HB 601 – Significant New
Provision
New ORC
Section
(unless
otherwise
indicated)
Eliminates residence tax
718.01
exemption for S Corporation (B)(1) (a)
Owners.
Lottery & gambling
718.01
winnings are included in
(B)(4)
definition of taxable income.
Gambling losses can offset
winnings to extent
deductions are authorized
under the Internal Revenue
Code.
Qualifying wage income of
individuals under 18 years
old is taxable.
718.01
(C)(14)
Revenue Impact Cleveland
Revenue Impact - CCA
Positive. Cleveland
currently can only tax
resident S Corp owners on
S Corp distributive share
income earned in Ohio.
Positive. Approx. 50% of
CCA members are
prevented from taxing
resident S Corp owners on
their S Corp distributive
share income under current
law.
Estimated additional
residence tax revenue
<$5,000 per year.
Negative. Cleveland taxes
gambling/lottery winnings
but does not permit
gambling losses to offset
winnings.
Positive. Cleveland
currently exempts all
income of individuals <18.
.
Mixed. Approx. 20% of
CCA members do not tax
gambling/lottery winnings;
approx. 25% of members
that do tax these winnings
already allow losses to
offset winnings.
Positive. Most CCA
members have similar
under-age exemptions for
all income.
Additional Comments
Unclear whether tax is
limited to residents or also
applies to non-residents.
Gambling losses must be
allowed if “authorized”
under the IRC; may
require municipalities to
allow these deductions
even if not actually taken
by the taxpayer on their
federal return.
Approx. 400 “under 18”
refund claims were filed
by TPs in 2011, with
almost a 100% approval
rate. The “under 18”
HB 601 – Significant New
Provision
New ORC
Section
(unless
otherwise
indicated)
Revenue Impact Cleveland
Revenue Impact - CCA
Additional Comments
CCA paid approx. $22,000
in “under 18” refunds in
calendar 2011 (represents
<1/2 of 1% of total refund $
paid in 2011).
refund requests that were
approved represent
approx. 4% of the total
number of refunds
approved in 2011.
Exempts any “JobsOhio”
income from liquor
distribution &
merchandising activities,
and income earned by an
entity contracting with the
state to provide “highway
services” on behalf of the
state.
Mandates 5-year Net
Operating Loss
Carryforward (“NOL CF”)
718.01
(E)(7)
Unknown. Refers to ORC
126.604 and 4313.02, both
sections effective 9/29/11.
Unknown.
718.01
(E)(8)
None. Cleveland allows a
5-year NOL CF for business
NP filers & individuals with
Schedule C, E & F income.
Adds definition of resident
718.01 (J)
Negative. Current
Mixed. Approx. 80% of
CCA members allow 5-year
NOL CF. Members that
currently do not allow an
NOL CF may face
significant revenue losses,
depending on the
percentage of revenues they
currently receive from
business net profits taxes &
individuals with Schedule
C, E or F income.
Negative.
Also applies to Individual
Schedule C, E & F
income.
State’s bright-line
HB 601 – Significant New
Provision
New ORC
Section
(unless
otherwise
indicated)
as both domiciled in Ohio
per the state’s bright-line
test and domiciled in a
municipality
Eliminates deduction
Current
allowed for individuals from 718.01 (F)
federal form 2106
unreimbursed employee
business expenses.
Removes all income
reported by taxpayers from
Schedules C, E & F from
definition of “intangible
income”. Intangible income
is exempt from taxation.
718.01 (S)
Revenue Impact Cleveland
municipal income tax
domicile law is not tied to
state domicile law. An
unknown number of
residents that currently file
and pay Cleveland
residence tax will be
exempt if not considered
domiciled in Ohio under the
state law.
Positive. This deduction
against an employee’s
taxable wages results in
significant numbers of
refund requests each year.
Positive. Would now allow
municipalities to tax any
royalty income reported on
these schedules. Royalty
income (except royalties
“from the ground”) is
currently exempt from
Revenue Impact - CCA
Additional Comments
domicile test is based on
having more than 182
“contact days” in the state,
while away from an
individual’s out-of-state
abode. (5747.24).
Approx. 1,150 “2106
expense” refund claims
CCA paid approx. $112,500 were filed by TPs in 2011,
“2106 expense” refunds in
with about an 80%
calendar 2011 (represents
approval rate. The 912
<2% of total refund $ paid
“2106 expense” refund
in 2011).
requests that were
approved represent
approx. 9% of the total
number of refunds
approved in 2011.
Positive.
Positive.
HB 601 – Significant New
Provision
New ORC
Section
(unless
otherwise
indicated)
Adds definition for “Tax
Administrator”.
718.01 (U)
Adds definition of “Audit”
as “the examination of a
taxpayer or the inspection of
the books, records,
memoranda, or accounts of
the taxpayer for purpose of
determining liability for a
tax”.
718.01
(BB);
718.36
Revenue Impact Cleveland
taxation. (See ORC 718.05
(G) below).
Unknown. Specifically
includes CCA and RITA as
“Tax Administrators”, as
long as the “agency or
entity administers income
tax on behalf of at least
thirty-one municipal
corporations”.
Negative. In conjunction
with 718.36, requires
written notice to TP of
audit, TP’s rights, etc., at/or
prior to start of audit. Based
on the how the definition of
“audit” is interpreted,
requesting additional
information from a TP in
order to determine the
validity of a refund request,
or field audit activities
(construction site visits,
canvassing, etc.), or
compliance programs
utilizing federal tax
information, for example,
might fall under these
Revenue Impact - CCA
Additional Comments
Unknown.
Also includes “a municipal
corporation acting as an
agent of another municipal
corporation” as a “Tax
Administrator”.
Negative.
CCA audits all refund
requests prior to issuing
refunds. CCA also
performs audits of
taxpayers utilizing federal
tax information, state tax
information, & other
sources, and CCA
instigates additional audits
based on a number of
other indicators.
HB 601 – Significant New
Provision
Creates the “Municipal tax
policy board”.
New ORC
Section
(unless
otherwise
indicated)
Revenue Impact Cleveland
provisions, miring
compliance procedures in
an administrative quagmire
that will reduce revenues.
718.01
Negative. Represents
(GG);
significant loss of local
718.42;
control. MTPB will adopt
current ORC any/all rules related to
119
municipal income tax,
which will apply to all
municipalities. Will also
create all income tax forms
& instructions which must
be used by all
municipalities. MTPB rules
and decisions, etc., are
subject to JCARR approval
under provisions of ORC
119.
Revenue Impact - CCA
Additional Comments
Negative. CCA MITIS, and
batch processing system,
along with CCA
Community Access and
CCA eFile applications will
need to be completely
programmed to correspond
to whatever new municipal
tax form format is
proscribed by the MTPB.
CCA IT manager indicates
this will take some time and
will come at significant
additional cost for
additional programmers,
application testing, etc. In
conjunction with the new
requirement for assessment
billing notices (see New
ORC 718.11, 718.12,
718.18 section below), a
conservative estimate of
reprogramming costs ranges
from $5 million to $7
Governor appoints the 7
member MTPB; 1 each
from CCA & RITA, and 5
tax administrators from
other municipalities based
on population thresholds.
MTPB can designate
working committees
which may include
members not on the
MTPB such as tax
administrators or
“interested members of the
public”.
HB 601 – Significant New
Provision
New ORC
Section
(unless
otherwise
indicated)
Revenue Impact Cleveland
Increases 12-day occasional
entrant exemption to 20
days.
718.011;
718.01
(C)(15)
Negative. Exempts 1st 20
days from income tax;
current law allows tax be
paid from day 1 after a nonresident employee works
>12 days in a municipality.
At a minimum, Cleveland
will lose revenues from
construction workers,
contractors, delivery
services, etc.
Adds “duty days” as basis
for taxing professional
athletes.
718.02 (a),
(b)
Negative. Cleveland
None. Cleveland may be
currently uses “game days” the only CCA member
to determine taxable income impacted by this provision.
of pro athletes. Use of duty
days will reduce the
percentage of pro athlete
income taxable to
Cleveland, resulting in
reduced revenues.
A conservative estimate of
annual revenue losses from
Revenue Impact - CCA
million.
Negative. Impact depends
on percentage of revenues
received from employment
tax vs. residence tax.
Additional Comments
Also defines “Principal
place of work” as location
in which employee works
the greatest # of days
during a year; defines a
“day” working in a
municipality as the
location where an
employee spends the
majority of time
performing services during
the day – so that an
employee will only be
taxed by one municipality
each working day.
Game days provides a
higher allocation to
Cleveland in most cases,
for example the
denominator for pro
football players is in the
20’s (includes preseason,
regular season & post
season games) vs. a much
larger denominator under a
“duty days” basis. Duty
days is defined in 718.02
HB 601 – Significant New
Provision
New ORC
Section
(unless
otherwise
indicated)
Revenue Impact Cleveland
Revenue Impact - CCA
visiting pro teams (MLB,
NBA & NFL) for Cleveland
totals $1 million, as
follows: MLB teams
approx. $120,000; NBA
teams approx. $175,000;
NFL teams approx.
$705,000. These estimates
do not include projected
revenues losses from
Cleveland’s home teams.
Eliminates net profit sales
Current
apportionment “throw-back” 718.02
provision.
(B)(3)
Negative. Under current
law, sales delivered from a
business located in
Cleveland to a customer
outside Cleveland count as
sales allocable to Cleveland
if the business does not
have its own employees
regularly engaged in
promoting those sales at the
customer location where the
goods are delivered.
Elimination of this throwback provision will reduce
the percentage of taxable
income to Cleveland.
Additional Comments
(b) as every day a pro
athlete performs services
for the team, including
practice days, meetings,
training camp, mini-camp,
etc.
Negative. Impact depends
upon percentage of
revenues received from
business net profit taxes.
“Throw-back” sales will
most likely become “nowhere” sales – untaxed by
any Ohio municipality.
HB 601 – Significant New
Provision
Adds apportionment
provision for sales of
services.
Exempts rental income of
residents from residence
taxation when a rental
activity not constituting a
business or profession is
located outside of the
resident’s municipality.
Requires semi-monthly
withholding payments if
withholding > $11,999 in
the previous calendar year,
or if it was > $1,000 in any
month of the previous
quarter. Adds withholding
due date of 3 banking days
after the 15th of month.
Adds withholding due date
of the 15th day of the
following month for
New ORC
Section
(unless
otherwise
indicated)
ORC 718.02
(D)(2)
Revenue Impact Cleveland
Revenue Impact - CCA
Additional Comments
Unknown. Bill provides
that allocation of services
revenue depends on where
purchaser of services “uses
or receives the benefit” of
those services; this seems to
be vague.
ORC 718.02 Negative. Under current
(E)
law, rental income of
residents is taxable
regardless of where the
rental property is located,
subject to Cleveland’s 50%
residence tax credit.
Unknown.
Current ORC 718
provisions are silent as to
apportionment of services
for net profit purposes.
ORC 718.03 Positive. CCA currently
(B)(1)
requires monthly
withholding payments for
employers withholding >
$100 per month.
Positive
ORC 718.03 Nominal. CCA’s due date
(B)(2)
for withholding payments is
the 20th of the month
Nominal.
Negative. Under current
law, rental income of
residents is taxable
regardless of where the
rental property is located,
subject to each member’s
residence tax credit
provisions.
HB 601 – Significant New
Provision
New ORC
Section
(unless
otherwise
indicated)
monthly filers (withhold
>$2,399 per year).
following the previous
month (monthly filers) or
the end of the previous
quarter (quarterly filers).
ORC 718.03 Nominal.
(B)(2)
Adds withholding due date
of the last day of the month
following the end of a
quarter (withhold < $2,400
per year) for quarterly filers.
Requires municipalities by
12/31/13 to either amend
their ordinances to
specifically adopt by
reference all provisions of
ORC 718, or repeal their
income tax ordinance.
Creates $5 deminimus tax
due and refund amounts.
Creates deminimus net
profit thresholds.
Revenue Impact Cleveland
Revenue Impact - CCA
Additional Comments
Nominal.
ORC 718.04 Nominal.
(B)
Nominal.
ORC 718.05 Nominal.
(F)(1);
718.19
(A)(1)
ORC 718.05 Negative. Exempts business
(G)
taxpayers if they have an
apportionment ratio to a
municipality of <1% &
have tax due of <$50.
Exempts individuals with
Schedule C, E or F income
if qualifying wages
Nominal.
Negative. Impact depends
upon percentage of
revenues received from
business net profit taxes &
individuals with Schedule
C, E or F income.
The deminimus provision
applying to individuals
with Schedule C, E or F is
most like a drafting error
by the bill’s authors (may
have been meant to apply
to businesses & not
individuals).
HB 601 – Significant New
Provision
Specifies that consolidated
net profit returns must be
based on consolidated
federal taxable income as
filed with the IRS; specifies
that consolidated federal
taxable income is the basis
for determining municipal
adjusted federal taxable
income (“AFTI”).
Creates an estimated
payment deminimus
threshold of $250.
New ORC
Section
(unless
otherwise
indicated)
Revenue Impact Cleveland
<$50,000 within a
municipality. Many
Schedule C businesses do
not have employees, much
less wages approaching this
deminimus amount. It is
very rare that Schedule E
(rental income) filers &
Schedule F (farm income)
filers report any wages.
This provision would
effectively exempt the great
majority of Schedule C, E
& F filers from taxation.
ORC 718.06 None. This is the same
basis currently used by
CCA for consolidated
returns.
ORC 718.08 Negative. Most CCA
(B)
members currently do not
have a deminimus threshold
for estimated payments.
Revenue Impact - CCA
Additional Comments
The business deminimus
provisions should limit the
number of “zero” (no tax
due, no tax overpayment
claimed) net profit returns
that CCA must process
each year, however
exemption forms under
these provisions must still
be reviewed and
processed.
None.
Negative. Only a small
minority of CCA members
currently do not require
estimated payments.
Will result in cash flow
decreases during 1st year
of implementation; likely
will result in additional
HB 601 – Significant New
Provision
Specifies the use of interest
rate proscribed by the State
Tax Commissioner each
year for underpayment of
estimated taxes; specifies
penalty rate limit of 10% in
addition to interest in these
situations.
Specifies make-up of local
boards of tax review as 3
members, 2 of which cannot
be (or cannot have been)
employees of the
municipality; 3rd member
must be employee of
municipality but may not be
the director of finance, tax
administrator, or any official
involved in municipal
income tax matters.
New ORC
Section
(unless
otherwise
indicated)
ORC 718.08
(D); 718.27;
current ORC
5703.47
Revenue Impact Cleveland
Negative. The state uses the
federal short-term rate plus
3%; Cleveland’s interest
rate and penalty rate are
both 18%.
Revenue loss for Cleveland
based on this provision
combined with proposed
new ORC 718.27 below
conservatively estimated at
$515,000 per year.
ORC 718.11 Unknown. Cleveland’s
(A)
board of tax review consists
of Council President, Law
Director and Utilities
Director or their designees.
Revenue Impact - CCA
Additional Comments
delinquency issues from
taxpayers that owe less
than the deminimus
amount.
Negative. Approx. 70% of
Many CCA members will
CCA members have an 18% hold some or all penalty &
or higher annual interest
interest charges “in
rate; all currently have
abeyance” contingent
interest rates higher than the upon taxpayers paying
current state rate; all CCA
remaining outstanding
members currently apply
assessments and remaining
penalties at rates similar to
current with all future tax
their interest rates.
responsibilities.
Unknown. Make-up of
current boards of tax review
is determined by each
municipality.
The legislative authority or
each municipality will
appoint the 2 nonmunicipal employee
members; the top
administrative official of
each municipality appoints
the municipal employee
member.
HB 601 – Significant New
Provision
Requires that assessments
issued by municipalities
must include notification by
personal service, certified
mail or delivery service
authorized by the state tax
commissioner to taxpayers
of their appeal rights to the
local board of tax review.
Taxpayers have 60 days
after receipt of assessment
notice to appeal. Local
boards of tax review shall
schedule a hearing within 45
days of receiving appeal
request. Eliminates criminal
prosecutions and civil
filings against taxpayers &
replaces with certification
filed with local county (or
Franklin County if taxpayer
is not an Ohio resident)
clerk of court of common
pleas for judgment entry.
Requires tax administrators
to report by June 15th each
year to the MTPB & to
New ORC
Section
(unless
otherwise
indicated)
ORC 718.11
(B)-(E);
718.12;
718.18;
current ORC
5717.011
Revenue Impact Cleveland
Revenue Impact - CCA
Additional Comments
Negative. Creates
prohibitive & expensive
assessment process. CCA
database billing system will
need major programming
changes; opens the door for
potential flood of frivolous
claims to local board of tax
review for reassessment of
tax &/or penalty & interest
charges. Revenues collected
on statutory liens resulting
from judgments filed by
clerks of court are not
guaranteed; loss of threat of
criminal
prosecution/criminal record
results in decreased
enforcement abilities.
Negative.
Permits delivery of notice
through alternative means
such as secure email with
permission of taxpayer.
ORC 718.13 Negative. Creates an
(C)
additional reporting
requirement and proscribes
Annual additional costs for
CCA related to certified
mail requirement alone are
estimated to range between
$200,000 to $375,000,
depending on whether
return receipt is service is
required.
Negative.
Cleveland’s annual court
costs for both civil and
criminal case filings
average less than $20,000
per year.
CCA average annual
postage costs for
assessments totals
$38,000. Certified notices
returned because of
undeliverable addresses
must be researched by
municipality for last
known address, etc. If
unable to determine,
assessment becomes final.
Certified notices returned
for other reasons must be
resent via ordinary mail.
Municipalities are already
required to submit annual
income tax revenue
HB 601 – Significant New
Provision
auditor of the state the
amount of annual income
tax revenue collected in the
prior calendar year;
prohibits municipalities not
complying from assessing
any penalties for the year in
which the report was due
until the required report is
submitted.
Mandates same notification
and taxpayer appeal right
requirements to taxpayers
for reductions or denials of
requested refunds as for
assessments.
New ORC
Section
(unless
otherwise
indicated)
Revenue Impact Cleveland
Revenue Impact - CCA
municipal penalty for noncompliance.
ORC 718.19 Negative. Increases costs
(E)
due to certified mail
requirement, bogs down
refund processing, etc.
Adds Ohio Secretary of
ORC 718.21 Unknown.
State as “agent” for service
of process or notice for
assessments, actions or
proceedings by a
municipality against nonOhio resident individuals &
businesses.
Permits tax administrators to ORC 718.24 Unknown. CCA currently
“allow the filing of returns
requires electronic
and payments by electronic
submission of certain tax
Additional Comments
information to the state.
Negative.
Additional costs related to
certified mail requirement
for refund adjustments
estimated to average
$40,000 per year.
Unknown.
Unknown.
HB 601 – Significant New
Provision
New ORC
Section
(unless
otherwise
indicated)
means or through the Ohio
business gateway.”
information, such as
employee W-2 information
associated with annual
withholding reconciliation
reports. Concern is that this
language “allows the filing
of returns and payments
electronically” but may not
authorize that requirement
by a tax administrator.
ORC 718.27 Negative. Penalty limits for
unpaid income tax &
estimated tax equal to 10%
of related tax due;
Cleveland’s rate is 18%.
Penalty limit for unpaid
withholding tax equal to
50% of amount due;
Cleveland’s rate is 120%
per year. Late-filing penalty
for individual annual
returns capped at $25; this
is the same as Cleveland’s
late-filing penalty for
individual annual returns.
Late-filing penalty for other
annual returns capped at
$150 for each failure.
Specifies penalty rate limits
related to late or nonpayment of income taxes &
estimated tax payments,
withholding taxes, & latefiling penalty; authorizes
municipalities to charge
back to taxpayers any
collection costs & fees; caps
violations of new ORC
718.40 at $1,000 (failure of
TPs to fill out returns,
answer questions, give true
answers, provide tax
administrators with
requested records, etc.).
Revenue Impact Cleveland
Revenue Impact - CCA
Additional Comments
Negative.
Specifically allows tax
administrators to abate
fully or partially any
penalty or interest charges
for good cause (new ORC
718.27 (F)).
HB 601 – Significant New
Provision
Requires that each tax
administrator’s office be
open for business every day,
Monday-Friday, during
business hours as defined by
the municipality by
resolution or ordinance.
Adds requirement for
appointment by
municipalities with
populations >30,000 of a
“problem resolution officer”
to receive & review
inquiries & complaints
about matters pending with
municipal tax administrators
“for an unreasonable length
of time” or for
“unsatisfactory responses”.
Defines “opinion of the tax
administrator” and specifies
procedures relating to
requesting, issuing &
administering tax
administrator opinions that
bind the tax administrator &
the taxpayer. Authorizes
MTPB to issue opinions
New ORC
Revenue Impact Section
Cleveland
(unless
otherwise
indicated)
ORC 718.29 Neutral. No penalty
indicated for failure to
follow this section.
Revenue Impact - CCA
Additional Comments
Neutral.
ORC 718.37 Unknown. No such formal
position exists for CCA or
any other municipality we
are aware of at this time.
Complaints are handled
based on each
municipality’s or tax
administrator’s discretion.
Unknown.
This provision probably
included to encourage
small self-administering
municipalities to have
some larger entity
administer their tax for
them.
Municipal tax
administrator may appoint
an existing or new
employee as the problem
resolution officer.
ORC 718.38 Unknown.
(A) – (I);
718.38 (J),
(F)
Unknown.
Prohibits the appeal of
opinions issued by tax
administrators & MTPB.
HB 601 – Significant New
Provision
New ORC
Section
(unless
otherwise
indicated)
Revenue Impact Cleveland
similar to tax administrator
opinions, but only on issues
having state-wide
application; MTPB opinions
are binding on all
municipalities.
Permits taxpayers
ORC 718.39 Negative. Awards
“aggrieved by an action or
compensatory damages &
omission” of a tax
reasonable costs of
administrator or employees
litigation & attorney fees to
related to audits or
taxpayers if successful in
assessments to bring an
their action.
action for damages in
common pleas court against
the tax administrator or
municipality or both if the
action or omission resulted
from frivolous disregard of
ORC 718 provisions, MTPB
rules, or tax administrator
instructions.
Requires pass-through
ORC 718.01 None. CCA currently
entities to withhold and
(N); 718.43 requires pass-through
remit the net profit tax due
entities to file and remit net
to a municipality, based on
profit taxes on behalf of the
the entity’s net profits
entity’s partners or owners;
earned in a municipality, on
this is basically the same
behalf of each partner/owner
treatment included in HB
Revenue Impact - CCA
Negative.
None.
Additional Comments
HB 601 – Significant New
Provision
of the pass through entity.
Defines partnerships, S
Corporations, or any other
entity given pass-through
treatment for federal income
tax purposes, but excluding
trusts, estates, grantor trusts
and single-member LLCs, as
pass-through entities.
Reinstates 3 municipal tax
administrator
representatives to Ohio
Business Gateway steering
committee; adds the chair of
the MTPB as the 4th
municipal tax administrator
member.
Eliminates ability to appeal
from decision of local board
of tax review to the court of
common pleas.
New ORC
Section
(unless
otherwise
indicated)
Revenue Impact Cleveland
Revenue Impact - CCA
601.
ORC
5703.57 (C)
(1) (b), (h).
Unknown. Current state
budget bill reduced number
of municipal tax
administrator
representatives on OBG
steering committee to 1.
ORC
5717.011
(A)
Unknown. Current law
allows dual track for
appeals from local boards,
either to common pleas
court or to state board of tax
appeals.
Unknown.
Additional Comments