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H. B. No. 378 As IntroducedAs Introduced
128th General Assembly | Regular Session | 2009-2010 |
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A BILL
To amend sections 718.01, 718.02, and 718.03 of the
Revised Code to eliminate authority of municipal
corporations to exempt stock options and
nonqualified deferred compensation from municipal
income taxation.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF OHIO:
Section 1. That sections 718.01, 718.02, and 718.03 of the
Revised Code be amended to read as follows:
Sec. 718.01. (A) As used in this chapter:
(1) "Adjusted federal taxable income" means a C corporation's
federal taxable income before net operating losses and special
deductions as determined under the Internal Revenue Code, adjusted
as follows:
(a) Deduct intangible income to the extent included in
federal taxable income. The deduction shall be allowed regardless
of whether the intangible income relates to assets used in a trade
or business or assets held for the production of income.
(b) Add an amount equal to five per cent of intangible income
deducted under division (A)(1)(a) of this section, but excluding
that portion of intangible income directly related to the sale,
exchange, or other disposition of property described in section
1221 of the Internal Revenue Code;
(c) Add any losses allowed as a deduction in the computation
of federal taxable income if the losses directly relate to the
sale, exchange, or other disposition of an asset described in
section 1221 or 1231 of the Internal Revenue Code;
(d)(i) Except as provided in division (A)(1)(d)(ii) of this
section, deduct income and gain included in federal taxable income
to the extent the income and gain directly relate to the sale,
exchange, or other disposition of an asset described in section
1221 or 1231 of the Internal Revenue Code;
(ii) Division (A)(1)(d)(i) of this section does not apply to
the extent the income or gain is income or gain described in
section 1245 or 1250 of the Internal Revenue Code.
(e) Add taxes on or measured by net income allowed as a
deduction in the computation of federal taxable income;
(f) In the case of a real estate investment trust and
regulated investment company, add all amounts with respect to
dividends to, distributions to, or amounts set aside for or
credited to the benefit of investors and allowed as a deduction in
the computation of federal taxable income;
(g) If the taxpayer is not a C corporation and is not an
individual, the taxpayer shall compute adjusted federal taxable
income as if the taxpayer were a C corporation, except:
(i) Guaranteed payments and other similar amounts paid or
accrued to a partner, former partner, member, or former member
shall not be allowed as a deductible expense; and
(ii) Amounts paid or accrued to a qualified self-employed
retirement plan with respect to an owner or owner-employee of the
taxpayer, amounts paid or accrued to or for health insurance for
an owner or owner-employee, and amounts paid or accrued to or for
life insurance for an owner or owner-employee shall not be allowed
as a deduction.
Nothing in division (A)(1) of this section shall be construed
as allowing the taxpayer to add or deduct any amount more than
once or shall be construed as allowing any taxpayer to deduct any
amount paid to or accrued for purposes of federal self-employment
tax.
Nothing in this chapter shall be construed as limiting or
removing the ability of any municipal corporation to administer,
audit, and enforce the provisions of its municipal income tax.
(2)
"Internal Revenue Code" means the Internal Revenue Code
of
1986, 100
Stat. 2085, 26 U.S.C. 1, as amended.
(3)
"Schedule C" means internal revenue service schedule C
filed by a
taxpayer pursuant to the Internal Revenue Code.
(4)
"Form 2106" means internal revenue service form 2106
filed by a taxpayer
pursuant to the Internal Revenue Code.
(5)
"Intangible income" means income of any of the following
types: income
yield, interest, capital gains, dividends, or other
income arising
from the ownership, sale,
exchange, or other
disposition of
intangible property including, but not
limited to,
investments,
deposits, money, or credits as those terms are
defined in Chapter
5701. of the Revised Code, and patents,
copyrights, trademarks, tradenames, investments in real estate
investment trusts, investments in regulated investment companies,
and appreciation on deferred compensation. "Intangible income"
does not include prizes, awards, or other income associated with
any lottery winnings or other similar games of chance.
(6) "S corporation" means a corporation that has made an
election under subchapter S of Chapter 1 of Subtitle A of the
Internal Revenue Code for its taxable year.
(7) For taxable years beginning on or after January 1, 2004,
"net profit" for a taxpayer other than an individual means
adjusted federal taxable income and "net profit" for a taxpayer
who is an individual means the individual's profit required to be
reported on schedule C, schedule E, or schedule F, other than any
amount allowed as a deduction under division (E)(2)(1) or (3)(2)
of this
section or amounts described in division (H) of this
section.
(8) "Taxpayer" means a person subject to a tax on income
levied by a municipal corporation. Except as provided in division
(L) of this section, "taxpayer" does not include any person
that
is a disregarded entity or a qualifying subchapter S
subsidiary
for federal income tax purposes, but "taxpayer"
includes any
other
person who owns the disregarded entity or
qualifying
subchapter S
subsidiary.
(9) "Taxable year" means the corresponding tax reporting
period as prescribed for the taxpayer under the Internal Revenue
Code.
(10) "Tax administrator" means the individual charged with
direct responsibility for administration of a tax on income levied
by a municipal corporation and includes:
(a) The central collection agency and the regional income tax
agency and their successors in interest, and other entities
organized to perform functions similar to those performed by the
central collection agency and the regional income tax agency;
(b) A municipal corporation acting as the agent of another
municipal corporation; and
(c) Persons retained by a municipal corporation to administer
a tax levied by the municipal corporation, but only if the
municipal corporation does not compensate the person in whole or
in part on a contingency basis.
(11) "Person" includes individuals, firms, companies,
business trusts, estates, trusts, partnerships, limited liability
companies, associations, corporations, governmental entities, and
any other entity.
(12) "Schedule E" means internal revenue service schedule E
filed by a taxpayer pursuant to the Internal Revenue Code.
(13) "Schedule F" means internal revenue service schedule F
filed by a taxpayer pursuant to the Internal Revenue Code.
(B) No municipal corporation
shall tax income at other than
a uniform
rate.
(C) No municipal corporation shall levy a tax on income at a
rate in excess
of one per cent without having obtained the
approval of the excess by a
majority of the electors of the
municipality voting on the question at a
general, primary, or
special election. The legislative authority of the
municipal
corporation shall file with the board of elections at least
seventy-five days before the day of the election a copy of the
ordinance
together with a resolution specifying the date the
election is to be held and
directing the board of elections to
conduct the election. The ballot shall be
in the following form:
"Shall the Ordinance providing for a ... per cent levy
on income
for (Brief description of the purpose of the proposed levy) be
passed?
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FOR THE INCOME TAX |
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AGAINST THE INCOME TAX |
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In the event of an affirmative vote, the proceeds of the
levy
may be used only for the specified purpose.
(D)(1) Except as otherwise provided in
this
section, no
municipal corporation shall exempt from
a tax on
income
compensation for
personal services of individuals
over
eighteen
years of age or the net profit
from a business or
profession.
(2)(a) For taxable years beginning on or after January 1,
2004, no municipal corporation shall tax the net profit from a
business or profession using any base other than the taxpayer's
adjusted federal taxable income.
(b) Division (D)(2)(a) of this section does not apply to any
taxpayer required to file a return under section 5745.03 of the
Revised Code or to the net profit from a sole proprietorship.
(E)(1) The legislative authority of a municipal corporation
may,
by ordinance or resolution, exempt from withholding and from
a tax
on income the following:
(a) Compensation arising from the sale, exchange, or other
disposition of a stock option, the exercise of a stock option, or
the sale, exchange, or other disposition of stock purchased under
a stock option; or
(b) Compensation attributable to a nonqualified deferred
compensation plan or program described in section 3121(v)(2)(C) of
the Internal Revenue Code.
(2) The legislative authority of a municipal corporation may
adopt an ordinance or resolution that allows a taxpayer who is an
individual to deduct, in computing the taxpayer's municipal income
tax liability, an amount equal to the aggregate amount the
taxpayer paid in cash during the taxable year to a health savings
account of the taxpayer, to the extent the taxpayer is entitled to
deduct that amount on internal revenue service form 1040.
(3)(2) The legislative authority of a municipal corporation
may
adopt an ordinance or resolution that allows a taxpayer who
has a
net profit from a business or profession that is operated
as a
sole proprietorship to deduct from that net profit the
amount that
the taxpayer paid during the taxable year for medical
care
insurance premiums for the taxpayer, the taxpayer's spouse,
and
dependents as defined in section 5747.01 of the Revised Code.
The
deduction shall be allowed to the same extent the taxpayer is
entitled to deduct the premiums on internal revenue service form
1040. The deduction allowed under this division shall be net of
any related premium refunds, related premium reimbursements, or
related insurance premium dividends received by the taxpayer
during the taxable year.
(F)
If
an individual's
taxable income includes income against
which the taxpayer has taken a
deduction for federal income tax
purposes as reportable on the taxpayer's form
2106, and against
which a like deduction has not been allowed by the municipal
corporation, the municipal corporation shall deduct from the
taxpayer's
taxable income an amount equal to the deduction shown
on such form allowable
against such income, to the extent not
otherwise so allowed as a deduction by
the municipal corporation.
(G)(1) In the case of a taxpayer who has a net profit
from a
business or
profession that is operated as a sole proprietorship,
no
municipal
corporation may tax or use as the base for
determining the amount
of
the net profit that shall be considered
as having a taxable
situs in the
municipal corporation, an amount
other than the net profit required to be reported by the taxpayer
on schedule C or F from such sole proprietorship for the taxable
year.
(2) In the case of a taxpayer who has a net profit from
rental
activity required to be reported on schedule E, no
municipal
corporation may tax or use as the base for determining
the amount
of the net profit that shall be considered as having a
taxable
situs in the municipal corporation, an amount other than
the net
profit from rental activities required to be reported by
the
taxpayer on schedule E for the taxable year.
(H) A municipal corporation shall not tax any of the
following:
(1) The military pay or allowances of members of the armed
forces of the
United States and of members of their reserve
components, including the Ohio
national guard;
(2) The income of religious, fraternal, charitable,
scientific, literary, or
educational institutions to the extent
that such income is derived from
tax-exempt real estate,
tax-exempt tangible or intangible property, or
tax-exempt
activities;
(3) Except as otherwise provided in division (I) of this
section, intangible
income;
(4) Compensation paid under section 3501.28 or 3501.36 of
the
Revised Code to
a person serving as a precinct election
official,
to the extent that such
compensation does not exceed one
thousand
dollars annually. Such compensation
in excess of one
thousand
dollars may be subjected to taxation by a municipal
corporation. A
municipal corporation shall not require the payer
of such
compensation to withhold any tax from that compensation.
(5) Compensation paid to an employee of a transit authority,
regional transit
authority, or regional transit commission created
under Chapter 306. of the
Revised Code for operating a transit bus
or other motor vehicle for the
authority or commission in or
through the municipal corporation, unless the
bus or vehicle is
operated on a regularly scheduled route, the operator is
subject
to such a tax by reason of residence or domicile in the municipal
corporation, or the headquarters of the authority or commission is
located
within the municipal corporation;
(6) The income of a public utility, when that public utility
is
subject to the tax levied under section 5727.24 or 5727.30 of
the Revised
Code, except a municipal
corporation may tax the
following, subject to
Chapter 5745. of the
Revised Code:
(a) Beginning January 1, 2002, the income of an electric
company or combined company;
(b) Beginning January 1, 2004, the income of a telephone
company.
As used in division (H)(6) of this section, "combined
company," "electric
company," and "telephone company" have
the
same meanings as in section 5727.01 of the Revised Code.
(7) On and after January 1, 2003, items excluded from
federal
gross income pursuant to section 107 of the Internal
Revenue Code;
(8) On and after January 1, 2001, compensation paid to a
nonresident
individual to the extent prohibited under
section
718.011 of the Revised Code;
(9)(a) Except as provided in division (H)(9)(b) and (c) of
this section, an S
corporation
shareholder's distributive share of
net
profits of the
S
corporation, other than any part of the
distributive share of
net
profits that represents
wages as defined
in section 3121(a) of
the Internal Revenue Code or net earnings
from self-employment as
defined in section 1402(a) of the Internal
Revenue Code.
(b) If, pursuant to division (H) of former section 718.01 of
the Revised Code as it existed before March 11, 2004, a
majority
of
the electors of a municipal corporation voted in
favor of the
question at an election held on November 4, 2003,
the municipal
corporation may continue after 2002 to tax an S
corporation
shareholder's distributive share of net profits of an
S
corporation.
(c) If, on December 6, 2002, a municipal corporation was
imposing, assessing, and collecting a tax on an S corporation
shareholder's distributive share of net profits of the S
corporation to the extent the distributive share would be
allocated or apportioned to this state under divisions (B)(1) and
(2) of section 5733.05 of the Revised Code if the S corporation
were a corporation subject to taxes imposed under Chapter 5733. of
the Revised Code, the municipal corporation may continue to impose
the tax on such distributive shares to the extent such shares
would be so allocated or apportioned to this state only until
December 31, 2004, unless a majority of the electors of the
municipal corporation voting on the question of continuing to tax
such shares after that date vote in favor of that question at an
election held November 2, 2004. If a majority of those electors
vote in favor of the question, the municipal corporation may
continue after December 31, 2004, to impose the tax on such
distributive shares only to the extent such shares would be so
allocated or apportioned to this state.
(d) For the purposes of division (D) of section 718.14 of the
Revised Code, a municipal corporation shall be deemed to have
elected to tax S corporation shareholders' distributive shares of
net profits of the S corporation in the hands of the shareholders
if a majority of the electors of a municipal corporation vote in
favor of a question at an election held under division
(H)(9)(b)
or (c) of this section. The municipal corporation
shall specify
by
ordinance or rule that the tax applies to the
distributive
share
of a shareholder of an S corporation in the
hands of the
shareholder of the S corporation.
(10) Employee compensation that is not "qualifying wages" as
defined in section 718.03 of the Revised Code;
(11) Beginning August 1, 2007, compensation paid to a person
employed within the
boundaries of a United States air force base
under
the jurisdiction of the United States
air force that is
used for the housing of members of the United States air force and
is a center for air force
operations, unless the person is
subject to taxation because of residence or domicile. If the
compensation is subject to taxation because of residence or
domicile, municipal income tax shall be payable only to the
municipal corporation of residence or domicile.
(I) Any municipal corporation that taxes any type of
intangible income on
March 29, 1988, pursuant to Section 3 of
Amended Substitute Senate Bill No.
238 of the 116th general
assembly, may continue to tax that type of income
after 1988 if a
majority of the electors of the municipal corporation voting
on
the question of whether to permit the taxation of that type of
intangible
income after 1988 vote in favor thereof at an election
held on November 8,
1988.
(J) Nothing in this section or section 718.02 of the
Revised
Code
shall authorize the levy of any tax on income that a
municipal
corporation is not
authorized to levy under existing
laws or shall require a municipal
corporation to allow a deduction
from taxable income for losses incurred from
a sole proprietorship
or partnership.
(K)(1) Nothing in this chapter prohibits a municipal
corporation from allowing, by resolution or ordinance, a net
operating loss carryforward.
(2) Nothing in this chapter requires a municipal corporation
to allow a net operating loss carryforward.
(L)(1) A single member limited liability company that is a
disregarded entity for federal tax purposes may elect to be a
separate taxpayer from its single member in all Ohio municipal
corporations in which it either filed as a separate taxpayer or
did not file for its taxable year ending in 2003, if all of the
following conditions are met:
(a) The limited liability company's single member is also a
limited liability company;
(b) The limited liability company and its single member were
formed and doing business in one or more Ohio municipal
corporations for at least five years before January 1, 2004;
(c) Not later than December 31, 2004, the limited liability
company and its single member each make an election to be treated
as a separate taxpayer under division (L) of this section;
(d) The limited liability company was not formed for the
purpose of evading or reducing Ohio municipal corporation income
tax liability of the limited liability company or its single
member;
(e) The Ohio municipal corporation that is the primary place
of business of the sole member of the limited liability company
consents to the election.
(2) For purposes of division (L)(1)(e) of this section, a
municipal corporation is the primary place of business of a
limited liability company if, for the limited liability company's
taxable year ending in 2003, its income tax liability is greater
in that municipal corporation than in any other municipal
corporation in Ohio, and that tax liability to that municipal
corporation for its taxable year ending in 2003 is at least four
hundred thousand dollars.
Sec. 718.02. This section does not apply to taxpayers that
are subject to and required to file reports under Chapter 5745. of
the Revised
Code.
(A) Except as otherwise provided in division (D) of this
section, net profit from a
business or profession conducted both
within and without the
boundaries of a municipal corporation shall
be considered as
having a taxable situs in such municipal
corporation for purposes
of municipal income taxation in the same
proportion as the
average ratio of the following:
(1) The average original cost of the real and tangible
personal property owned or used by the taxpayer in the business
or
profession in such municipal corporation during the taxable
period
to the average original cost of all of the real and
tangible
personal property owned or used by the taxpayer in the
business or
profession during the same period, wherever situated.
As used in the preceding paragraph, real property shall
include property rented or leased by the taxpayer and the value
of
such property shall be determined by multiplying the annual
rental
thereon by eight;
(2) Wages, salaries, and other compensation paid during
the
taxable period to persons employed in the business or
profession
for services performed in such municipal corporation
to wages,
salaries, and other compensation paid during the same
period to
persons employed in the business or profession,
wherever their
services are performed, excluding compensation
that is not taxable
by the municipal corporation under section 718.011 of the Revised
Code;
(3) Gross receipts of the business or profession from
sales
made and services performed during the taxable period in
such
municipal corporation to gross receipts of the business or
profession during the same period from sales and services,
wherever made or performed.
If the foregoing apportionment formula does not
produce an
equitable result, another basis may be substituted, under
uniform
regulations, so as to produce an equitable
result.
(B) As used in division (A) of this section,
"sales made
in
a
municipal corporation" mean:
(1) All sales of tangible personal property
delivered within
such municipal corporation regardless of where
title passes if
shipped or delivered from a stock of goods within
such municipal
corporation;
(2) All sales of tangible personal property
delivered within
such municipal corporation regardless of where
title passes even
though transported from a point outside such
municipal corporation
if the taxpayer is regularly engaged
through its own employees in
the solicitation or promotion of
sales within such municipal
corporation and the sales result from
such solicitation or
promotion;
(3) All sales of tangible personal property
shipped from a
place within such municipal corporation to
purchasers outside such
municipal corporation regardless of where
title passes if the
taxpayer is not, through its own employees,
regularly engaged in
the solicitation or promotion of sales at
the place where delivery
is made.
(C) Except as otherwise provided in division (D) of this
section, net profit from rental activity not constituting a
business or profession shall be subject to tax only by the
municipal corporation in which the property generating the net
profit is located.
(D) This section does not apply to individuals who are
residents of the municipal corporation and, except as otherwise
provided in section 718.01 of the Revised Code, a municipal
corporation may impose a tax on all income earned by residents of
the municipal corporation to the extent allowed by the United
States Constitution.
(E) If, in computing the taxpayer's adjusted federal taxable
income, the taxpayer deducted any amount with respect to a stock
option granted to an employee, and if the employee is not required
to include in income any amount or any portion thereof because it
is exempted from taxation under division (H)(10) of section
718.01 of the Revised Code and division (A)(2)(d) of section
718.03 of the Revised Code by a municipal corporation to which the
taxpayer has apportioned a portion of its net profit, the taxpayer
shall add the amount that is exempt from taxation to the
taxpayer's net profit that was apportioned to that municipal
corporation. In no case shall a taxpayer be required to add to its
net profit that was apportioned to that municipal corporation any
amount other than the amount upon which the employee would be
required to pay tax were the amount related to the stock option
not exempted from taxation.
This division applies solely for the purpose of making an
adjustment to the amount of a taxpayer's net profit that was
apportioned to a municipal corporation under divisions (A) and (B)
of this section.
Sec. 718.03. (A) As used in this section:
(1) "Other payer" means any person, other than an
individual's employer or the employer's agent, that pays an
individual any amount included in the federal gross income of the
individual.
(2) "Qualifying wages" means wages, as defined in section
3121(a) of the Internal Revenue Code, without regard to any wage
limitations, adjusted as follows:
(a) Deduct the following amounts:
(i) Any amount included in wages if the amount constitutes
compensation attributable to a plan or program described in
section 125 of the Internal Revenue Code;
(ii) For purposes of division (B) of this section, any amount
included in wages if the amount constitutes payment on account of
sickness or accident disability.
(b) Add the following amounts:
(i) Any amount not included in wages solely because the
employee was employed by the employer prior to April 1, 1986;
(ii) Any amount not included in wages because the amount
arises from the sale, exchange, or other disposition of a stock
option, the exercise of a stock option, or the sale, exchange, or
other disposition of stock purchased under a stock option and the
municipal corporation has not, by resolution or ordinance,
exempted the amount from withholding and tax. Division
(A)(2)(b)(ii) of this section applies only to those amounts
constituting ordinary income.
(iii) Any amount not included in wages if the amount is an
amount described in section 401(k) or 457 of the Internal Revenue
Code. Division (A)(2)(b)(iii) of this section applies only to
employee contributions and employee deferrals.
(iv) Any amount that is supplemental unemployment
compensation benefits described in section 3402(o)(2) of the
Internal Revenue Code and not included in wages.
(c) Deduct any amount attributable to a nonqualified deferred
compensation plan or program described in section 3121(v)(2)(C) of
the Internal Revenue Code if the compensation is included in wages
and has, by resolution or ordinance, been exempted from taxation
by the municipal corporation.
(d) Deduct any amount included in wages if the amount arises
from the sale, exchange, or other disposition of a stock option,
the exercise of a stock option, or the sale, exchange, or other
disposition of stock purchased under a stock option and the
municipal corporation has, by resolution or ordinance, exempted
the amount from withholding and tax.
(B) For taxable years beginning after 2003, no municipal
corporation shall require any employer, or any agent of any
employer or any other payer, to withhold tax with respect to any
amount other than qualifying wages. Nothing in this section
prohibits an employer from withholding tax on a basis greater than
qualifying wages.
(C) An employer is not required to make any withholding with
respect to an individual's disqualifying disposition of an
incentive stock option if, at the time of the disqualifying
disposition, the individual is not an employee of the corporation
with respect to whose stock the option has been issued.
(D)(1) An employee is not relieved from liability for a tax
by the failure of the employer to withhold the tax as required by
a municipal corporation or by the employer's exemption from the
requirement to withhold the tax.
(2) The failure of an employer to remit to the municipal
corporation the tax withheld relieves the employee from liability
for that tax unless the employee colluded with the employer in
connection with the failure to remit the tax withheld.
(E) Compensation deferred before June 26, 2003, is not
subject to any municipal
corporation income tax or municipal
income tax withholding
requirement to the extent the deferred
compensation does not
constitute qualifying wages at the time the
deferred compensation
is paid or distributed.
Section 2. That existing sections 718.01, 718.02, and 718.03
of the Revised Code are hereby repealed.
Section 3. The amendment by this act of sections 718.01,
718.02, and 718.03 of the Revised Code applies to taxable years
beginning on or after January 1, 2010.
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