As part of Ohio’s biennial budget passed earlier this summer, Ohio corporations and pass-through entities have the option to centralize all of their municipal business tax filings through the Ohio Department of Taxation beginning with the 2018 tax year. Registration for the new system began October 19, 2017. While there are pros and cons to weigh, this option could streamline an often cumbersome and painful filing process for multi-city filers.
How It Works
The election to use the consolidated system is binding, which means that an entity must use the centralized system for the tax year in which it is elected and each year moving forward, unless terminated according to very specific rules. In addition:
- For those opting in, the election must be made by the first day of the third month of an entity’s fiscal year (March 1st for calendar taxpayers). This is a binding election unless revoked by the first day of the third month of the taxpayer's fiscal year.
- There is no fee to register and there is no additional cost to taxpayers; the Ohio Department of Taxation will fund the system through a fee directly charged to the municipalities.
- A registration form can be filed through the Ohio Business Gateway or Ohio's secured Zix portal; paper Form MNP-R is also available.
- The state of Ohio will be responsible for all administration functions, such as audits, appeals and penalties.
- Business will have to file only one municipal return on the Ohio Business Gateway instead of potentially numerous local filings; this includes JEDDs and JEDZs.
- The state of Ohio is the only administrator, rather than answering to potentially numerous local jurisdictions.
- There are no fees for the taxpayer to use the centralized filing system.
- Once a business registers, the entity must notify all municipalities in which it previously filed; this includes JEDDs and JEDZs.
- The centralizing system is not available to individuals, sole proprietors or single member LLCs.
- The system is only applicable to the net profit tax, meaning withholding or individual income taxes are not included.
- To opt into the system, an entity must opt in for all cities in which it is required to file.
- Business returns are required to be filed on the Ohio Business Gateway, meaning entities cannot use any kind of tax software to import returns. However, this is currently up for discussion.
- Centralized filing is covered under a different subsection in the Ohio revised code than non-centralized filing. Rules regarding the tax base and apportionment are currently similar; however, if Ohio were to change laws for centralized filing and not for non-centralized filing (or vice versa), compliance could become more complex.
- Ohio will be responsible for auditing returns filed through the centralized system. As such, it is possible Ohio could elect to audit every city a company files with during a filing period.
The impact of these advantages and disadvantages will vary for each company. Businesses operating in Ohio should begin evaluating if Ohio’s centralized filing option could benefit their business starting with the 2018 tax return year. However, before registering, consult with your tax advisory team to help ensure the decision is right for your particular situation.
Cohen & Company is not rendering legal, accounting or other professional advice. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts and circumstances.