Ohio’s Municipal Net Profits Tax Reform Constitutional – Centralized filing provides significant administrative benefits to companies doing business across multiple localities.

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Ohio’s efforts to substantially simplify its municipal income tax regime – a much-needed reform – is permitted to move forward. Ohio instituted municipal income tax reform, which took effect with the 2018 tax year, permitted business to elect to file a centralized return with the Ohio Department of Taxation, among other uniformity measures. Ohio municipalities mounted strenuous objections, feeling as if their right to levy taxes had been impeded, but have been unsuccessful in reversing the state’s efforts to make municipal taxation more uniform and much less burdensome.

Ohio and its taxpayers emerged victorious (for now) as the 10th District Court of Appeals upheld Ohio’s efforts to reform Ohio’s harshly criticized municipal income tax scheme. The ruling significantly advances Ohio’s municipal income tax. Instead of being subject to the procedures of each particular municipality, Ohio businesses are able to elect to file a single, centralized municipal net profits return with the Ohio Tax Commissioner through the Ohio Business Gateway. This is estimated to save business owners up to $800 million per year in compliance costs. Calendar year taxpayers wanting to take advantage of centralized filing must opt-in and register through the Ohio Business Gateway by March 1st of the taxable year.

Ohio municipalities argued that Ohio’s General Assembly exceeded its constitutional power under Ohio’s home rule by limiting municipalities’ ability to “levy” taxes. They maintained that Ohio’s centralized filing scheme unconstitutionally limited the municipalities’ power to collect taxes. In construing the term “levy,” the Court turned to 20th century dictionaries and determined that at the time the constitutional provision was drafted, the definition of levy included “the power to raise or collect by assessment.” Based upon the intended meaning of the term, the Court concluded the Ohio General Assembly did not limit ability through a mere administrative centralized filing provision and has authority to limit municipalities’ power to impose and collect taxes in this manner, ruling in the State’s favor. Ohio municipalities no longer have to administer and collect taxes themselves, and benefit substantially from low-cost administrative fee charged by the Department of Taxation for collection. Despite the municipalities’ opposition, reforming Ohio municipal income taxes was good for businesses and should ultimately benefit them.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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