R5. Imposition of Tax  


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  • A. IN THE CASE OF RESIDENTS, the tax is imposed on all qualifying wages, commissions, fees, net profits from businesses, gambling winnings and other compensation earned during the effective period of Chapter 311. The source of the earnings and the place or places in or at which the services were rendered is immaterial. All such earnings wherever earned or paid are taxable. (However, see Section 311-73 allowing a resident credit for income tax paid to another municipality or county. Following are items subject to the tax imposed by Chapter 311:

    1) QUALIFYING WAGES. Salaries, wages, bonuses and incentive payments earned by an individual whether directly or through an agent and whether in cash or in property for services rendered during the tax period as:

    A) An officer, director or employee of a corporation (including charitable and other non-profit organizations), joint stock association, or joint stock company;

    B) An employee (as distinguished from a partner or member) of a pass-through entity or any other form of unincorporated enterprise owned by two or more persons;

    C) An employee (as distinguished from a proprietor) of a business, trade or profession conducted by an individual owner;

    D) An officer or employee (whether elected, appointed or commissioned) of the United States government, or any of its agencies; or of the state of Ohio or any of its political subdivisions or agencies thereof; or any foreign country or dependency except as provided in Section 311-15.

    E) An employee of any other entity or person, whether based upon hourly, daily, weekly, semi-monthly, monthly, annual, unit of production or piece work rates; and whether paid by an individual, pass-through entity, association, corporation (including charitable and other non-profit corporations), governmental administration, agency, authority, board, body, branch, bureau, department, division, subdivision, section or unit, or any other entity.

    2) COMMISSIONS. Commissions earned by an individual directly or through an agent and whether in cash or in property for services rendered, regardless of how computed or by whom or wheresoever paid.

    A) If amounts received as a drawing account exceed the commissions earned and the excess is not subject to the demand of the employer for repayment, the tax is payable on the amounts received as a drawing account.

    B) Amounts received from an employer for expenses, and not as compensation, and used as such by the individual receiving them are not deemed to be compensation if the employer deducts such expense or advances as such from his gross income for the purpose of determining his net profits taxable under federal law, and the employee is not required to include such receipts as income on his federal tax return.

    C) If commissions are included in the net earnings of a trade, business, profession, enterprise or activity carried on by a pass-through entity, such commissions are subject to the tax imposed by Section 311-5(c)(1) and 311-5(c)(2) and any resident owner or part owner of such entity shall not be taxed again on such income under Section 311-5(a).

    3) FEES. Fees received by a director or officer of a corporation for services performed whether reported on the IRS Form W-2 or IRS Form 1099 are taxable. Fees that are properly includible as part of the net profits of a trade, business or profession, or enterprise regularly carried on by a pass-through entity owned or partly owned by such individual and such net profits are subject to the tax under Section 311-5(c)(1) and 311-5(c)(2).

    4) OTHER COMPENSATION.

    A) Tips, bonuses, or gifts of any type, and including compensation received by domestic servants, casual employees and other types of employees. These payments are normally reported on a Form 1099 MISC.

    B) If the income appears as part of Medicare wages on a W-2 form and is not shown to be an exception in accordance with Section 311-15 (Exceptions), it shall be considered other compensation and is therefore taxable to the individual. This includes, but is not limited to:

    i) Payments made by an employer to an employee during periods of absence from work are taxable when paid and at the tax rate in effect at the time of payment, regardless of the fact that such payments may be labeled as sick leave or sick pay, vacation pay, terminal pay, supplemental unemployment pay, etc.

    (1) Sick pay whether paid by the employer to the employee or through a third party.

    (2) Severance pay.

    (3) Supplemental unemployment benefits described in Section 3402(o)(2) of the Internal Revenue Code.

    ii) Tips, bonuses, fees, gifts in lieu of pay, gratuities.

    iii) Strike pay; grievance pay.

    iv) Employer paid premiums for group term life insurance to the extent taxable for federal income tax purposes.

    v) Car allowance, personal use of employer-provided vehicle.

    vi) Incentive payments, no matter how described, including, but not limited to, payments to induce early retirement.

    vii) Contributions by an employee or on behalf of an employee, from gross wages, into an employee or third party trust or pension plan as permitted by any provision of the Internal Revenue Code that may be excludable from gross wages for federal income tax purposes such as 401K plans.

    viii) Nonqualified Deferred Compensation Plans or programs described in Section 3121(v)(2)(C) of the Internal Revenue Code.

    ix) Trust not made pursuant to employee's retirement.

    C) Where compensation is paid or received in property, its fair market value at the time of receipt shall be subject to the tax and to withholding.

    i) Board, lodging or similar items received by an employee in lieu of additional cash compensation shall be included in earnings at their fair market value.

    ii) Restricted stock awards that vest over a period of time are taxable at their fair market value at the time they become vested and included in Medicare wages, as shown on the employee's IRS Form W-2.

    5) NET PROFITS.

    A) A resident individual who is sole owner of an unincorporated entity shall pay the tax on his entire share of net profits of the resident unincorporated business entity. If allocation to another municipality exists, the taxpayer may qualify for credit for tax paid to another locality under Section 311-73.

    B) In the case of a resident owner of a pass-through entity, the tax is imposed on such individual's distributive share of the entity's net profits; the tax is not imposed on the pass-through entity.

    6) GAMBLING WINNINGS. All prizes, awards and income derived from gaming, wagering, lotteries or schemes of chance by residents, regardless of where derived, and as reported on IRS Form W-2G, IRS Form 5754 or any other form required by the Internal Revenue Service to report such prizes, awards and income.

    7) Losses from the operation of a business or profession are not deductible from employee earnings but may be carried forward as provided in Section 311-9.

    B. IN THE CASE OF INDIVIDUALS WHO ARE NOT RESIDENTS, the tax is imposed on all qualifying wages, commissions, fees, net profits from businesses, gambling winnings and other compensation earned during the effective period of Chapter 311 within the Municipality, whether such compensation or remuneration is received or earned directly or through an agent and whether paid in cash or in property. The location of the place from which payment is made is immaterial.

    1) The items subject to tax under Section 311-5 are the same as those already defined and listed in this article for residents.

    2) See Regulation R31. A. 6) for the methods of computing the tax on that portion of qualifying wages earned within the Municipality.

    3) The Municipality shall not tax the compensation of an individual if all of the following apply:

    A) The individual does not reside in the Municipality;

    B) The compensation is paid for personal services performed by the individual in the Municipality on twelve (12) or fewer days during the calendar year;

    i) For purposes of the 12-day calculation, "Day" means any part of a 24-hour calendar day where compensation is earned in the Municipality.

    ii) Beginning with the thirteenth (13) day, the individual shall no longer be considered an occasional entrant and is liable for taxes on income earned for the first twelve (12) days.

    C) In the case of an individual who is an employee, the principal place of business of the individual's employer is located outside the Municipality and the individual pays tax on compensation described in item (B) of this section to the municipality, if any, in which the employer's principal place of business is located, and no portion of tax is refunded to the individual; and

    D) The individual is not a professional entertainer or professional athlete, the promoter of a professional entertainment or sport event, or an employee of such a promoter.

    4) In the case of a nonresident owner of a pass-through entity, the tax is imposed on such individual's distributive share of the entity's net profits attributable to the Municipality under the business apportionment percentage formula set forth in Section 311-7; the tax is not imposed on the pass-through entity.

    C. IN THE CASE OF OWNERS OF UNINCORPORATED ENTITIES.

    1) A resident who is the sole owner of an unincorporated entity shall pay the tax on his entire share of net profits of the unincorporated business entity. If allocation to another municipality exists, the taxpayer may qualify for credit for tax paid to another locality under Section 311-73.

    2) In the case of a resident owner, partner or part owner of a pass-through entity, the tax is imposed on such individual's distributive share of the entity's net profits.

    3) In the case of a nonresident owner, partner or part owner of a pass-through entity, the tax is imposed on such individual's distributive share of the entity's net profits attributable to the Municipality under the business apportionment percentage formula set forth in Section 311-7.

    4) The Municipal income tax imposed by Section 311-5(c) on the owners of a pass-through entity shall, to the extent that the owner's distributive share of the net profit of the pass-through entity is attributable to business conducted by the pass-through entity in the Municipality, be collected and remitted pursuant to Section 311-32.

    5) "Distributive share" shall have the same meaning as "Owner's proportionate share" as defined in Ohio Revised Code section 718.14(A)(5). This is the ratio of (a) the owner's income from the pass-through entity that is subject to taxation by the Municipality, to (b) the total income from that entity of all the owners whose income from the entity is subject to taxation by the Municipality.

    D. IN THE CASE OF CORPORATIONS.

    1) Whether domestic or foreign and whether or not the corporation has an office or place of business in the Municipality, the tax is imposed on the corporation's net profits attributable to the Municipality under the business apportionment percentage formula provided for in Section 311-7.

    2) In determining whether a corporation is conducting a business or other activity in the Municipality, the provisions of R7 of these regulations shall be applicable.

    3) Corporations which are required by the provisions of Ohio R.C. 5727.38 to 5727.41, inclusive, to pay an excise tax in any taxable year, may exclude that part of their gross receipts upon which the excise tax is paid. In such case, expenses incurred in the production of such gross receipts shall not be deducted in computing net profits subject to the tax imposed by Chapter 311.

    4) The tax imposed by Section 311-5(e) on the net profits of an electric company, combined company or telephone company shall be subject to, and shall accord to, Ohio Revised Code Chapter 5745.

    E. IN AMPLIFICATION of the definition contained in Section 311-3N, but not in limitation thereof, the following additional information respecting net profits is furnished.

    1) RENTAL OF REAL ESTATE.

    A) Real estate shall include commercial property, residential property, farm property, and any other types of real property.

    B) Business Activity. The net profit from rental activity is taxable provided the gross rents from all rental activities exceed $500 per month.

    i) Periods of vacancies and other causes are not to be considered.

    ii) In the case of commercial property when the gross rents are based on a percentage of gross sales or net sales the $500 requirement is disregarded and the owner is engaged in a business activity.

    iii) In the case of farm rentals when the owner shares in the crops or the gross rents are based on the receipts derived from the farm the $500 requirement is disregarded and the owner is engaged in a business activity.

    iv) Rooming houses of five or more rooms are considered businesses activities whether or not the gross rents exceed $500 per month.

    C) Residents of Cincinnati are subject to taxation upon the net profits from rentals regardless of the location of the property. In accordance with Section 311-73, residents may claim a credit for taxes paid to other municipalities on rental income from property located in another municipality.

    D) Nonresidents of the Municipality are subject to such taxation only if the real property is situated within the Municipality and the rental activity is deemed a business activity as defined above.

    E) Businesses owning or managing real estate are taxable only on that portion of the real estate property located in the Municipality.