Ohio Municipalities Mount Challenge to Much-Needed Centralized Business Filing

Hundreds of Ohio cities are jointly challenging the constitutionality of recently passed municipal tax reform allowing businesses a centralized net-profit tax-filing option. Centralized filing is set to take effect for the 2018 filing season and will permit businesses to file a single municipal net profit return through the Ohio Department of Taxation using the Ohio Business Gateway (rather than requiring a separate return for each Ohio municipality where they conduct business). It is estimated that businesses could save up to $800 million in aggregate compliance costs by utilizing this centralized filing option. Ohio Department of Taxation, Cost-Savings for Business Taxpayers Now Open (Oct. 20, 2017). Although welcomed by businesses and professionals alike, Ohio municipalities are asserting that these measures are usurping their rights to administer local taxes under home rule.

The Ohio Society of CPAs was one of the many proponents for Ohio to implement centralized filing. Improving Ohio’s Tax Climate, Ohio Tax Reform Task Force, p. 14 (June 2016). Not only would this save Ohio businesses on compliance costs, but Ohio municipalities would also benefit as the administrative fee charged by the Department (0.5%) is much less than the cost municipalities pay to administer and collect the tax themselves. This challenge seems like a short-sighted response from Ohio cities to prevent much needed reform of Ohio’s municipal income tax, which is unlike other states and often cited as the nation’s worst municipal tax system.

Please contact us if you have questions about centralized filing for Ohio municipal taxes or concerns about the challenge being mounted by Ohio cities.