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Municipal Net Profit – Opt In?

Many of you have most likely received correspondence from the Ohio Department of Taxation regarding opting in to their Municipal Net Profit tax filings.  Please note – this opt-in is entirely optional!  It is not required!  Before opting in to this, please call your tax professional and they can discuss the details with you.  Taxpayers that wish to opt-in will file the election with the Department on or before the first day of the third month of their taxable year.

For example, for calendar year taxpayers, the next open time frame to opt-in with the commissioner would be on or before March 1, 2020 for taxable year 2020. The election will remain in effect until terminated by the taxpayer.  Taxpayers must also notify the municipalities and their tax preparer of their election.  There are forms provided to notify the municipalities and tax preparer.

The enactment of HB 49 provides business taxpayers the option to file one municipal net profit tax return through the Ohio Business Gateway for processing by the Department of Taxation. The Department will handle all administrative functions for those centrally-filed returns and will distribute payments to the appropriate municipalities. The Department will also handle audits and appeals. In short, opting in to the Municipal Net Profit tax filing means you no longer file individual city income tax returns or make separate payments to the various cities.  You will file one tax return and make one payment or receive one refund.  The payment must be made electronically by either ACH or electronic funds transfer.  Your tax professional is able to prepare this return and file electronically as they do with your other returns.

Sole proprietors and disregarded entities are not eligible to opt-in with the Department and should continue to file with municipalities.

The main disadvantage of opting in would be in dealing with audits and appeals.  It is much easier to deal with these issues at the municipal level than it is at the State level.  You also need to be aware that any checks you send to the individual municipality after you opt in are unable to be processed by the municipality.  The municipality should issue you a letter to let you know that you will need to request a refund of this payment.  This may also mean that you may be underpaid for the particular city.

Bottom line, there are items to be considered prior to opting-in for the Department of Taxation’s Municipal Net Profit tax filings.  This is still a very new process and there are many issues that need to be resolved by the Department and the individual municipalities.  Please discuss with your Whalen tax professional prior to opting-in to make sure you are aware of all the implications.

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