There are over 600 cities and villages in Ohio that impose a municipal income tax on businesses. Many businesses find it a burden to comply with the filing requirements and the price to comply is sometimes higher than the taxes that are due.
Effective for taxable years beginning on or after January 1, 2018, business taxpayers are able to opt-in and file one municipal net profit tax return with the Ohio Department of Taxation. Sole proprietors, single member LLC’s, and individuals are not eligible for this filing system. Businesses that elect into the centralized system will file a single municipal net profits tax return that will include every municipality in which they are required to file returns. It is not mandatory to opt-in, however, the centralized filing system is an all or nothing system meaning you cannot pick and choose which cities to include or exclude.
Some advantages to the centralized filing system are taxpayers will file one return which should improve efficiencies. Businesses will have one net profit tax administrator so all notices and audits will be done through Ohio versus multiple cities and villages. All payments and estimates are made electronically through the OBG versus having to cut multiple checks to various entities. A potential disadvantage is Ohio may be better able to compare IRS data, state data, and other city data to ensure compliance, so businesses should consider looking at their Ohio city nexus before opting-in.
Registration to opt-in is open and must be completed by March 1, 2018 in order to be able to file 2018 returns centrally with Ohio. The election is to be made on form MNP R or electronically on the Ohio Department of Taxation’s website. After registration is complete, an account number will be generated and will be mailed to the taxpayer starting in February. In addition to registering with Ohio, taxpayers are required to notify all municipalities where they conducted business in the previous year of its election. This is done by mailing each city form MNP MN. The notification process must also be completed by March 1, 2018. The opt-in election automatically renews each year unless the taxpayer opts-out by March 1 of the applicable year they wish to opt-out for.
Businesses that opt-in for 2018 will be required to file their first quarter estimated tax payment on the OBG by April 15, 2018. Estimates are required each quarter when their estimated combined tax liability is $200 or more. The first net profit return for those that opt-in for 2018 will be due April 15, 2019. Ohio is working with various resources to develop the return filing system which is not yet available on the OBG.
Businesses should consult with their tax advisors to determine if centralized filing is right for them and to learn more about the implications. Several lawsuits have been filed by municipalities in opposition to the centralized filing which we will continue to monitor as they progress.