Registration Deadline
Calendar year companies operating in Ohio that would like to file their Municipal Net Profit Tax (“MNPT”) returns using the centralized filing system administered by the Ohio Department of Taxation (“ODT”) will need to register on the Ohio Business Gateway by April 15th. The registration deadline is always the 15th day of the fourth month of a business’s taxable year.
Businesses operating in Ohio may be subject to the MNPT in multiple jurisdictions, depending on the geographic scope of their operations in the state. As authorized by state law, the Ohio Department of Taxation offers a centralized filing system enabling a business to file a single MNPT return that will satisfy all its municipal filing requirements, streamlining the compliance process. Those taxpayers that have entered into negotiated agreements with individual municipalities for customized filing may not use the centralized system.
Other Recent Updates to MNPT
The most recent Ohio operating budget (“H.B. 33”) initiated numerous updates to the MNPT. Those changes are discussed by ODT in Information Release MNP 2024-01, issued earlier this month. We also discussed them in last July’s Buzz covering H.B. 33’s tax changes. These changes include:
- a new due date for extended tax returns
- a new apportionment election for remote workers
- changes to the rules concerning penalties and notices
Extended Due Date. For those taxpayers who receive an extension to file their federal tax return, a month has been added to the automatic extension for filing MNPT returns using the centralized filing system. For taxable years ending in 2023 or later, taxpayers now have until the 15th day of the 11th month of their taxable year to file their MNPT returns. Thus, a calendar year business has until November 15th. This is a 7 month extension from the original due date, and generally gives the taxpayer an additional month following the extended due date for their federal return. For those taxpayers who did not request a federal extension, an extension of 6 months from the original MNPT due date remains available upon request.
Alternative Apportionment for Remote Workers. Under Revised Code (“R.C.”) 718.021, for those workers who work remotely, their employer may now elect to designate a “qualifying reporting location” that is owned or controlled by the employer for purposes of MNPT apportionment. The reporting location may also be a location owned or controlled by a customer of the employer, but only if the employer is withholding tax on the employee’s wages at the same location. The election modifies the taxpayer’s apportionment factors in that the qualifying employee’s wages, the tangible personal property used by the employee, and receipts attributable to the employee, are assigned to the qualifying reporting location rather than the qualifying remote work location. The modified apportionment will apply to all municipalities in which the taxpayer files. Notably, however, the election does not impact the taxpayer’s employee withholding obligation under R.C. 718.011 and 718.03.
The qualifying reporting location is determined using a decision hierarchy:
(a) The reporting location at which the employee performs services for the business on a regular or periodic basis;
(b) If a location described in (a) does not exist for the employee, the location at which the employee’s supervisor regularly or periodically reports;
(c) If a location described in (a) or (b) does not exist for the employee, the location that the taxpayer otherwise assigns in good faith and as recorded in the taxpayers business records.
The use of a qualifying reporting location is allowed for owners as well as employees of a business. Reporting locations may be changed at any time. The use of the modified apportionment formula does not prevent a taxpayer from requesting, or a municipality from requiring, alternative apportionment under R.C. 718.02(B). However, a municipal tax administrator may not require alternative apportionment if the sole purpose is to require the taxpayer to file a return because a qualifying employee’s remote work location is in that municipality.
Penalties and Notices. Penalties for late filing of a MNPT return are limited, beginning with taxable years ending in 2023, to $25. A first offense will find the penalty abated or refunded after the taxpayer files the return. The tax commissioner is also prohibited from sending any notices or inquiries to a taxpayer that has an automatic or requested extension to file, until the earlier of the filing of the return or the extended due date.
The Ohio system of municipal income taxes is burdensome to many taxpayers. The ability to use centralized filing and H.B. 33’s modifications provide greater flexibility to MNPT filers, while shielding them from arbitrary notices and penalties—all measures intended to remove some part of the municipal income tax burden.
If you would like to further discuss the contents of this post please reach out to any of our ZHF professionals.