Muni tax ruling a victory for Ohio businesses owners

A court decision announced Wednesday not only ensures that centralized filing of municipal net profits taxes will continue in the coming months, but also upheld all other municipal tax reforms supported by OSCPA and being challenged by Ohio cities.

Franklin County Common Pleas Court Judge David Cain on Feb. 21 ruled the Ohio Constitution “makes it clear that the general assembly has the power to pass laws that limit the power of municipalities to levy taxes.” Further, the cities “can argue the definition of the word ‘levy’ until they’re blue in the face, but using common sense, the Court can only find that the Collections deal with the levying of taxes.”

Scott Wiley, CAE, president and CEO of The Ohio Society of CPAs, called the decision "a victory for the entire state economy.”

“Judge Cain’s ruling is a victory for Ohio employers currently drowning in the costly and time-consuming shipwreck of municipal tax administration,” Wiley said, adding that “it will allow job-producing employers to operate more efficiently in a competitive national and international environment.

“We truly appreciate the efforts of The Ohio Department of Taxation and Ohio General Assembly to enact and uphold these significant reforms,” he said.

Close to 150 cities had filed two lawsuits – later merged into one by the court – claiming the municipal income tax reforms passed into law last year as part of Am. Sub. House Bill 49 were unconstitutional. The first step of the suit – and as it turned out, the last at the common pleas level – was the cities’ request for an injunction to stop ODT from allowing businesses to centrally file and pay net profits tax. Cain ruled there was no need to continue hearings and terminated the case.

Cities could opt to appeal the decision to Ohio’s 10th District Court of Appeals, but this week’s ruling preserves not only centralized filing and the throwback provision, but also reforms contained in HB 5 of 2014. More immediately, it means that businesses may continue to register for centralized collection of municipal net profits taxes, a reform the Ohio Department of Taxation has said could save up to $1.6 billion per year.

Administrative fees for the state-operated process also average 70% less than those charged by regional tax administration entities such as the Regional Income Tax Agency (RITA) doing similar work for Ohio municipalities.

Ohio Tax Commissioner Joe Testa said the court decision is important “for business taxpayers in Ohio who for too long have had to deal with this costly, complex process for local tax on business income. This law gives business taxpayers the opportunity to save millions of dollars in the cost of complying with the fragmented municipal tax system.”

Opt in by March 1.

Businesses with a calendar year end must both opt in by March 1 and notify the cities they operate in no later than that date to centrally file for the 2018 tax year (make quarterly payments in 2018 and file the tax return in 2019). Opt in now.