What is in subHB5?
Here are some explanations of the three most contentious provisions required by the House Bill 5 substitute bill and why they would be detrimental to municipalities if the sub bill were to pass. This list is not all-inclusive.
- Net Operating Loss
The bill requires five years as the amount of time a municipality can allow a business to carry forward a net operating loss. This five year loss carry forward would become the standard across all municipalities levying an income tax, to be implemented incrementally. Until the required implementation date, a committee would be named by the Ohio legislature to investigate municipalities’ claims of extreme revenue loss.
- The Problem
This provision would force 40% of Ohio’s cities and villages–including Dayton and Columbus–that do not currently allow for the five year carry forward to implement this new standard, resulting in significant revenue loss to those communities. The promise of appointing an investigative committee later seems to be nothing more than a gateway to get this particular provision into the substitute bill in the first place—and later General Assemblies are unlikely to stop this provision, on grounds that doing so would cause a “tax increase”.
- 12 Day Rule Increased to 20 Days with No Look Back Withholding to Day 1
Current law does not require an employer to withhold tax on wages for a nonresident “occasional” employee (one whose workplace is not static) unless that employee worked in a given municipality for thirteen days or more. If an employee worked in a municipality for thirteen days or more, withholding tax must be paid to the workplace municipality starting from day one. HB 5 expands the exemption from twelve to twenty days, with tax to be paid to the principle place of business for the first twenty days and the workplace municipality starting on day twenty-one.
- The Problem
The provision increases the tax compliance void that existed with the twelve day rule (in which those whose professions consist of conducting “occasional” business “off-site” may avoid paying tax to a workplace municipality as long as they work in that municipality for twenty days or less). By mandating that those who work in a municipality for more than twenty days are to pay the municipality in which the business is located starting from day one as opposed to the municipality in which the work was done (the aforementioned workplace municipality), the provision essentially punishes those communities that are not industrially or commercially-based (but may instead be rental or residency-based) by denying them financial recompense for the first twenty days of work done (and municipal services provided) within their community.
- The Pass-Through Entity Loss Offset
Losses attributable to pass-through net profit entities may be used to offset unrelated income (Schedule C, Schedule E, and Schedule F) the same year in which the loss is recorded.
- The Problem
In addition to there being an open season on how a pass-through entity’s loss may be applied, the wording of the provision itself–excluding the five year carry forward from the application of the loss–may require an amendment to the bill later.