• New Ohio Municipal Corporation Tax Guidelines Impact Taxpayers
  • July 20, 2016 | Author: Jack W. Hinneberg
  • Law Firm: Weltman, Weinberg & Reis Co., L.P.A. - Cleveland Office
  • New municipal income tax guidelines mandated by the State of Ohio went into effect on January 1, 2016 and effect how municipal corporations collect taxes from taxpayers. The changes are a result of the passage of Amended Substitute House Bill 5. All tax returns and payments for tax years prior to 2016 are unaffected by the provisions of HB 5, regardless of the actual filing or payment date. From a municipal corporation’s viewpoint, perhaps the most notable changes going into effect as a result of HB 5 deal with estimated tax payments, assessments, penalties and limits on collection action.

    Estimated Tax Payments

    Municipal corporations are now required to collect estimated taxes from every taxpayer whose estimated annual tax liability, after subtracting for amounts to be withheld from the taxpayer’s compensation, will be more than $200, unless an exemption applies.1 Taxpayers that fall within this category are required to file a declaration of estimated taxes on or before the due date for municipal income tax returns. Payments must be made quarterly and require individual taxpayers to pay no more than 22.5 percent of their estimated annual tax liability by April 30, 45 percent by July 31, 67.5 percent by October 31 and 90 percent by January 31.2 For all taxpayers, the payments are due on the fifteenth day of the fourth, sixth, ninth and 12th month of the taxable year.3


    An assessment is a written finding by a tax administrator indicating a person has underpaid municipal income tax or owes penalty and interest fees.4 Tax administrators are authorized to issue an assessment against a person if the person fails to file a return or pay any tax due. This includes an employer or other payer required to withhold income taxes. A taxpayer and a person required to withhold taxes from compensation paid to the taxpayer are both liable for the tax, and an assessment may be issued against either. Issuing an assessment against one of the parties does not prevent the administrator from assessing the other party at a later date, unless the first party pays the assessment. A tax administrator may not issue an assessment more than three years after an individual filed the return subject to the assessment, or after the due date of that return, whichever is later.


    Prior to the passing of HB 5, municipal corporations could establish their own penalty and interest impositions. Now, however, the amounts that must be imposed under R.C. § 718.27 are as follows:
    • The rate of interest that must be charged on unpaid taxes is the average yield on marketable securities issued by the U.S. government that mature within three years, plus five percentage points, which each municipal corporation is required to publish annually5
    • For unpaid taxes and estimated taxes, a penalty of 15 percent of the unpaid amount
    • For unremitted tax withholdings, a penalty of 50 percent of the unpaid amount
    • For each late return, other than an estimated tax return, a $25 penalty, increasing by $25 for each month the return remains unfiled, up to $1506
    • For unremitted withholding form casino or video lottery terminal winnings, a penalty of up to 50 percent of the unpaid amount
    • For late filing or failure to file a casino or VLT withholding return, a penalty of $500 per return, with interest accruing at the federal short-term rate plus 3 percent
    Municipal corporations can fully, or partially, forgive these penalties at the discretion of the tax administrator. Also, a municipal corporation is not prohibited from charging the post-judgment costs of collecting taxes, interest and penalties, including attorney’s fees.7

    Limits on Collection Action

    Before the passing of HB 5, civil actions to collect municipal income taxes were to be brought within three years after the tax due date, or the date the return was actually filed, whichever was later. Now a potentially longer period is available if the taxpayer contests the finding that unpaid taxes are due, by filing an appeal with the local board of tax review.8 If this type of appeal is filed, the time limit begins when the appeal is filed and ends one year and 60 days after the appeal, and any subsequent appeal, is finally decided, and after all further opportunities for appeal are exhausted or expire. A taxpayer and tax administrator may extend the time limits by a written agreement.9 Law requires municipal income tax ordinance violations be criminally prosecuted within three years of the offense, or within six years, in cases of fraud. Failing to file returns, or omitting at least 25 percent of reportable income remains unchanged.

    In order to stay in good standing with tax payments, and avoid unnecessary penalty fees, all taxpayers should follow these new guidelines.

    1 R.C. §718.08(B)(1)
    2 R.C. §718(D)
    3 R.C. §718(C)
    4 R.C. §718.01 and 718.12
    5 R.C. §5703.47
    6 R.C. §718.27(C)
    7 R.C. §718.27(E) and (G)
    8 718.12(A), (B), and (G)
    9 Damon, M., Benham, S., & McDaniels, J. (2015, March 23). Final Analysis: Sub. H.B. 5 (Ohio Legislative Service Commission). Retrieved from Ohio Legislative Service Commission website: http://www.lsc.ohio.gov/analyses130/14-hb5-130.pdf