states or their political subdivisions to impose net income tax derived from interstate commerce, are exempt from the tax imposed by this chapter.
(20) Salaries, wages, commissions and other compensation, other income and net profits, the taxation of which is prohibited by the Constitution of the State of Ohio or any act of the Ohio General Assembly limiting the power of a municipality to impose net income taxes, are exempt from the tax imposed by this chapter.
(b) Exemptions, general. No person shall be exempt from the imposition of this income tax unless specifically excluded or exempted by the laws of the State of Ohio, the municipality's ordinances or these rules and regulations. Upon request of the Finance Director, any person who claims exemption from tax under this chapter shall provide detailed information to show the basis of the claim. The information shall be furnished 30 days after receipt of the request.
(Ord. 43-2004, passed 12-20-2004)
(a) Dates and requirements for filing.
(1) Each person residing in the city, 18 years of age or older, who engages in business or whose income, wages, salaries, commissions and other compensation are subject to the tax imposed by this chapter, shall, whether or not a tax be due thereon, file a return on or before April 15 of each year with the Finance Director on a form furnished by or obtainable from the Finance Director, or on other forms deemed acceptable by the Finance Director, setting forth the aggregate amount of income, wages, salaries, commissions and other compensation earned and/or received and/or net profits earned and/or gross income from the business, less allowable expenses, or the net profits earned and/or gross income from the business less allowable expenses in the acquisition of the gross income earned during the preceding year and subject to the tax, together with such other pertinent information as the Finance Director may require, including but not limited to copies of all W-2 forms, 1099 Miscellaneous Income forms and all applicable federal schedules. Retired persons whose income is derived solely from pensions, Social Security, interest or dividends need not file the annual tax return, provided a completed exemption form is on file with the Finance Director. When the return is made for a fiscal year or other period different from the calendar year, the return shall be made on or before the fifteenth day of the fourth month after the close of the fiscal year or other period.
(2) The taxpayer making the return shall, at the time of filing thereof, pay to the Finance Director the amount of tax shown to be due and unpaid by the return. No payment will be required for tax due less than $5. If, pursuant to the provisions of division (h) of this section, the taxpayer has at the time of making the final return overpaid his or her tax, the taxpayer shall show the amount of overpayment and may in the return either:
A. Request a refund thereof; or
B. Request that the amount thereof be credited against the amount which will be required to be paid by taxpayer on the next succeeding installment of tax which may become due.
(3) Where any portion of the tax otherwise due shall have been paid by the taxpayer pursuant to the provisions of divisions (c) and (g) of this section, or where an income tax has been paid to another municipality, pursuant to § 880.10, credit for the amount so paid shall be deducted from the amount shown to be due and only the balance, if any, shall be due and payable at the time of filing the final return.
(4) Upon written request of the taxpayer, the Finance Director may extend the time for filing the annual return for a period of not more than six months or not more than 30 days beyond any extension requested of and granted by the Federal Internal Revenue Department for the filing of the federal income tax return. For taxable years subsequent to 2004, the extended due date shall be the last day of the month to which the due date of the federal income tax return has been extended, the extension request may be made by filing a copy of the taxpayer's request for a federal filing extension, or by filing a written request. The Finance Director may deny the extension if the taxpayer's income tax account with the city is delinquent in any way.
(5) Items included on federal Form 2106 are eligible as deductions, subject to review and approval by the City Income Tax Office. To qualify for the deductions, eligible expenses shown on the Form 2106 must exceed 2% of the gross income taxable to the city. Only those expenses exceeding the 2% amount will be eligible for deduction. If submitting a Form 2106, the taxpayer must also submit a copy of the corresponding Schedule A. Deductions shall be allocated to the city and other municipalities in the same proportion that income has been allocated.
(6) When necessary, an amended return must be filed in order to report additional income and pay any additional tax due, or claim a refund of tax overpaid, subject to the requirements and/or limitations contained in §§ 880.08 and 880.10. Such amended returns shall be on a form obtainable on request from the Finance Director. A taxpayer may not change the methods of accounting (i.e., cash or accrual) or apportionment of net profits after the due date for the filing the original return.
(b) Reconciliation with federal return. In a form satisfactory to the Finance Director, there shall be submitted with each return filed by a taxpayer subject to the federal income tax, a reconciliation between the amount shown in the return filed with the Finance Director and the business income reported to the Federal Internal Revenue Department. If, as a result of a change made in business income by the Federal Internal Revenue Service, or by a judicial decision, an additional amount will result as owing to the city, a report of the change shall be filed by the taxpayer within 30 days after receipt of the final notice of the change from the federal authorities or after final decision of a court adjudicating any such federal income tax liability.
(c) Withholding collection at source.
(1) It is the duty of each employer (as hereinbefore defined) who employs one or more persons on a wage, salary, commission or other compensation or other income basis, to deduct, from compensation paid to any employee subject to this chapter, the tax of 1.25% of the income, wage, salary, commission or other compensation due by the employer to the employee.
A. The tax shall be deducted by the employer from:
1. All compensation paid to employees or deferred on behalf of employees who are nonresidents of the city for services rendered, work performed, or other activities engaged in to earn the compensation, within the city; and
2. From the gross amount of all income, wages, salaries, commissions or other compensation paid to employees or deferred on behalf of employees who are residents of the city, regardless of the place where the services are rendered.
B. If the taxes withheld by an employer for the city during the previous tax year averaged $400 per month or more, payments of tax withheld for the current tax year must be made on a monthly basis and shall be made on or before the last day of the month following the end of the month for which taxes were withheld.
C. If the taxes withheld by an employer for the city during the previous tax year averaged less than $400 per month, payments of tax withheld may be made quarterly on or before the last day of the month following the end of the quarter, subject to the approval of the Finance Director. The Finance Director may revoke the approval of quarterly filing and payments whenever he or she has reason to believe that the conditions for granting the authorization have changed, were judged incorrectly, were not met, or when it is in the best interest of the city to do so. Notice of withdrawal shall be made in writing, and in that case, the employer must begin to file in accordance with this section.
(2) All employers who or which maintain an office or other place of business in the city are required to make the collections and deductions specified in this section. Employers who do not maintain a permanent office or place of business in the city, but who are subject to tax on net profits under this chapter, are considered to be employers within the city subject to the requirement of withholding.
(3) The mere fact that the tax is not withheld will not relieve the employee of the responsibility of filing a return and paying the tax on the income received.
(4) All individuals, businesses, employers, brokers or others doing business who engage persons, either on a commission basis, or as independent contractors, subcontractors, or contract employees who are not subject to withholding, shall indicate the total amount of earnings, payments, commissions and bonuses to such as are residents of the city, or who do business in the city, on copies of federal Form 1099, or shall attach a list which shall indicate Social Security numbers, names, addresses and amounts paid.
(5) In the case of employees who are nonresidents of the city, the amount to be deducted is 1.25% of the compensation paid with respect to personal services rendered in the city. Where a nonresident receives compensation for personal services rendered or performed partly within and partly outside the city, the withholding employer shall deduct, withhold and remit that portion of the compensation which is earned within the city in accordance with the following rules of apportionment:
A. Employees compensated on an hourly, daily, weekly or monthly basis shall be subject to the tax imposed by this chapter as follows:
1. Deduction and withholding. The deduction and withholding shall attach to the personal service compensation for the exact amount of pay received for services performed in the city, when the exact amount of pay can be established. When the exact determination of amounts earned or derived in the city is possible, the income of employees who are compensated on an hourly, daily, weekly or monthly basis must be apportioned to the city by multiplying the gross income, wherever earned, from the employment, which includes employment carried on in the city, by a fraction, the numerator of which is the number of days spent working in the city and the denominator of which is the total working days, including holidays, vacation days, sick days and paid or unpaid leave, unless for travel outside the United States, not to exceed 260 days. In those cases, the taxpayer must add to both the numerator and the denominator those weekend days in which the taxpayer was required to work while outside of the United States. The result is the amount of the nonresident's income allocable to the city.
2. Apportionment where employee performs services in more than one municipality each day. In the case of an employee compensated hourly, daily, weekly or monthly, who regularly performs services in more than one municipality each day, income is apportioned to the particular municipality when multiplying the gross income, wherever earned, from the employment which includes employment carried on in the particular municipality, by a fraction, the numerator of which is the number of hours spent working in the particular municipality and the denominator of which is the total number of working hours.
B. If the nonresident is a salesperson, agent or other employee whose compensation on the basis of commissions depends directly on the volume of business transacted by him or her, the deducting and withholding shall attach to the portion of the entire compensation which the volume of business transacted by the employee within the city bears to the volume of business transacted by him or her within and outside the city.
C. The deducting and withholding of personal service compensation of all other employees, including officers of corporations, shall attach to the portion of the personal service compensation of the employee which the total number of working days employed within the city bears to the total number of working days employed within and outside the city.
D. If it is impossible to apportion the earnings as provided above because of the peculiar nature of the service of the employee, or the unusual basis of compensation, apportionment shall be made in accordance with the facts and the tax deducted and withheld accordingly.
(d) Returns of tax withheld.
(1) Each employer, on or before February 28, unless written request for 30-day extension is made to and granted by the Finance Director, following any calendar year in which the deductions have been made, or should have been made, by an employer, shall file with the Finance Director an information return (Shelby Withholding Statement of Wages Paid and Shelby Income Tax Withheld) for each employee from whom income tax has been or should have been withheld, showing the name and address of the employee, the total amount of income, wages, salaries, commissions and other compensation paid to the employee during the year and the amount of city income tax withheld from each employee.
(2) For corporations, a copy of the federal income tax return must accompany the city income tax return upon filing.
(3) For adjustment of errors in returns of tax withheld by employers see division (h) hereof.
(e) Limitation on credit for tax paid at source. The failure of any employer, residing either within or outside the city, to collect the tax and to make any return prescribed herein shall not relieve the employee from the payment of the tax in compliance with these regulations with respect to the making of returns and the payment of taxes.
(f) Status and liability of employers. The officers and/or the employees having control or supervision of or charged with the responsibility of filing the report and making payment are personally liable for failure to file the report or pay the tax due as required by this section. The dissolution, bankruptcy or reorganization of a corporation, association or other entity does not discharge an officer's or employee's liability for a prior failure of the corporation to file returns or pay tax due.
(g) Declarations of estimated tax.
(1) A declaration of estimated tax shall be filed by every taxpayer who will have taxable income during the year, the tax on which is not or will not be withheld in full or in part by an employer or employers. The declaration must be filed only if the estimate of tax that will not be withheld exceeds $100.
(2) All other taxpayers, as defined in this chapter and in these regulations, subject to the taxes imposed in § 880.03, and every taxpayer who anticipates any income or net profits not subject to withholding in whole or in part, shall file with the Finance Director a declaration of his or her estimated tax as provided in this division (g).
(3) Effective January 1, 2003, the declaration of estimated tax to be paid the city by taxpayers who are individuals shall be accompanied by a payment on of at least one-fourth of the declaration amount and at least a similar amount shall be paid on or before July 31 and October 31 of the taxable year, and January 31 of the following year.
(4) Effective January 1, 2003, the declaration of estimated tax to be paid to the city by corporations and associations shall be accompanied by a payment of at least one-fourth of the declaration amount and at least a similar amount shall be paid on or before June 15, September 15 and December 15. In the case of a fiscal year taxpayer, the second, third and fourth quarterly estimated payments shall be due on the fifteenth day of the sixth, ninth and twelfth months of the taxable year, respectively.
(5) Those taxpayers reporting on a fiscal year basis shall file a declaration within 105 days after the beginning of each fiscal year or period.
(6) The declarations so required shall be filed upon a form furnished by or obtainable from the Finance Director, or on a generic form approved by the Finance Director. Any taxpayer who has filed an estimate for federal income tax purposes may, in making the declaration required hereunder, simply state therein that the figures therein contained are the same figures used by the taxpayer in making the declaration of his or her estimate for the federal income tax. However, in addition to that statement, any such taxpayer may, in the declaration, modify and adjust the declared income so as to exclude therefrom income which is not subject to tax under this chapter.
(7) Any estimate filed hereunder may be amended by the filing of an amendment at the time prescribed for the payment of any installment of tax paid in accordance with divisions (g)(8) and (g)(9) of this section.
(8) No penalties or interest shall be assessed for not filing a declaration or not making payments or making late payments, on any resident taxpayer who was not domiciled in the city on the first day of January in the year in which they became subject to estimated payments.
(9) No penalties or interest shall be assessed on estimated payments if the taxpayer has remitted an amount equal to 100% of the previous year's tax liability, provided that the previous year reflected a 12-month period, or if 90% of the actual liability has been received.
(h) Collection of deficiencies and allowance of credit for overpayments.
(1) If, as a result of investigation conducted by the Finance Director, a return is found to be incorrect, the Finance Director is authorized to assess and collect any underpayment of tax withheld at the source or any underpayment of tax owing by any taxpayer with respect to earnings or net profits, or both. If no return has been filed and a tax is found to be owing, the tax actually owing may be assessed and collected with or without the formality of obtaining a delinquent return from the employer or taxpayer.
(2) Should it be disclosed, either as a result of an investigation by the Finance Director or through the medium of the filing of a claim or petition for refund or credit, that an overpayment has been made, the Finance Director will refund the overpayment.
(3) The employer will in every instance be required to pay the full tax which should have been withheld, even though he or she may fail to withhold from the employee. If too much has been withheld, the excess shall be refunded by the employer to the employee. While the withholding agent (the employer) will be expected to maintain complete records of such adjustments with the employees, any such adjustment made during any month will not need to be reflected in the withholding return or disclosed by schedules or statements thereto attached.
(4) In those cases in which too much has been withheld by an employer from an employee and remitted to the Finance Director and there has been a termination of the employee-employer relationship, the taxpayer (the employee) may obtain an adjustment by application to the Finance Director.
(Ord. 43-2004, passed 12-20-2004; Ord. 47-2005, passed 12-5-2005; Ord. 6-2007, passed 5-7-2007)
(a) Collection of unpaid taxes.
(1) All taxes imposed by this chapter remaining unpaid when the same have become due, together with all interest and penalties thereon, become a debt due the city from the taxpayer, and are recoverable as other debts in suits instituted by the Director of Law.
(2) Employers who or which, although obligated under this chapter to withhold and remit to the Finance Director the taxes required to be withheld at the source, as set forth in § 880.07(c), shall fail to so withhold and/or remit, become liable to the city in an action in a court of law to enforce the payment of the debt created by the failure.
(3) When a final return is filed as prescribed in § 880.07 and a deficiency is determined to be due to the city, action to collect the same must be brought within three years after the tax was due or the return was filed, whichever is later. However, in the case of fraud, failure to file a return, or the omission of 25% or more of income required to be reported, prosecution may be commenced within six years after the commission of the offense.
(b) Refunds.
(1) Should it appear that any taxpayer has paid more than the amount of the tax to which the city is entitled under the provisions of this chapter, a refund of the amount so overpaid shall be made, provided a proper claim for refund of the overpayment of tax has been filed by the taxpayer, or the same may be applied toward the declaration of tax due for the ensuing year. Claims for refunds shall be made on forms prescribed by and obtainable from the Finance Director, or on a generic form approved by the Finance Director. Refunds for days worked out of the city are available only to nonresidents, and refunds shall be computed by dividing total wages by total days worked in order to determine an average daily wage. The work year shall be considered 260 days. Saturdays and Sundays shall not normally be considered work days. Wage continuation plans of any type, including but not limited to vacation days, holidays, personal days, and sick days, are deemed to be days spent in the city for purposes of a refund calculation. Additions, deletions or other changes to the method for calculating refunds shall be at the discretion of the Finance Director.
(2) All applications for refunds shall be made within three years of the due date of a final return, or three months after the determination of the federal income tax liability, whichever is later. However, the following shall apply regarding refunds of tax withheld from non-qualified deferred compensation plans (NDCP):
A. A taxpayer may be eligible for a refund if the taxpayer has suffered a loss from an NDCP. The loss will be considered sustained only in the taxable year in which the taxpayer receives the final distribution of money and property pursuant to the NDCP. Full loss is sustained if no distribution of money and property will be made by the NDCP.
B. A taxpayer who receives income as a result of payments from an NDCP, and that income is less than the amount of income deferred to the NDCP and upon which municipal tax was withheld, then a refund will be issued on the amount representing the difference between the deferred income that was taxed and the income received from the NDCP. If different tax rates applied to the tax years in which deferrals, a weighted average of the different tax rates will be used to compute the refund amount.
C. Refunds shall be allowed only if the loss is attributable to the bankruptcy of the employer who had established the NDCP, or the employee's failure or inability to satisfy all of the employer's terms and conditions necessary to receive the non-qualified compensation.
(3) Refunds for days worked out of the city are available only to nonresidents, and refunds shall be computed by dividing total wages by total days worked in order to determine an average daily wage. The work year shall be considered 260 days. Saturdays and Sundays shall not normally be considered work days. Wage continuation plans of any type, including but not limited to vacation days, holidays, personal days and sick days, are deemed to be days spent in the city for purposes of the refund calculation. Additions, deletions or other changes to the method for calculating refunds shall be at the discretion of the Finance Director.
(4) No refund will be made for an amount less than $5.
(5) Income tax that has been deposited with the city but should have been deposited with another municipality is allowable by the city as a refund but is subject to the three-year limitation on refunds. Income tax that should have been deposited with the city but was deposited with another municipality shall be subject to recovery by the city. The city will allow a non-refundable credit for any amount owed the city that is in excess of the amount to be refunded by the other municipality, as long as the tax rate of the other municipality is the same or higher than the city's tax rate. If the city's tax rate is higher, the tax representing the net difference of the rates is also subject to collection by the city.
(6) The Finance Director may sue for recovery of an erroneous refund, provided the suit is begun three years after making the refund, except that the suit may be brought within six years if any of the refund was induced by fraud or misrepresentation of material fact.
(c) Application of delinquent payments. Payments received for delinquent liabilities shall first be applied to unpaid penalty and interest assessments, beginning with the oldest year for which they are due, and then shall be applied sequentially to each subsequent year for which penalty and interest delinquencies exist. When penalty and interest delinquencies no longer remain, payments will be applied to delinquent taxes owed for any previous year(s), and will be applied in the order in which the taxes became due.
(Ord. 43-2004, passed 12-20-2004)
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