2016 Regional Income Tax Agency Municipal Income Tax Seminar - - PowerPoint PPT Presentation

2016

Regional Income Tax Agency

Municipal Income Tax Seminar

Welcome!

Speaker: Don Smith

CPE

Today’s session = 3 hours Based on 50 contact minutes/hour If you did NOT REGISTER before TODAY Please do so at Welcome Table CPE Certificates available after seminar

Refreshment, Facilities & Phones

Beverages & Cookies Men’s and Ladies’ Rooms “Smart” phones

Today’s Agenda

Welcome & “Administrivia” New Member Update MeF – New Partners HB 5 Update Wrap-Up Adjourn

Question & Answer Period

Please hold questions until AFTER

each presenter is finished

Will address as many as possible

Q&A session, time permitting, prior to

adjournment

Will summarize and distribute via email

Locate Today’s Presentations

Posted to our website

• Resources
• Videos & Presentations

New Members and Current Member Updates

New Members

Conesville Ravenna Solon Empire

Effective 01/01/15

New Members

Eastlake Holland Trimble Conesville Ravenna Solon Empire Peninsula

Effective 07/01/15

New Members

Eastlake Holland Trimble Amanda Conesville Ravenna Solon Empire Peninsula

Effective 9/01/2015

New Members

Eastlake Holland Trimble Amanda Lowellville Conesville Ravenna Solon Empire Peninsula

Effective 10/1/2015

New Members

Bellefontaine Eastlake Holland Trimble Amanda Lowellville Rocky River Ashley Wadsworth Ney Bethel Conesville Ravenna Solon Empire Peninsula

Effective 01/01/16

RITA Welcomes...

MUNICIPALITY COUNTY TAX RATE CREDIT FACTOR CREDIT RATE DATE JOINED

Village of Conesville (New Tax) Coshocton 1.00%

• 01/01/15

Village of Empire (New Tax) Jefferson 1.00% 100% 1.00% 01/01/15 City of Ravenna Portage 2.00% 100% 2.00% 01/01/15 City of Solon Cuyahoga 2.00% 100% 2.00% 01/01/15 City of Eastlake Lake 2.00% 100% 2.00% 07/01/15 Village of Holland Lucas 2.25% 100% 2.25% 07/01/15 Village of Peninsula Summit 2.00% 100% 2.00% 07/01/15 Village of Trimble (New Tax) Athens 1.00%

• 07/01/15

Village of Amanda (New Tax) Fairfield 1.00%

• 09/01/15

RITA Welcomes...

MUNICIPALITY COUNTY TAX RATE CREDIT FACTOR CREDIT RATE DATE JOINED

Village of Lowellville Mahoning 2.00% 100% 2.00% 10/01/15 Village of Ashley (New Tax) Delaware 1.00%

• 01/01/16

Village of Bethel (New Tax) Clermont 0.50%

• 01/01/16

Village of Ney (New Tax) Madison 1.00%

• 01/01/16

City of Bellefontaine Logan 1.333% 50% 1.333% 01/01/16 City of Rocky River Cuyahoga 2.00% 100% 1.50% 01/01/16 City of Wadsworth Medina 1.40% 100% 1.00% 01/01/16

New JEDDs and JEDZs

Scioto Twp. JEDD / Grove City Pickaway 2.00%

• 01/01/15

Holland Springfield

• Twp. JEDZ/ Holland

Lucas 1.50%

• 07/01/15

Boston Twp. Peninsula JEDD / Peninsula Summit 2.00%

• 07/01/15

Tax Rate Changes

Baltic Tax Rate INCREASE to 1.5% Credit Factor 100% Credit Rate 1.5% Effective 01/01/16 Cedarville Tax Rate INCREASE to 1.25% Credit Factor 100% Credit Rate 1.25% Effective 07/01/15 Cleveland Heights Tax Rate INCREASE to 2.25% Credit Factor 50% Credit Rate 1.0% Effective 01/01/16 Danville Tax Rate INCREASE to 1.5% Credit Factor 0% Credit Rate 0% Effective 01/01/16 Ravenna Tax Rate INCREASE to 2.25%, Credit Factor 100% Credit Rate 2.25% Effective 07/01/15 Waynesville Tax Rate DECREASE to 0.5% Credit Factor 0% Credit Rate 0% Effective 01/01/16

Credit Changes

Brecksville Credit Factor DECREASED to 87.5% Effective 01/01/15 Belle Center Credit Factor DECREASED to 50% Effective 01/01/16 Bellefontaine Credit Factor DECREASED to 50% Effective 01/01/16 Centerburg Credit Factor DECREASED to 0% Effective 01/01/16 Fredericktown Credit Factor DECREASED to 50% Effective 01/01/15 Johnstown Credit Factor DECREASED to 0% Effective 07/01/15

Credit Changes

North Lewisburg Credit Rate DECREASED to 0% Effective 01/01/16 Piketon Credit Rate DECREASED to 0% Effective 01/01/16 Rossford Credit Rate DECREASED to 0% Effective 01/01/16 Sabina Credit Factor DECREASED to 50% Effective 01/01/16 Sherwood Credit Factor DECREASED to 0% Effective 01/01/16 Wakeman Credit Factor DECREASED to 0% Effective 01/01/16



Brecksville Office

Regional Income Tax Agency 10107 Brecksville Road Brecksville, Ohio 44141 8:00 am-5:00 pm Monday-Friday



Worthington Office

Regional Income Tax Agency 760 Lakeview Plaza Blvd, Suite 400 Worthington, Ohio 43085 8:00 am-5:00 pm Monday-Friday

 Cleveland Heights Office

Regional Income Tax Agency 40 Severance Circle Cleveland Heights, Ohio 44118 8:30 am-5:00 pm Monday-Friday



Youngstown Office Regional Income Tax Agency 20 Federal Plaza West, Suite M-14 Youngstown, Ohio 44503-1497 8:00 am-5:00 pm Monday-Friday



Lake County - Mentor Office Regional Income Tax Agency Mentor Municipal Center 8500 Civic Center Boulevard Mentor, Ohio 44060 8:00 am-1:00 pm & 1:30-4:30 pm Tuesday & Thursday

RITA

Office Locations

New Youngstown Location Summer of 2016

2761 Salt Springs Rd. Youngstown, OH 44509

RITA Extended Walk-In Hours

Brecksville Office & Worthington Office **Saturday** 9:00 am – noon

February 27 March 5, 12, 19 and 26 April 2, 9 and 16

Lake County – Mentor Office **Friday**

8:00 am - 1:00 pm & 1:30 pm - 4:30 pm

April 1, 8, and 15

Monday April 18th from 8:00 am - 4:30 pm

RITA Extended Telephone Hours 1 (800) 860-7482

Monday & Thursday

5:00 pm – 6:00 pm February 22 through March 24

Monday, Tuesday & Thursday

5:00 pm – 6:00 pm March 28 through April 7

Saturday

9:00 am – noon February 27 through April 16

Tax Week

8:00 am – 7:00 pm April 11 through April 15 and April 18

On-Site Taxpayer Assistance

 City of Bellefontaine City Hall 135 N. Detroit St. Bellefontaine, Ohio 43311 3/3/2016 9:00 am – 4:00 pm  City of Pataskala City Hall 621 W. Broad St. Pataskala, Ohio 43062 3/8/2016 12:00 pm - 6:00 pm  City of Mt. Healthy

• Mt. Healthy City Park

Community Room 1541 Hill Avenue

• Mt. Healthy, Ohio 45231

3/9/2016 1:00 pm – 7:00 pm

• City of Willoughby

City Hall 1 Public Square Willoughby, Ohio 44091 3/10/2016 1:00 pm – 7:00 pm  City of North Ridgeville Council Chambers 7307 Avon Belden Road North Ridgeville, Ohio 44039 3/15/2016 1:00 pm – 7:00 pm  City of Waterville City Hall 25 North Second St. Waterville, Ohio 44094 3/16/2016 1:00 pm- 7:00 pm

On-Site Taxpayer Assistance

 Village of Holland Lodge at Strawberry Acres 950 S. McCord Rd. Holland, Ohio 43528 3/22/2016 9:00 am – 4:00 pm  City of Streetsboro Council Chambers 9184 State Route 43 Streetsboro, Ohio 44241 3/23/2016 9:00 am – 4:00 pm  City of Rocky River Don Umerley Civic Center 21016 Hilliard Blvd. Rocky River, Ohio 44116 3/24/2016 1:00 pm- 7:00 pm  City of Wadsworth City Hall 120 Maple St. Wadsworth, Ohio 44281 4/2/2016 9:00 am – 4:00 pm

MeF Update

MeF Update

RITA has begun to receive tax filings via the

IRS MeF* process

We are certifying and will continue to certify tax

partners.

*Modernized e-File

Tax Partners - 2016

Form 37 Update

Form 37 Changes

• Added residence status check boxes and updated move section.

Form 37 changes

• Added tip box for computing lines 5b-6 if credit rate is 0%

Form 37 changes

• Updated instructions and form to reflect new minimum

estimates and due dates for 2016.

• Due dates for estimates are 4/15, 6/15, 9/15 and 12/15 .
• Minimum estimate is now $200 for all RITA municipalities.
• If Taxpayers wish to be billed for amounts less than $200, complete

line 20a.

• If line 20a left blank, RITA will compute an estimate for the Taxpayer,

and if that computed estimate exceeds $200 it will be billed.

House Bill 5 -- Agenda

 “First-Ups”

 Occasional Entrant  Net Operating Loss Carryforward and Offsets  RITA Website

H.B. 5 First - Ups

• --Speaker---

Amber Greenleaf

Some of the “First-Ups” Under H.B. 5:



New Employer Withholding Requirements:

• Withholding filing thresholds.
• If amount required to be withheld > $2,399 in the previous calendar year
• r >$200 during any month of the prior calendar quarter -- remit monthly.
• All others remit quarterly.
• BUT, municipalities may require withholding on a semi-monthly basis if

withholding > $11,999 in the previous calendar year or > $1,000 in any month of the prior calendar quarter.

• Due dates moved to the 15th.
• If monthly -- due the 15th of the following month.
• If quarterly-- due the 15th of the month following the end of the quarter.
• Annual reconciliation is due on last day of February for the prior year

withholdings.

“First-Ups” Cont.:



2016 Estimates:

• Individual / Net Profit -- Quarterly estimated payments are not

required unless the estimated tax liability for the year is $200 or more (after withholding and credits).

• New estimated payment due dates.
• 1st quarter due April 15th
• 2nd quarter due June 15th
• 3rd quarter due September 15th
• 4th quarter due December 15th
• Safe Harbors.
• 90% of current year tax liability;
• 100% of prior year tax liability (assuming a full year); or
• The taxpayer was not domiciled in the municipal corporation on

January 1st of the taxable year.

“First-Ups” Cont.:

 Minimum Thresholds:

• Individual / Net Profit Returns -- No remittance of tax is

required with the return if the amount shown to be due is $10 or less.

• Refunds -- Will not be issued for $10 or less.
• If taxpayer is unable to get a refund due to threshold,

RITA will carryforward as a credit.

 Postmark:

• Returns and payments are timely if post-marked on or

before the due date.

“First-Ups” Cont.:

 Lottery / Gambling:

• Includes lottery, sweepstakes, gambling and sports winnings,

winnings from games of chance, and prizes and awards.

• No threshold.
• Professional gamblers (for federal tax purposes) may deduct losses

and expenses.

• Residential? Non-residential / point of sale? Both?
• Ex. Cleveland’s Ordinance: On all income derived from prizes,

awards, gaming, wagering, lotteries or other similar games of chance by a resident from whatever source and from anywhere derived and by a nonresident from whatever source when the prize, award, gaming, wagering, lottery or other similar game of chance takes place in the City. For purposes of this statute, the purchase of a lottery ticket or similar instrument shall be deemed to occur in the City when said instrument is purchased in the City.

“First-Ups” Cont.:

 Penalty/ Interest Rates:

• Non-payment of Tax Penalty.
• Flat 15% of the unpaid tax for individuals and net profit filers

(includes unpaid estimated tax).

• Flat 50% penalty for employer withholding.
• Late Filing Penalty.
• $25 per month for each failure to timely file, up to $150 (for all

returns except estimated taxes).

• Non-payment of Tax Interest Rate.
• Federal short-term rate, plus 5% (individual, net profit and

withholding).

• The same rate of interest is payable to taxpayers on late-issued

refunds.

• Makes all penalties discretionary.

H.B. 5 Assessments:

 “Assessment” defined:

A written finding by a municipal tax administrator that commences a taxpayer’s time to appeal to the local board

• f tax review.
• AND – additional requirements:
• “ASSESSMENT” printed at the top in all capital

letters;

• Advises taxpayer of appeal rights and how to

appeal.

H.B. 5 Assessments:

 Examples of Assessments:

• Full or partial denial of refund requests on

amended returns.

• Denial of taxpayer’s request to use a method other

than the statutorily prescribed method for allocating net profits to a municipality, or tax administrator’s requirement.

• Requiring net profit filers to make a consolidated

filing.

H.B. 5 Assessments:

 Assessments are NOT:

• Billing statements;
• Requests for additional information;
• Informal notices denying refund request on
• riginally filed returns;
• Notifications of math errors; or
• Other general correspondence.

EMPLOYER WITHHOLDING AND THE OCCASIONAL ENTRANT RULE –

Employers and Employees Be Aware!

Presented by: Amy Arrighi

43

House Bill 5 Changes to the Occasional Entrant Rules

 Extends from 12 to 20 the number of days an employee

must be working in a municipality before tax must be withheld.

 Requires withholding from the 21st day forward, not

back to the first day.

 Defines a “day” for purposes of determining when an

employee has reached 20 days working in a municipality.

 Shifts much of the tracking burden to the employee.  Exceptions for “small employers”.

44

Withholding – Small Employers

 The small employer withholding rules:

A small employer is an employer whose gross

receipts the previous year totaled less than $500,000.

Gross receipts are from all sources, including

intangible income, grants, and expense reimbursements (so payments made to a common paymaster to cover the related party’s payroll are included in gross receipts).

 Hospitals, universities, governments cannot be a small

employer. To qualify for the small employer withholding rules,

the employer must have a fixed location in Ohio.

45

Withholding – Small Employers

 The rule:

A small employer with a fixed location in Ohio

withholds municipal income tax as if all of the wages of all employees were earned for work performed at the fixed location.

46

Withholding – Small Employers

 The small employer withholding rules (example 1):

Joe’s Plumbing’s only location in Ohio is in

Cleveland.

Joe’s Plumbing’s gross revenue from all sources last

year was $325,000.

Joe’s Plumbing employs seven full-time employees

who unclog drains in Cleveland, Cleveland Heights, Beachwood, Parma, and Rocky River.

Each employee worked 40 days in each of the

above municipalities.

47

Withholding – Small Employers

 The small employer withholding rules (example 1):

Joe’s Plumbing withholds Cleveland tax on all

qualifying wages of all employees.

Because the wages of Joe’s employees are not subject

to withholding in Cleveland Heights, Beachwood, Parma and Rocky River those wages are exempt from tax in these communities UNLESS an employee receives a refund from Cleveland.

If an employee obtains a “days out” refund from

Cleveland, tax is due to the other communities on all wages earned there.

48

Withholding – Small Employers

 The small employer rules (example 1)

Joe’s Plumbing employs Matt. Joe’s Plumbing withholds Cleveland tax on all of Matt’s

wages.

The wages Matt earned performing work on 40 days in

Cleveland Hts., 40 days in Beachwood, 40 days in Parma and 40 days in Rocky River are exempt from tax in those communities BUT

If Matt receives a days out refund from Cleveland for the

160 days he worked outside of Cleveland, he now owes tax to those communities for ALL days he performed work in these communities (20 days is not a factor).

49

Withholding – Small Employers

 The small employer withholding rules (example 2):

Joe’s Plumbing’s only location in Ohio is in Richfield

Township.

Joe’s Plumbing’s gross revenue from all sources last

year was $325,000.

Joe’s Plumbing employs six full-time employees who

unclog drains in Brecksville, Broadview Heights, North Royalton, Peninsula and Macedonia (each imposing a 2% tax).

Each of the six employees worked 30 days in each of

the above municipalities.

50

Withholding – Small Employers

 The small employer withholding rules (example 2):

Joe’s Plumbing withholds municipal tax as if

all work performed by all employees was in Richfield Township (thus, Joe’s Plumbing does not withhold workplace tax).

51

Withholding – Small Employer

 The small employer withholding rules (example 2)

Joe’s employee Matt is a resident of Garfield Heights.

Garfield Heights imposes a 2% income tax on residents and allows a 100% credit for tax paid to other municipalities, up to 2%.

Matt’s wages earned performing work in Brecksville,

Broadview Heights, North Royalton, Peninsula and Macedonia are exempt from tax in those communities but are subject to tax in his residence community.

Matt suddenly has no workplace withholding beginning

in 2016 due to the small employer withholding rules.

52

Withholding – Small Employers

 The small employer withholding rules (example 2):

If Matt earns $38,000 as a plumber he will owe Garfield

• Hts. $760 when he files his TY 2016 return.

Failure to pay this when due could subject Matt to a

penalty of $114 (15% of the tax due).

 Possible solutions -

Matt may ask Joe’s Plumbing to withhold residence tax

for him. Joe’s Plumbing can say “no”.

Matt should establish and pay an estimate to Garfield

Heights to avoid this situation.

53

Withholding – Small Employers

 The small employer withholding rules (example 3):

MegaSecurity is the world’s largest provider of on-

site security guards.

MegaSecurity has only one fixed location in Ohio

which is within the city limits of Sandusky.

MegaSecurity’s 2015 gross revenue was in the

billions.

MegaSecurity has 257,492 employees worldwide.

54

Withholding – Small Employers

 The small employer withholding rules (example 3):

MegaSecurity employs 7,847 employees in Ohio. Only 123 of MegaSecurity’s employees work in

Sandusky at the company’s fix location and at various client sites.

The remaining 7,724 employees work mostly in

Cleveland, Columbus, Toledo and Cincinnati and most have never set foot in the Sandusky office.

55

Withholding – Small Employers

 The small employer withholding rules (example 3):

Effective January 1, 2016, for the legitimate business

purpose of liability management, MegaSecurity incorporates a subsidiary, MegaSecurity Ohio and transfers all of its Ohio employees to MegaSecurity Ohio.

MegaSecurity Ohio, a separate legal entity, takes over

the Sandusky fixed location.

MegaSecurity Ohio had gross revenue in 2015 of $0 (it

didn’t exist in 2015).

56

Withholding – Small Employers

 The small employer withholding rules (example 3):

Is MegaSecurity Ohio with its 7,847 employees a

small employer?

Does MegaSecurity Ohio have a fixed location in

Ohio?

How does MegaSecurity Ohio withhold under the

small business withholding rules as written?

57

Withholding – 20 Day Rule

 The basic Occasional Entrant Rule:

Extends from 12 to 20 the number of days an individual

must perform services in a municipality before the employer is required to withhold tax.

If the threshold is not exceeded, the employer withholds

• nly for the employee’s “principal place of work” if that

location is within a municipality.

If the 20-day threshold is exceeded, the employer is not

responsible for the withholding for the first 20 days.

Exceptions exist for small employers, certain “worksite

locations” and “presumed worksite locations”.

58

Withholding – 20 Day Rule

 The basic Occasional Entrant Rule (example 1):

So if John’s principal place of work is in Grove City,

and he works 7 days in Columbus, and his employer correctly withholds Grove City tax on his wages earned in Columbus, and

John is a Bexley resident, then John’s wages earned in Columbus are exempt

income as far as Columbus is concerned unless John requests a refund of the Grove City tax withheld on those wages earned in Columbus.

59

Withholding – 20 Day Rule

 The basic Occasional Entrant Rule (example 1):

Because John is a Bexley resident, John owes

Bexley tax on all of his qualifying wages including those qualifying wages earned in Columbus that were exempt income as far as Columbus is concerned.

Bexley’s normal rules for granting residents credit

for taxes paid to another municipality would apply.

60

Withholding – 20 Day Rule

 The basic Occasional Entrant Rule (example 2):

However, if Jane’s principal place of work is in

Prairie Township, and she works 7 days in Columbus, and her employer correctly withholds no tax on her wages earned in Columbus, and

Jane is a Bexley resident, then Jane’s wages earned in Columbus are exempt

income as far as Columbus is concerned.

61

Withholding – 20 Day Rule

 The basic Occasional Entrant Rule (example 2):

Because Jane is a Bexley resident, she owes

Bexley tax on all of her qualifying wages, even those wages that were exempt from Columbus withholding under the Occasional Entrant Rule.

62

Withholding – 20 Day Rule

 The nuts and bolts of the Occasional Entrant Rule:

What is an employee’s “principal place of work”?

The fixed location in Ohio to which the employee is

required to report for duty on a regular and ordinary basis.

If no fixed location applies, then it’s the Ohio

“worksite location”, such as a construction site or temporary job site, to which the employee is required to report for duty on a regular and ordinary basis.

63

Withholding – 20 Day Rule

 The nuts and bolts of the Occasional Entrant Rule:

What is an employee’s “principal place of work”?

If no fixed location applies and no worksite location

applies, then the principal place of work is the location in Ohio at which the employee spends the greatest number of days in a calendar year performing services for the employer.

64

Withholding – 20 Day Rule

 The nuts and bolts of the Occasional Entrant Rule:

For purposes of counting days for the Occasional

Entrant Rule, an employee works in only one municipality each day.

The municipality in which the employee was

deemed to have spent the most time working compared to other municipalities is the municipality in which the employee worked that day for purposes of counting up to 20 days.

65

Withholding – 20 Day Rule

 The nuts and bolts of the Occasional Entrant Rule:

Time spent traveling to and from job sites and picking

up goods or making deliveries is considered time spent working at the employee’s principal place of work.

However, if the employee delivers and installs goods

(i.e. “affixes to real property”), then the time spent installing the goods is time spent working in the municipality where delivery was made.

66

Withholding – 20 Day Rule

 An exception to the Occasional Entrant Rule:

Employees working at a “Presumed Worksite Location”

If the employer can reasonably expect to be

providing services at a jobsite in a municipality for more than 20 days during the year, the employer must withhold on all qualifying wages earned by employees working at that jobsite, even on those wages earned by employees whom the employer knows will work less than 20 days in the municipality.

67

Withholding and the Occasional Entrant Rule

 Municipalities and employers may enter into agreements

to simplify withholding.

 Nothing in H.B. 5 will “undo” existing agreements

between municipalities and employers to simplify withholding.

 Employers can elect to withhold where the work is

actually being performed for all days that it is being performed.

68

Withholding and the Occasional Entrant Rule

 Takeaways (Employees):

When preparing your individual clients’ TY 2015 returns ask to

see a few paystubs for 2016.

Has anything changed? Does the client still have withholding?

Has the municipality of withholding changed?

How will any change in withholding impact the client’s TY 2016

tax situation at the municipal level? Should an estimate be declared for TY 2016 in the resident community?

It is up to your clients as employees to track their work locations

if “days out” refunds will be sought.

Understand that a days out refund from one community may

result in tax due to another.

69

Withholding and the Occasional Entrant Rule

 Takeaways (Employers):

The law is supposed to make withholding easier for

employers – and shifts much of the tracking burden to

• employees. HOWEVER, employers still are required to

certify days out refund requests.

Understand how, if at all, your withholding obligations may

be different now.

Consider withholding residence tax if a change in

withholding will cause a significant change in your employees’ residence tax obligations.

Understand that you can elect to not follow the occasional

entrant rules and withhold where the tax is actually due. 70

Withholding Under House Bill 5

Questions

71

NEW STATE MANDATES:

Net Operating Loss Carryforwards and Phase-in Provisions Individual Schedule Income & Loss Offsets

Presented by: Robert G. Meaker, Chief of Tax Operations RITA

AGENDA

 Net Operating Loss Carryforward (“NOL CF”)

Requirements

 NOL CF Phase-ins  Municipal Income Tax Net Operating Loss Review

Committee

 Schedule Income Offsets for Residents

NOL CF Requirements

• HB 5 provides for a state‐wide five year carryforward for

NOLs incurred in taxable years beginning after 2016.

• Applies to losses incurred in taxable years beginning on
• r after January 1, 2017, and then carried forward to future

taxable years.

 NOL CFs apply to:

1) Business Net Profits 2) Schedule C, E, & F income of Non-residents earned

in taxing municipalities

3) All Schedule income of Residents of taxing

municipalities.

NOL CF Requirements

 NOL CFs do not include unutilized losses resulting from

basis limitations, at‐risk limitations, or passive activity loss limitations.

Losses that are not reportable on Federal Schedule E Part II

are not included in current year taxable income or allowed to be carried forward.

Applies to Partners and S Corporation shareholders.

 NOL CFs may not be used to offset qualifying wages.

NOL CF Requirements

 NOL CF Provision is phased in:

Taxpayers may only claim 50% of the available NOL

carryforward during years 2018 through 2022.

100% utilization of NOL CFs delayed until tax year 2023. TPs may carry forward any “unutilized” NOLs for 5 years.

 From technical clarification in State Budget Bill (HB 64) on how

unutilized NOL CFs are handled in regards to the bill’s NOL CF phase- in provisions.

 See “declining balance method” examples below

Phase-in provisions also apply to NOL CF related to Schedule

income of residents and non-residents

NOL CF Requirements

 Pre‐2017 NOLs are permitted to be carried forward to the

extent already allowed by municipalities.

 The 50% phase-in limitation does not apply to pre‐2017

NOLs.

 Pre‐2017 NOLs must be utilized before utilizing new

NOLs generated after tax year 2016.

 Post 2016 NOL carry‐forwards are calculated and applied

• n a pre‐apportionment basis.

NOL CF - Pre HB5 vs. Post HB5

NOL CF Phase-in Examples

Example 1 – Muni Currently Does Not Allow NOL CF

NOL CF Phase-in Examples

Example 2 – Muni Currently Allows NOL CF

NOL CF Phase-in Examples

Example 3 – Muni Currently Allows NOL CF

NOL CF Phase-in Examples

Example 4 – Muni Currently Allows NOL CF

40% of TP's Income is Apportionable to Muni Each Yr Step 1 Step 2 Actual 2016 2017 2018 2019 2019 2019 2020 2021 2022 2023 Total Net Profit (Loss) for Tax Year - Pre Apportionment

• $25,000
• $4,000

$20,000 $8,000 $3,000 $8,000

• $45,000

$90,000 $2,000 $16,000 Net Profit (Loss) for Tax Year - Post Apportionment 40%

• $10,000

Utilized Post 2016 NOL CF from Tax Year 2017

• $2,000
• $2,000
• $1,000
• $500
• $16,000

Utilized Post 2016 NOL CF from Tax Year 2020

• $22,500
• $1,500

(50% Limitation Applies for NOLs incurred post 2016) Pre Apportionment Muni Taxable Income $0 $0 $20,000 $8,000 $1,000 $6,000 $0 $66,500 $0 $0 Apportionment % 40.00% 40.00% 40.00% 40.00% $8,000 $3,200 $2,400 $26,600 Pre-2017 NOL CF Available

• $8,000
• $2,000
• $2,000

Municipal Taxable Income $0 $1,200 $400 $26,600 Unutilized 2017 NOL CF

• $4,000
• $4,000
• $2,000
• $2,000
• $1,000
• $500

* Unutilized 2020 NOL CF

• $45,000
• $22,500
• $21,000
• $5,000
• $10,000
• $10,000
• $2,000

Amount of Unutilized 2017 NOL CF Available for Next Tax Year

• $2,000
• $2,000
• $1,000
• $1,000
• $500

* Amount of Unutilized 2020 NOL CF Available for Next Tax Year

• $22,500
• $11,250
• $21,000
• $5,000

* 5-year CF period expired in 2022 for Tax Yr 2017 NOLs

Please refer to spreadsheet handout in your folder.

Municipal Income Tax NOL Review Committee

Municipal Income Tax Net Operating Loss Review Committee

Purpose:

 Evaluate and quantify the potential fiscal impact to

municipalities of the NOL carryforward provisions contained in HB 5.

Municipal Income Tax NOL Review Committee

11 Committee members:

 2 from House, appointed by the Speaker of the House;  2 from the Senate, appointed by Senate President;  3 representing municipal income taxpayers, appointed by

Speaker;

 3 representing municipal corporations that levy an income tax

in 2016 (at least 2 of which do not allow NOLs), appointed by Senate President.

 1 appointed by the Governor; appointee will chair the

Committee.

Members shall be appointed not later than March 1, 2015 (?)

Municipal Income Tax NOL Review Committee

Evaluate and quantify the potential fiscal impact to municipalities of the NOL carryforward provisions contained in HB 5. Quantifying the potential fiscal impact:



On or before November 30, 2015 (?) the Committee shall provide a method that municipalities will use to estimate actual/projected municipal tax revenue for tax years 2012 – 2018. (Committee not formed yet)



Municipalities will then estimate actual/projected municipal income tax revenue for tax years 2012 – 2018 that would have resulted if a 5-year NOL had existed during those years for losses incurred in tax years 2011 – 2013.



“Each municipal corporation that levies an income tax in 2011, 2012, or 2013 shall report…” their revenue findings to the Committee on or before September 30, 2016.

Municipal Income Tax NOL Review Committee

Written report due on or before May 1, 2017

 If the Municipal Income Tax NOL Review Committee

(Committee) receives information from a “representative sample” of taxing municipalities, then they will review the info submitted.

 The report shall be submitted specifically to the Speaker

and Minority Leader of the House, and the President and Minority Leader of the Senate.

 The Committee shall cease to exist on May 1, 2017.

Municipal Income Tax NOL Review Committee

“Representative sample” consists of:

 At least 3 or more cities with more than 250,000 population.  5 cities/villages with higher ratio of business taxpayers to

resident individual taxpayers, relative to the state average.

 5 cities/villages with higher ratio of resident individual

taxpayers to business taxpayers, relative to the state average.

 After reviewing the information, the Committee will calculate

the total revenue effects reported by the “representative sample”.

 The Committee’s report will contain recommendations to

address revenue shortfalls.

Resident Schedule Income & Loss Offsets

 Allows for current year offsetting of all Schedule income

and losses of residents of taxing municipalities only for residence tax purposes.

i.e. All Schedule Income & Losses are in “one bucket” for

• ffsetting purposes.

 Includes Schedule C, E & F owned by the resident.  Includes pass-through income & losses of the resident.  S Corporation limitations for residence tax purposes still

apply – Income or losses of S corporations do not flow to an owner unless the owner lives in a municipality that voted in 2003 or 2004 to permit taxation of S corporation

• wners.

Resident Schedule Income & Loss Offsets

 Net “Schedule Bucket Losses” cannot offset

Qualifying Wages.

NOL CF & Phase-in Provisions apply when net total “Schedule

Bucket” is loss.

NOL CF cannot offset Qualifying Wages.

 Does not apply to Schedule income earned by non-

residents in non-resident municipality.

Non-residents must file and pay on Schedule C, E & F income

in municipality where income is earned.

NOL CF & Phase-in Provisions apply.

Resident Schedule Income & Loss Offsets

Example 1 – RITA Resident Tax Year 2015 “Two Bucket Method”

Unapportioned Schedule Activity -“Bucket 1” Cleveland Heights Resident

 Schedule C loss in Cleveland Heights – ($10,000)  Township Schedule E rental income - $25,000  Florida Partnership distributive share loss - ($6,000)

= Total Unapportioned income of $9,000

Resident Schedule Income & Loss Offsets

Example 1 – RITA Resident Tax Year 2015 Apportioned Schedule Activity -“Bucket 2” Cleveland Heights Resident

 Taxing Muni A Partnership – $15,000  Taxing Muni B Rental – ($22,000)  Taxing Muni C Rental – $4,000

= Total Apportioned Loss of ($3,000)

Resident Schedule Income & Loss Offsets

Example 1 Continued – RITA Resident Tax Year 2015 “Two Bucket Method”

Residence Non-taxing Total Taxing Muni Taxing Muni Taxing Muni Total Muni Locations Unapportioned A B C Apportioned Cleveland Heights $(10,000) $ (10,000) Township A $ 25,000 $ 25,000 Florida $ (6,000) $ (6,000) Total Unapportioned ("Bucket 1") $ 9,000 Taxing Muni A $ 15,000 $ 15,000 Taxing Muni B $ (22,000) $ (22,000) Taxing Muni C $ 4,000 $ 4,000 Total Apportioned ("Bucket 2") $ (3,000) Net Unapportioned Schedule Income Subject to Res Tax $ 9,000 Apportioned Loss Subject to CH's Current 5-Yr NOL CF $ (3,000)

Resident Schedule Income & Loss Offsets

Example 1 Continued – RITA Resident Tax Year 2015 Cleveland Heights Resident

 Total Taxable Residence Schedule Income = $9,000

Resident Schedule Income & Loss Offsets

Example 2 – RITA Resident Under HB 5 “One Bucket Method” Tax Year 2016 Cleveland Heights Resident

 Schedule C loss in Cleveland Heights – ($10,000)  Township Schedule E rental income - $25,000  Florida Partnership distributive share loss - ($6,000)  Taxing Muni A Partnership – $15,000  Taxing Muni B Rental – ($22,000)  Taxing Muni C Rental – $4,000

=Net Total of $6,000 Subject to Residence Tax

Resident Schedule Income & Loss Offsets

Example 2 Continued – RITA Resident Under HB 5 “One Bucket Method” Tax Year 2016

Residence Non-taxing Taxing Muni Taxing Muni Taxing Muni Total Muni Locations A B C Cleveland Heights $(10,000) $ (10,000) Township A $ 25,000 $ 25,000 Florida $ (6,000) $ (6,000) Taxing Muni A $ 15,000 $ 15,000 Taxing Muni B $ (22,000) $ (22,000) Taxing Muni C $ 4,000 $ 4,000 Net Total Schedule Income Subject to Residence Tax $ 6,000

Non-resident Pass-through Income & Losses

 Some municipalities currently permit nonresident owners

to file tax returns that offset income and losses of multiple Pass-through entities (“PTEs”) operating in the municipality.

In most instances, such municipalities do not permit a

carryforward of NOLs.

 Under HB 5, PTEs must file and pay municipal income

tax at the entity level for Ohio municipalities.

Each of those PTEs will be permitted to carryforward any NOLs

for five years.

QUESTIONS????

Thank you!

RITA Website Updates

Effective Filing Season 2016

• --Speaker---

Alicia Kline

Please note some minor changes to our Net Profits Tax Return Form 27

1 Small Business Check Box 2 Separate P O Box for returns that have a payment

Form 17 Reconciliation of Income Tax Withheld:

• Additional Section for companies who file and pay on behalf
• f other companies – Common Paymasters, PEO’s, etc.

PRINTABLE TAX TABLE 

Thank-you for your attention!

Questions?

Wrap-Up

Speaker: Don Smith

2016: Next Steps

Forms and Instructions Educational Materials

Tax Preparers Tax Payers Municipalities

Communication via e-mail

Reminder

CPE Certificate Complete the survey Register for e-mail

www.RITAOhio.com

Thank you!