On this page, you will find a substitute bill to House Bill 5 that was drafted as a cumulative effort by municipalities and presented before House Ways and Means Committee Chairman Peter Beck. This bill fixes the problems present in House Bill 5 and shortens the document from 141 pages to 81 pages. Not only is this bill the culmination of input from municipalities, municipal tax agencies, and municipal advocacy groups from across Ohio, but it also takes into account grievances levied by businesses and the Ohio Society of CPAs regarding the institution of a more uniform municipal tax system in Ohio.
We at Ohio United believe that this substitute bill fully and accurately represents the tenets of true uniformity. It is a fair approach to facilitating a simpler, more symmetrical municipal tax system in Ohio without sacrificing revenue neutrality. By removing the loopholes and bad legislative language promoted in House Bill 5, this substitute bill reduces the statewide municipal loss of over $46 million. In addition, the substitute bill creates a more business-friendly climate in Ohio by addressing cost of compliance concerns and providing selective tax reduction.
Click here to read the substitute bill as submitted to Chairman Beck. We’ve also provided a summary of the changes between House Bill 5 and the substitute bill in the grid below.
|Item Number||HB 5 Provisions||Proposed Sub. HB 5 Draft|
|1.||Ties O.R.C. 718 terms not otherwise defined in the bill to “same meaning as when used in a comparable context” for federal income tax (“FIT”) purposes or for Title LVII state income tax purposes.||Remains as drafted in H.B. 5.|
|2.||Eliminates residence tax exemption for S Corporation (“S Corp”) owners.||Remains as drafted in H.B. 5.|
|3.||Resident partners of pass-through entities (“PTEs”) allowed to offset any type of municipal taxable income by pass-through losses.||Clarifies that distributive share losses can only offset distributive share income from the same PTE.
718.01(B)(1)(a), 718.01(B)(2)(a). Sub. H.B. 5, pp. 1-2 and 7.
|4.||Lottery & gambling winnings are included in definition of taxable income. Gambling losses can offset winnings to extent deductions are authorized under the Internal Revenue Code (“IRC”). Gambling losses must be allowed if “authorized” under the IRC “and claimed against such winnings.”|| Clarifies that only professional gamblers can offset gambling losses against gambling winnings.
718.01(B)(4). Sub. H.B. 5, p. 2.
|5.||Qualifying wage income of individuals under 18 years old is taxable.||Remains as drafted in H.B. 5.|
|6.||Exempts any “JobsOhio” income from liquor distribution & merchandising activities, & income earned by an entity contracting with the State to provide highway services on behalf of the State.||Remains as drafted in H.B. 5.|
|7.||Mandates 5- year NOL CF. Current law allows municipalities the option of either permitting a NOL CF or not allowing an NOL CF.|| Drafted so that municipalities with 0, 1, 3 and 5 year NOL CFs are grandfathered in and able to retain NOL CF.
Municipalities offering NOL CF other than 0, 1, 3 or 5 (ex. 2, 7, 10) required to round down to the nearest NOL CF of 0, 1, 3 or 5.
New municipalities levying and imposing a tax after bill is passed required to have NOL CF of 5 years; does not include newly formed JEDDs or JEDZs.
718.01(E)(8). Sub. H.B. 5, pp. 5-6.
|8.||“Patronage dividends” must be deducted from municipal Adjusted Federal Taxable Income (“AFTI”).|| Language struck.
718.01(E)(10). Sub. H.B. 5, p. 6.
|9.||Adds definition of resident as both domiciled in Ohio per the State’s bright-line test and domiciled in a municipality.|| Replaces “bright-line test” with a codification of common law factors for determining residence.
718.01(J) and 718.012. Sub. H.B. 5, pp. 7 and 15-16.
|10.||Eliminates deduction allowed for individuals with federal form 2106 unreimbursed employee business expenses.||Remains as drafted in H.B. 5.|
|11.||Removes all income reported by TPs on Schedules C, E & F from definition of “intangible income.” Intangible income is exempt from taxation. Adds federal form 4797 to definition of “net profit” for individuals.||Remains as drafted in H.B. 5.|
|12.||Adds definition for “Tax Administrator.”|| Removes the restriction that third party administrators, other than RITA and CCA, must serve more than 31 municipal corporations.
718.01(U)(3). Sub. H.B. 5, p.10.
|13.||Adds definition of “Audit” as “the examination of a person or the inspection of the books, records, memoranda, or accounts of a person for purpose of determining liability for a municipal income tax, provided the tax administrator has contacted the person in writing, via telecommunication, or in person, regarding the examination or to request additional data.”|| Language struck. At the suggestion of Chairman Beck, adds listing of items to be included with a municipal income tax return.
718.05(E) and 718.36. Sub. H.B. 5, pp. 11, 29-30 and 59-60.
|14.||Creates the Municipal Tax Policy Board (“MTPB”)||Removes all references to MTPB.|
|15.||Adds definitions for “Related Member” and “Related Entity.”||Remains as drafted in H.B. 5.|
|16.||Adds definition of “Assessment” as “written finding by the tax administrator that a person has underpaid municipal income tax, or owes penalty and interest that commences the person’s time limitation for making an appeal to the local board of tax review…and has ‘ASSESSMENT’ written in all capital letters at the top of such finding.” Assessment also includes the denial in whole or in part of “qualified” refund claims. “Qualified Refund Claim” is defined as “a refund claim made on a timely filed amended tax return.”|| Drafted so that the term “assessment” is no longer in the bill; replaced with “written determination of the tax administrator,” which excludes denial of refund claims, issuance of billing statements, miscellaneous correspondence, including notification of mathematical errors and/or a tax administrator’s request for additional information from the definition.
718.01(OO) and 718.11. Sub. H.B. 5, pp. 12 and 42-43.
|17.||Increases 12-day occasional entrant exemption to 20 days.|| Drafted so that employers are not required to withhold unless employee meets 20-day threshold; once exceed 20 days, employer must withhold from day 1.
Drafted to address subcontractors and “worksite location”
Employers with total gross receipts less than $150,000 not required to withhold on employees working in multiple jurisdictions, regardless of how many days they may work in each municipality. Rather, employer required to withhold in municipality in which the principal place of work is located. (Discussed alternative of payroll – could be more easily verifiable.)
718.011. Sub. H.B. 5, pp. 12-15.
|18.||Adds “Duty Days” as basis for taxing professional athletes.|| Removes the “Duty Days” language.
718.011(F). Sub. H.B. 5, pp. 14-15.
|19.||Eliminates net profit sales apportionment “throw-back” provision.|| Retains the sales apportionment “throw-back” provision.
718.02(D). Sub. H.B. 5, p.19.
|20.||Allows an alternative apportionment method for net profit returns to be used on an amended return or an appeal of an assessment without prior approval of the tax administrator.|| Does NOT allow an alternative apportionment method for net profit returns to be used on an amended return or an appeal of an assessment without prior approval of the tax administrator.
718.02(B)(2). Sub. H.B. 5, p.18.
|21.||Adds apportionment provision for sales of services.||Remains as drafted in H.B. 5.|
|22.||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.||Removes the exemption as set forth in H.B. 5.
718.02(E). Sub. H.B. 5, p.19.
|23.||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.||Remains as drafted in H.B. 5.|
|24.||Adds withholding due date of the 15th day of the following month for monthly filers (withhold >$2,399 per year).||Remains as drafted in H.B. 5.|
|25.||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.|| Drafted to indicate a due date of the 15th day of the month following the end of a quarter.
718.03(B)(3). Sub. H.B. 5, p. 23.
|26.||Requires a casino facility or lottery sales agent conducting video lottery terminals on behalf of the state & located within the municipal corporation to withhold & remit municipal income tax on winnings that must be withheld on for Internal Revenue Services (“IRS”) purposes.||Remains as drafted in H.B. 5.|
|27.||Requires municipalities by 12/31/14 to either amend their ordinances to specifically adopt by reference all provisions of proposed O.R.C. 718, or repeal their income tax ordinance.|| Language struck.
718.04(B). Sub. H.B. 5, p. 27.
|28.||Creates $5 deminimus tax due and refund amounts.||Remains as drafted in H.B. 5.|
|29.||Creates deminimus net profit thresholds.|| Drafted to provide net profit deminimus threshold of $5.
718.05(G). Sub. H.B. 5, pp. 30-31.
|30.||Requires State Tax Commissioner to provide any municipal income tax data acquired under O.R.C. 5745 to municipal tax administrators upon their request.|| Drafted to clarify when State Tax Commissioner must provide data and that no fee shall be charged.
718.051(H). Sub. H.B. 5, p.33.
|31.||Consolidated net profit returns must be based on consolidated federal taxable income of an affiliated group as filed with the IRS; specifies that consolidated federal taxable income is the basis for determining municipal AFTI.||Drafted so that if an affiliated group files a federal consolidated return, it must file consolidated with the municipality. Also eliminates the percentages associated with net profit and loss of a pass-through entity.
718.06. Sub. H.B. 5, pp. 34-36.
|32.||Creates an estimated payment deminimus threshold of $200.||Drafted to provide estimated payment deminimus of $50.
718.08(B)(1). Sub. H.B. 5, p. 37.
|33.||Allows a TP that files an amended return to pay any unpaid balance due reported on the amended return in equal installments on or before “the remaining payment dates.”|| Replacing the term “return” with “declaration.”
718.08(C)(2). Sub. H.B. 5, p. 38.
|34.||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.|| Establishes the interest rate at the federal short-term rate + 5%, a penalty for underpayment of individual and net profit taxes at federal short-term rate + 15% per annum, retaining a 50% flat penalty for underpayment of withholding tax, and a $25 failure to timely file penalty for all returns.
718.27. Sub. H.B. 5, pp. 55-57.
|35.||Specifies make-up of local boards of tax review as 3 members. Two of the members cannot be (or cannot have been) employees of the municipality. The 3rd member may be an employee of municipality but may not be the director of finance, tax administrator, or any official involved in municipal income tax matters.||Remains as drafted in H.B. 5, but clarifies that members appointed by the legislative authority may be reappointed.
718.11(A)(3). Sub. H.B. 5, pp.42.
|36.||Assessments issued by municipalities (including the denial of a qualified refund claim) must include notification by personal service, certified mail or authorized delivery service of appeal rights to the local board of tax review. TPs have 60 days after receipt of assessment notice to appeal. Local boards of tax review shall schedule a hearing within 60 days of receiving appeal request. Eliminates most criminal prosecutions and all civil filings against TPs & replaces with certification filed with the county clerk of court of common pleas for judgment entry in the county in which the municipal corporation is located.|| See 16.
Removes statutory lien process. Restores criminal/civil filings and statute of limitations, providing for tolling of the statute of limitations during appeals.
718.12 and 718.18. Sub. H.B. 5, pp. 43-50.
|37.||In cases where an employer incorrectly paid withholding to a municipality, & the municipality that should have been paid has a tax rate > the tax rate of the municipality that was incorrectly paid, the municipality that should have been paid may assess the difference between the tax rates against the employer, during the period of incorrect payment.||Remains as drafted in H.B. 5.|
|38.||Requires tax administrators to report by June 15th each year to the MTPB & to the State Tax Commissioner the amount of annual tax revenue collected in the prior calendar year.|| Language struck.
718.13(C)(1). Sub. H.B. 5, p. 48.
|39.||Mandates same notification and TP appeal right requirements to TPs for reductions or denials of certified refund requests as for assessments. Allows ordinary mail notification for reduction of refunds other than qualified refunds.|| Language struck. Denial of refund on amended return is a written determination of the tax administrator subject to appeal.
718.01(OO)(2) and 718.19(E). Sub. H.B. 5, pp. 12 and 51.
|40.||Adds Ohio Secretary of State as agent for service of process or notice for assessments, actions or proceedings against non-resident individuals & foreign corporations.|| Language struck.
718.21. Sub. H.B. 5, p. 52.
|41.||Specifies interest rates & penalty limits related to late or non-payment of income taxes & estimated tax payments, withholding taxes & late-filing penalty. Authorizes municipalities to charge back to TPs any collection costs & fees.||See 34.|
|42.||Requires 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.”|| Language struck.
718.37. Sub. H.B. 5, p. 60.
|43.||Defines “Opinion of the Tax Administrator” & specifies procedures for requesting & issuing tax administrator opinions. Authorizes MTPB to issue opinions similar to tax administrator opinions, but only on issues having statewide application. MTPB opinions are binding for all municipalities.||Removes all reference to the MTPB.|
|44.||Permits TPs “aggrieved by an action or omission” of a tax administrator or employees related to audits or assessments to bring an action for damages in common pleas court against the tax administrator, municipality, or both. The TP can bring the action for damages in common pleas court only if the action or omission resulted from frivolous disregard of O.R.C. 718 provisions, MTPB rules, or tax administrator instructions.|| Eliminates all references to the MTPB and the section that permits a taxpayer cause of action.
718.39. Sub. H.B. 5, pp.62-63.
|45.||Requires PTEs to withhold and remit the net profit tax due to a municipality, based on the entity’s net profits earned in a municipality, on behalf of each partner/owner of the PTE. Defines partnerships, S Corps, or any other entity given pass-through treatment for federal income tax purposes, but excluding trusts, estates, grantor trusts and single-member LLCs, as PTEs.|| Clarified that owners subject to tax in resident community are entitled only to the credit provided in the resident municipality.
718.43(C) and (D). Sub. H.B. 5, p. 67.
|46.||Reinstates 3 municipal tax administrator representatives to Ohio Business Gateway (“OBG”) steering committee; adds the chair of the MTPB as the 4th municipal tax administrator member.|| Drafted so that 3 municipal tax administrators are selected by the Governor from a list of candidates provided by the OML.
5703.57(C)(1)(b). Sub. H.B. 5, p.69.
|47.||Eliminates ability to appeal from decision of local board of tax review to the court of common pleas.|| Reinstates the ability to appeal a local board of tax review decision to the court of common pleas, and establishes a standard of review for the Ohio BTA.
5707.011. Sub. H.B. 5, pp.70-72.
Other Additional Amendments Include the Following:
- SERPs – “Pensions” and “retirement benefits” defined in Proposed Sub. H.B. 5 Draft to exclude any amounts not reported, or not required to be reported, to the recipient on Internal Revenue Form 1099-R (meaning SERPs remain taxable as they are wages reported on Form W-2). 718.01(BB). Sub. H.B. 5, p. 10.
- Stock options – Proposed Sub. H.B. 5 Draft reinstates current law 718.02(F). Sub. H.B. 5, pp. 20.
- Real Estate Agents/Brokers – Proposed Sub. H.B. 5 Draft provides language as to how commissions and net profits of real estate agents/brokers are treated, to be taxed at the location of the property sold. 718.02(G). Sub. H.B. 5, p. 20.