[PDF] - Ohio Tax At Last!! Centralization of Ohios Municipal Income Tax PDF Document

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27th Annual

Tuesday & Wednesday, January 23‐24, 2018

Hya Regency Columbus, Columbus, Ohio

Ohio Tax

Workshop A

At Last!! Centralization

f Ohio’s Municipal Income

Tax … What Taxpayers Must Do Now

Tuesday, January 23, 2018 1:45 p.m. to 2:45 p.m.

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Biographical Information

Thomas M. Zaino, JD, CPA, Managing Member, Zaino Hall & Farrin LLC 41 South High Street, Suite 3600, Columbus, OH 43215 614-349-4810 Mobile: 614-598-1596 tzaino@zhftaxlaw.com Tom is Managing Member and founder of the Firm. He assists clients with multistate business tax issues and represents many multistate and multinational companies and their owners and executives, before various state departments of revenue across the country, as well as before the Ohio Department of Taxation, other federal and state agencies, municipal tax authorities, the Ohio Board of Tax Appeals, Ohio Supreme Court, and the Ohio General Assembly. Tom recently served as the Chairman of the Board of Directors for the Ohio Chamber of Commerce and The Ohio Society of CPAs. He is Treasurer of the Manufacturing Policy Alliance. Prior to founding the Firm, Tom was an attorney with a multistate law firm where he served as Chair of the Multistate Tax Practice Group, as Managing Member of the Columbus Office, and as member of the Board of Directors. From 1999 to 2003, Tom served as Ohio Tax Commissioner and a member of Governor Bob Taft’s cabinet. As Tax Commissioner, Tom led the Ohio Department of Taxation, which is responsible for administering most state-collected taxes, several locally collected taxes, and for supervising the real property tax. His role included guiding the development of Ohio's tax policy Prior to his role as Tax Commissioner, Tom was a tax partner at PricewaterhouseCoopers, LLP. At PwC, Tom represented clients in a wide variety of federal and multistate tax matters. Tom was also a founding member of the firm’s National VISION Team, a special project management service provided to large clients to assist in the implementation of significant business process and legal entity changes. Russell W. Deaton, Chief Financial Officer, Mattingly Family Companies 302 State Street, Zanesville, OH 43701 rdeaton@mattinglymail.com (740) 454-0136 Fax: (740) 454-2003 Rusty began his financial career with the State of Ohio in the taxation department in 1984. Rusty started with the state in the department of Sales & Use Tax and progressed to the Supervisor of Corporate Franchise & Income Tax auditing in and out of state corporations. From there, Rusty joined The Longaberger Company in 1989 where he oversaw many areas of the company ranging from Development, Construction, Facility Services, Tax, and Accounting. He was promoted to the position of Vice President of Development where he was instrumental in the opening of the Longaberger Homestead and the Longaberger Golf Course. After serving that role for fifteen years, he was promoted to Chief Financial Officer where he oversaw all aspects of accounting & finance for the organization. Rusty joined Mattingly Family Companies in January of 2011 and is responsible for all aspects

f the various organizations and is currently involved in the expansion of the cold storage

warehouse facility. Rusty is a graduate of Muskingum College with a Bachelor’s Degree. He has served on numerous boards including the Scudder Advisory Board, State of Ohio Tax Advisory Board, United Way and is very active in his church.

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Biographical Information

Amy L. Arrighi, Chief Legal Counsel, Regional Income Tax Agency 10107 Brecksville Rd., Brecksville, OH 44141 440.922.3201 Fax: 440.922.3515 aarrighi@ritaohio.com Amy Arrighi has served as Chief Legal Counsel for the Regional Income Tax Agency (RITA) since December 2005. RITA serves as the municipal income tax administrator for more than 290 taxing jurisdictions in the State of Ohio. As Chief Legal Counsel, Ms. Arrighi oversees RITA’s Compliance Department. The Compliance Department is responsible for operating all of the Agency’s programs to address taxpayer filing and payment compliance issues, including collections, civil litigation, administrative subpoena programs and the Agency’s use of Federal Tax Information pursuant to its agreement with the Internal Revenue Service. Ms. Arrighi has appeared before municipal Income Tax Boards of Review, the Ohio Board of Tax Appeals, Ohio Appellate Courts and the Ohio Supreme Court on behalf of RITA and its member municipalities. In addition to her duties related to municipal income tax administration, Ms. Arrighi advises RITA management and its governing Board of Trustees on various administrative matters including those related to personnel, Ohio Sunshine Laws, security, and contract bidding and review.

Ms. Arrighi received her J.D. from Cleveland Marshall College of Law in 1998.

Jennifer McFarland, Administrator, Ohio Department of Taxation 4485 Northland Ridge Blvd., Columbus, Ohio 43229 614.466.8667 Fax: 206.666.4462 jennifer.mcfarland@tax.state.oh.us Jennifer is the Administrator of the Business Tax Division for the Ohio Department of Taxation. In this position, she is responsible for overseeing the operations of several Ohio taxes, including municipal net profit, commercial activity, financial institutions, petroleum activity, sales, and use. Previously, Jennifer was the Administrator of the Internal Audit Division for the Department of

Taxation. As Administrator of the Internal Division, she was responsible for independently

evaluating and examining the internal control processes of the Department of Taxation. Prior to become an Administrator, Jennifer served in various management roles throughout the

Department. Jennifer graduated from The University of Akron in Akron, Ohio with a Bachelor’s
f Science in Accounting and earned her J.D. and LL.M. in Taxation from Capital University Law

School in Columbus, Ohio. Sarah Wise, Division Counsel, Office of Chief Counsel, Ohio Department of Taxation 4485 Northland Ridge Blvd. Columbus, Ohio 43229 614-644-5849 Sarah.Wise@tax.state.oh.us Sarah currently serves as division counsel for the financial institutions tax and the municipal net profit tax in the Office of Chief Counsel at the Ohio Department of Taxation. She previously served as counsel for the estate tax, gross casino revenue tax, horse racing tax and as a liaison between the Department of Taxation and the Ohio Development Services Agency with respect to DSA-administered tax credits. She earned a J.D from Capital University Law School, a B.S. from the Ohio State University, and is admitted to practice law in Ohio and Connecticut.

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27th Annual Ohio Tax Conference

With Counterpoint and Rebuttal

Columbus, Ohio January 23, 2018

Amy Arrighi, JD – Regional Income Tax Agency Jennifer McFarland, JD, LL.M – Ohio Department of Taxation Sarah Wise, JD – Ohio Department of Taxation Thomas M. Zaino, CPA, JD – Zaino Hall & Farrin LLC

Workshop A – At Last!! Centralization

f Ohio’s Municipal Income Tax…What

Taxpayers Must Do Now

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Notice (The Legal Mumbo Jumbo)

This document and information is provided by Zaino Hall & Farrin LLC, the Ohio Department of Taxation and RITA is for general guidance only, and does not constitute the provision of legal advice, accounting services, investment advice, or professional advice of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent

advisers. Before making any decision or taking any action, you should

consult with a professional adviser who has been provided with all pertinent facts relevant to your particular situation. The information is provided “as is” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.

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Learning Objectives

Evolution of ODT centralized collection &

administration.

Overview of statutes and proposed rules.
Pros and cons of electing into state‐wide system.
Discuss election to file on a centralized basis.
Review registration and electronic filing options.
Update on city lawsuit that could impact the process.

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How did we get here?

City of Toledo first city to enact a municipal income tax.

– 1946

Proliferation of municipalities

– Today, about 600 municipalities impose an income tax

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Ohio Tax Study Commission

Ohio Tax Study Commissioner Report commented on municipal income

taxes: – “Administration of such a tax at the local level tends to be costly and inefficient.” – “Compliance also tends to be costly for business . . . because of the requirement for business net income to be apportioned for taxation among all the communities in which the firm has employees or property or makes sales.” – “The process of simplification should begin now.” – “As a minimum step, the State might take over the administration

f locally enacted income taxes under uniform statutory rules of

procedure . . ..”

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Ohio Tax Study Commission

Study was issued in 1967!

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1967 2017

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How did we get here?

Am. Sub. H.B. 95 – Imposed some uniformity and phased‐in

city tax filings to the Ohio Business GatewayTM (2003).

Am. Sub. H.B. 5

– Imposed definitional and procedural uniformity (2016) – During the H.B. 5 process of drafting these bills, centralized collection was a significant discussion. Ultimately, centralized collection of taxes was not included in the introduced or enacted version of Am. Sub. H.B. 5 ‐‐‐ “non‐starter.”

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How did we get here? - Continued

Am. Sub. H.B. 49 of the 131st General Assembly (Ohio’s budget bill).

– Introduced by Governor Kasich in January 2017 as part of the proposed biennial budget bill. – Proposed a mandatory requirement filing of net profit returns for all taxpayers through the Ohio Business Gateway and administered by the Ohio Tax Commissioner. – Proposed a 1 percent fee charged by the Ohio Tax Commissioner to municipalities for collection of the net profit tax. – Ultimately adopted a form of centralized collection for certain net profit taxpayers.

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Am. Sub. H.B. 49
Signed by Governor Kasich on June 30, 2017.

– Established new Revised Code Sections 718.80 to 718.95. – Effective for taxable years beginning on or after January 1, 2018, allows entity taxpayers to elect to file their net profit tax returns on a centralized basis through the Ohio Business Gateway. – The election authorizes the Ohio Tax Commissioner to be the sole tax administrator for an electing net profit taxpayer in any municipality that the taxpayer is liable for net profit tax.

But not for pre‐election tax years.

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The Opt-In to the ODT System

Election renews if not canceled after first year.
Due date is first day of the third month of the taxable year for the

taxpayer (March 1 for calendar year taxpayers).

Election effective until terminated by the taxpayer.
Election made on forms prescribed by the Ohio Tax

Commissioner.

No fee to make the election.
Tax Commissioner will retain a ½ percent fee from the tax

collected by the Ohio Tax Commissioner.

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Notification of Election

Along with notifying the Ohio Tax Commissioner of the

election, a taxpayer must also notify each municipal corporation in which the taxpayer conducted business during the previous taxable year. – Exception: New businesses.

Generally, a taxpayer will not have any further contact

with the municipality after the election has been made. – Exception: Prior years.

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Electronic Filing

Taxpayers making the election must file any tax return, extension,
r estimated tax payment through the Ohio Business Gateway.

– Ohio Business Gateway will be available beginning in February for registration and payments and in late 2018 for returns!

Taxpayers must also pay any tax liability though the OBG or the

Treasurer of State.

By January 1, 2019, ODT must publish a method for taxpayers to

electronically submit returns to the department.

Taxpayer may request to be excused from electronic filing and

payment by applying to the Tax Commissioner, but the Tax Commissioner is not required to grant the request.

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Computation of the Tax

Similar statutory provisions for computing taxable

income, apportionment, and tax liability as other taxpayers that do not make the election.

However, taxpayers that make the election are subject

to Ohio Revised Code Sections 718.80 to 718.95 for taxable years in which the election is effective.

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Consolidated Tax Returns

Under H.B. 5 law, taxpayers may file a consolidated tax

return in one jurisdiction and file on a separate basis in a different jurisdiction.

Taxpayers making the election will be able to continue

filing in the same manner.

However, taxpayers should determine when the most

recent election was made.

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Alternative Apportionment

Under H.B. 5, taxpayers may request an alternative apportionment

method, which may include: – Separate accounting; – The exclusion of one or more of the factors; – The inclusion of one or more additional factors that would provide for a more fair apportionment of the income of the taxpayer to the municipal corporation; – A modification of one or more of the factors.

Typically, agreements are in place between the taxpayer and a

municipality.

If opting in, a taxpayer may apply to the Tax Commissioner to continue

the use of the alternative apportionment method or obtain a new method, without municipality input.

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Audits

Tax Commissioner has the authority to audit municipal net profit taxpayers.

– Taxpayers must generally preserve records for six years.

A municipality may refer a taxpayer for audit to the Tax Commissioner if, upon

receiving the following types of information, it has additional information in its possession that could result in a change to a taxpayer’s liability. – Identification of taxpayer filing with the Tax Commissioner, including apportionment data, pre‐2017 NOL amounts utilized, carry‐forwards of tax, and city‐specific credits claimed by the taxpayer. – Identification of taxpayer filing estimated taxes for the municipality and the amounts paid. – Notification from the Tax Commissioner that a taxpayer applied for and received a refund of city tax.

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Audits

The referral must provide any such information that forms the basis of the

referral to the Tax Commissioner.

The Tax Commissioner is required to review the referral and permitted to audit

the taxpayer based on such information or other information in his possession. – Tax Commissioner is not required to audit the taxpayer. – Nothing in the law prohibits a municipality from seeking a writ of mandamus (a court order) if the municipality believes that the Tax Commissioner has violated his fiduciary duty as the administrator of the tax.

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Appeals and Assessments

Similar to the procedure for appeals of other taxes

administered by the Tax Commissioner.

Petition for Reassessment
Corrected Assessment
Final Determination
Ohio Board of Tax Appeals

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Pros and Cons of Electing In

Pros

– Taxpayers will have one net profit tax administrator, the Ohio Tax Commissioner.

All communications, audits, notices, etc. will all be worked

through with ODT

Cons

– Taxpayers will have one net profit tax administrator, the Ohio Tax Commissioner.

ODT may be better situated to compare IRS data, state date and
ther city data for full compliance.
Taxpayer may have less direct service than that provided by

some municipalities.

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Pros and Cons of Opting-In

Pros

– Taxpayers will have one net profit tax administrator, the Ohio Tax Commissioner.

Annual single form/filing will include all municipalities.
Centralized/single quarterly payments of estimated taxes.
Audited by a single entity (ODT).
Uniform application/interpretation of the law.
Elimination of multiple notices and communications from multiple

municipalities.

Cons

– Taxpayers will have one net profit tax administrator, the Ohio Tax Commissioner.

ODT may be better situated than most municipalities to compare IRS

data, state date and other city data to ensure full compliance.

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Important for Taxpayers to Understand

Any differences between current Revised Code sections

and the sections effective for elective taxpayers (718.80 to 718.95).

Any differences between Rules and Regulations of a

municipality and Administrative Rules proposed or adopted by the Tax Commissioner.

Any tax opinions that are ultimately released by a

municipality or the Tax Commissioner.

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Final Administrative Rules

5703‐41‐01 ‐ Filing of returns and payments by

electronic means.

5703‐41‐02 ‐ Joint economic development zones and

joint economic development districts.

5703‐41‐03 ‐ Change in taxable year and declaration of

estimated taxes for short taxable years. Effective January 12, 2018

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When can I Opt‐in? – Available Now!

Taxpayers may opt‐in now for taxable year 2018.

How can I Opt‐in?

Opt‐in with the Department by completing a

registration by the 1st day of the 3rd month of your taxable year – Example – calendar year taxpayers must opt‐in by March 1, 2018 for taxable year 2018.

How Can I Sign Up?

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Election automatically renews until discontinued by

the taxpayer.

Taxpayer may terminate the election on or before

the 1st day of the 3rd month of their taxable year

How Long is My Election Binding?

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How can I register?

Both options available through the Department’s

website at tax.ohio.gov – Electronic Registration – Ohio Business Gateway – Available February 5, 2018 – Paper Registration

Methods of Registration

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Electronic Registration

To begin the registration process, you must enable editing

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Electronic Registration

Enable content:

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Electronic Registration

After enabling content, select “Start Muni Registration”

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Ohio Business Gateway Registration

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Ohio Business Gateway Registration

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Ohio Business Gateway Registration

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Paper Registration

Submit a paper

registration (form MNP‐R) available on tax.ohio.gov/for ms

Paper Registration

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Paper Registration

Schedule of

Municipalities MNP‐R – Schedule A

Paper Registration

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Paper Registration

Members of a

Consolidated Group MNP‐R – Schedule B

Paper Registration

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Opt-In/Registration Process

Taxpayers that take advantage
f early registration (prior to

February 5, 2018) will receive their municipal net profit tax account number and registration confirmation letter in February 2018.

If you’d like to confirm receipt
f your registration earlier,

please contact the Department at 1‐844‐238‐0403.

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Requirements

Submit quarterly

declarations of estimated taxes – Exception: Taxpayers with estimated combined tax liability less than $200 are not required to make estimated payments

Estimated Payments

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Important Dates

Payments of estimated combined tax liability for the

current year are due as follows:

– 22.5% must be paid by the fifteenth day of the fourth month of their taxable year. – 45% must be paid by the fifteenth day of the sixth month of their taxable year. – 67.5% must be paid by the fifteenth day of the ninth month of their taxable year. – 90% must be paid by the fifteenth day of the twelfth month of their taxable year.

If the due date falls on a weekend or holiday, the

report or payment is due the next business day.

Estimated Payments

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Please see the chart below to find the applicable taxable year 2018 due dates:

Estimated Payments

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