Centralized tax collection for municipal net profits tax is upheld by the Ohio Supreme Court

Before Am. Sub. House Bill 49 (132nd General Assembly) was enacted to add a centralized collection option for the filing and payment of municipal net profit taxes, an official at the Ohio Tax Department estimated that, as of 2015, approximately 80,000 businesses were required to file a return with two or more local municipalities. HB 49 sought to alleviate some of the administrative burden with the creation of a new centralized filing allowing businesses to file a composite return with the Department of Taxation instead of one return per location.

Before the system could be implemented lawsuits were filed by several cities seeking judgement that the law was unconstitutional.  This earlier blog post covers the legal action in lower courts. 

On Thursday, the Ohio Supreme Court issued its opinion on the matter and reached a split decision on the two issues brought before the Court. On the issue of whether the centralized collection was permissible under Ohio’s Constitution, the Ohio Supreme Court held that the General Assembly has the power to limit or restrict municipalities power of taxation under various Ohio Constitutional sections. Therefore, the new centralized collection system was constitutional.

On the second issue, The Ohio Supreme Court did rule the administrative fee withheld by the Ohio Department of Taxation to cover the cost of administrating the program to be unconstitutional. This writer agrees with the dissenting justices, the majority did not find a constitutional prohibition forbidding the implementation of the fee.

Overall, the ruling was a victory for Ohio businesses. The central collection system gives businesses the ability to lower their tax compliance costs and use a more efficient system to save time during tax season.