“Fools rush in where angels fear to tread.” — “An Essay on Criticism” by Alexander Pope.
You may have read that last month the Ohio Department of Taxation (ODT) opened registration for businesses electing to participate in the new state-administered municipal net profit tax system for the 2018 tax year (to be filed in 2019).
Ohio business owners and their well-respected professional tax preparers may be wondering whether opting in to this system is in the best interests of their businesses — and the municipalities in which they live and work.
While businesses deserve a vehicle through which they can file a single municipal net profit return for all municipalities in Ohio, significant questions have been raised in legislative hearings and elsewhere regarding the readiness of the systems and staff at the ODT to handle the processing and collection of municipal net-profit filings across the state. Businesses and tax professionals alike need to weigh whether or not it is advisable to opt-in with the ODT and assume the risk associated with the state’s beta test.
Newly-enacted sections of the Ohio Revised Code will govern businesses that choose to opt-in to the state’s new net-profit tax system, while businesses that continue to file through their municipality or a third-party administrator such as the Regional Income Tax Agency, will be governed by already existing sections of the code, and the ordinances and rules that relate to them.
What business wants to be on a potentially uneven playing field with its competitor?
“Taxpayers should carefully review their existing tax attributes and consider whether a difference in law exists,” advises Attorney Debora D. McGraw of the Columbus, Ohio-based law firm Zaino Hall & Farrin LLC. For an in-depth view of the legal matters and tax implications that a business should consider before opting-in, read the full text of McGraw’s article here.
Hundreds of cities and villages that levy an income tax have initiated litigation against the State of Ohio on the basis that the opt-in provision violates Ohio municipalities’ home rule authority — the authority to exercise all powers of local self-government, derived from the Ohio Constitution.
Finally, business owners may want to consider an issue that has little to do with tax codes or the impact of litigation. Municipal leaders have expressed concerns about the future implications, financial and otherwise, of the state collecting and administering these locally generated taxes.
Does opting-in jeopardize the relationship that every business works hard to cultivate with the community in which it and many of its employees reside — a relationship built on each party endeavoring to support one another while seeking mutually beneficial outcomes?
The bottom line: considering the possibility of an uneven playing field, the untested ability of the Ohio Department of Taxation, the impact of litigation, and the potential damage to carefully-cultivated relationships, businesses should carefully weigh the decision to opt-in or stay put.
With over 45 years of experience serving over 2 million taxpayers in 300 Ohio municipalities, RITA – the Regional Income Tax Agency is a full-service tax administration agency, providing comprehensive municipal tax collection and administration services in the state of Ohio. Learn more at: http://www.ritaohio.com/About.
As Executive Director, Donald W. Smith oversees the shared income tax collection and administration services for RITA. Prior to joining RITA, Don served as tax commissioner for the City of Akron and fiscal officer and tax director for the Village of McDonald in Trumbull County. He maintained a private tax practice and spent 16 years in various managerial positions in finance and IT at a Fortune 50 company. Now, Don is responsible for that municipal tax agency’s personnel, operations and strategy. He also serves as its public advocate, working with and on behalf of elected officials and representatives from municipalities of all sizes throughout Ohio.