NOL study committee grants cities’ request for 5-year report delay

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.

4 comments

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  1. Amber W. | Oct 18, 2016
    Mr. Saul -  Thank you for your response, however, I don't think the Committee considered fiscal year returns for 2019, and possible due dates, especially if these fiscal year filers are under extension.  The Committee did not correctly determine when this study could be completed.  Fiscal year filers who file under extension would not be filed in time based on the Committee's selected due dates.  OML simply corrected the Committee's dates, hence, OML did not ask for a five year delay.......the OML corrected the Committee's error.
  2. | Oct 17, 2016

    Amber,

    The Ohio Department of Taxation (ODT) proposed two alternative options to the NOL Review Committee, and the Ohio Municipal League (OML) testified that they preferred the second one.  ODT's option #2 extended the submission deadline until Aug. 31, 2020 (a four year delay), and the committee’s existence until May 1, 2021.  However, the OML requested, and the NOL Committee granted, a further timeline extension for option two to delay the submission deadline to Aug. 31, 2021, and extend the committee’s existence until May 1, 2022.  Hence, OML requested the five year delay. 

    Greg Saul
  3. Amber W | Oct 17, 2016
    I agree with Andy T.   The problem was with the amount of data that this Committee was requiring of municipalities, and a ridiculous deadline that would have basically stopped the collection of municipal income tax while this project was being done.  It could not be completed.   The five year delay was not a recommendation or a request by municipal tax administrators.   It was proposed by the NOL Review Committee and selected by the NOL Review Committee as the alternative.   Municipal tax administrators were advocating for a smaller data sampling, with a quicker deadline.   This was not acceptable to the Committee, so they selected an option that delayed this data collection for the 2018 and 2019 tax years.   In order to completely pull all data from these years, they have to wait for all returns, fiscal and calendar year, and possibly under extension, to be filed.  Thus the five year delay.  Please be more accurate.
  4. Andy T | Oct 17, 2016
    I think your article misses the point for the cities that did not recognize NOL’s prior to HB 5.  How can you provide numbers to the “Net Operating Loss Review Committee” when you do not have documentation to back it up?  Can you imagine the cost involved to go back and request NOL’s from companies dating back five years.  This would defeat the purpose of HB 5 of simplifying the municipal tax structure.  

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