OSCPA staff report
Ohio’s Municipal Income Tax Net Operating Loss Review Committee recently agreed to postpone its findings for five years after cities – by way of the Ohio Municipal League – said they couldn’t comply with the original deadline.
That’s an odd argument, OSCPA members told us this week, because the Municipal League was able to present plenty of projections in its efforts to block sensible municipal income tax reform in the past.
“The ironic part is that during the hearings when HB 5 was being debated, the cities had all kinds of numbers saying that this loss carryforward was just going to be a disaster for them,” said Mark Bainbridge, CPA, a member of OSCPA’s Ohio Tax Reform Task Force.
Ohio House Bill 5, passed in 2014, significantly improves Ohio’s municipal tax system by – among other things – establishing uniform tax administration and further defining income cities may and may not tax.
It also requires all municipal corporations to allow businesses to deduct new net operating losses (NOL) and to allow a phased in five-year carryforward of such losses first incurred in taxable years beginning on and after Jan. 1, 2017, and permits pre-existing losses to continue to be carried forward if current ordinances allow.
The Net Operating Loss Review Committee was created in H.B. 5 to evaluate and quantify the impact of the NOL provision on municipalities that previously didn’t have such a provision.
A delay in the committee’s work could potentially come back to hurt some communities, Bainbridge said.
“The whole idea of this was to give the cities some relief if they could do some projections,” he said. “So, I think it’s going to be highly unlikely that they get any relief from the legislature in the near future if they don’t have any numbers showing that this thing is, in fact, hurting them.”
The NOL Study Committee last week agreed to support legislation to extend the deadline for submissions of municipal tax data to the Ohio Department of Taxation until Aug. 31, 2021 and the committee’s requirement to issue its written report to May 1, 2022. The measure is expected to be adopted by the General Assembly during its upcoming lame duck session.
Meanwhile, the municipal income tax law’s mandatory five-year NOL carryforward provision will continue to be phased in. Fifty percent of losses first incurred in tax years beginning in or after 2017 may be used to offset income generated in tax years beginning in 2018 through 2022. For tax years beginning in or after 2023, 100% of NOL carryforwards may be used to offset income.