Business FAQs - Net Profit - Section 754 Adjustments
Charitable contributions may be deducted to the same extent allowed federally as if the business were filing as a C corporation.
To amend a net profit tax return, check the box at the top of a net profit tax return.
An amended return must be filed in order to report additional income and pay any additional tax due or claim a refund of tax overpaid.
If the company has not amended its federal tax return, attach a brief statement explaining why the return was amended.
A taxpayer may not change the method of accounting or apportionment of the net profit after the due date for filing the original return.
Generally, amended returns must be filed within three (3) years from the original filing date.
Please refer to Form 37 - RITA Individual Income Tax Return, Schedule J.
If a partner sells his/her interest to another partner giving rise to an IRC section 754 adjustment, can a partnership claim the IRC section 754 adjustment deduction when completing its municipal tax return?
No. ORC section 718.01 defines taxable net profit, and requires partnerships to calculate their municipal taxable net profit as if the partnerships were C-corporations. When one owner of a C-corporation sells his/her ownership interest (stock) to a new owner, the C-corporation does not take any deduction on its return related to that transaction. Thus, a partnership cannot claim an IRC section 754 adjustment given the fact pattern above.
However, if a C-corporation purchases an ownership interest in an existing partnership, the C-corporation can claim the IRC section 754 adjustment on its return. Thus, if a partnership purchases an ownership interest in an existing partnership, the purchasing partnership can claim the related the IRC section 754 adjustment on its return.
The IRC section 754 adjustment is allowed only on the return of the purchasing partner.
Consolidated tax returns may be filed by a group of corporations who are affiliated through stock ownership and who join in the filing of a federal consolidated income tax return. A consolidated return must include all subsidiaries. The election is binding for a five-year period beginning with the first taxable year of the initial election unless a change in the reporting method is required under federal law. The election continues to be binding for each subsequent five-year period unless the taxpayer elects to discontinue filing consolidated municipal income tax returns under ORC 718.06(B)(2) or a taxpayer receives permission from the tax administrator.
To apply for an application for extension of time to file a net profit tax return, file Form 20-EXT - Declaration of Estimated Municipal Income Tax on Net Profits and / or Application for Extension of Time to File.
Any taxpayer that has requested an automatic six-month extension for filing the taxpayer's federal income tax return shall automatically receive an extension for the filing of a municipal income tax return. The extended due date of the municipal income tax return shall be the fifteenth day of the tenth month after the last day of the taxable year to which the return relates.
A taxpayer that has not requested or received a six-month extension for filing the taxpayer's federal income tax return may request that the tax administrator grant the taxpayer a six-month extension of the date for filing the taxpayer's municipal income tax return. If the request is received by the tax administrator on or before the date the municipal income tax return is due, the tax administrator shall grant the taxpayer's requested extension. This request should be submitted using Form 20-EXT - Declaration of Estimated Municipal Income Tax on Net Profit and/or Application for Extension of Time to File.
An extension of time to file is not an extension of the time to pay any tax due. If you make an additional payment with your extension, the payment must be allocated to a RITA municipality or municipalities using Form 20-EXT.
NO WITHHOLDING EXTENSION REQUESTS WILL BE GRANTED.
My company receives flow through income from another business entity. How do I indicate this on my tax return? (Form 27)
For tax years 2016 and forward, pass-through income is always backed-out of AFTI unless the taxpayer is filing a consolidated return with RITA. Taxpayers filing consolidated returns can elect to include pass-through income if, and only if, the consolidated group owns or controls 80% or more of the pass-through entity. Qualified taxpayers that make such an election should include the pass-through entity’s property, wages and receipts when calculating their apportionment percentages. Qualified electing taxpayers should include a copy of the federal Form 1065 or 1120S of any pass-through entity whose income or loss the taxpayer elects to include in the RITA consolidated return along with any supporting forms or schedules necessary to support the amounts included in apportionment calculation, such as federal Form 1125-A, Schedule K-1, and supporting statements to the previously mentioned federal forms.
For Tax Years prior to 2016, previously taxed pass-through income and losses your company receives are backed out of your company's municipal taxable income on the "Other Items Not Taxable" line of Schedule X of Form 27 - Net Profit Tax Return.
Indicate the Federal Identification Number of the business that originated the pass-through income. Include the name of the municipality to which the income was reported, and provide a copy of the Form K-1 received.
Do not include or take credit for tax paid by the business that generated the pass-through income.
Yes. The portion of the gain classified for federal tax purposes as IRC section 1250 gain is taxable and is included in the business' net profit subject to apportionment. The taxable portion is normally referred to as depreciation recapture. The Ohio Revised Code requires partnerships and S-corporations to calculate their depreciation recapture as if these taxpayers were a C-corporation. C-corporations must make the IRC section 291 adjustment when calculating their depreciation recapture on the sale of a section 1250 asset. The section 291 adjustment increases the amount of depreciation recapture (1250 gain). See the instructions for federal Form 4797 on how to compute the section 291 adjustment.
My company reduced the amount deducted for wages or other expenses on the federal return in order to claim a federal credit. Can the company claim the full amount of the wage or other expenses on the municipal income tax return, since the company does not get any advantage from the federal credit at the municipal level?
No. ORC Section 718.01 defines taxable net profit. The Code provides a list of the statutory adjustments that must be made when computing a taxpayer’s taxable net profit subject to apportionment. There is no statutory authority for any adjustment to reverse the reductions in federal expenses related to the various federal jobs and other credits. Thus, by choosing to claim a federal credit, a taxpayer also chooses to reduce certain deductions for both federal and municipal tax purposes.