Ohio municipal income tax for businesses: net profit, filing, and RITA
Ohio cities and villages can tax business net profits and employee wages under ORC Chapter 718. A business files a net profit return with each city where it has taxable profit, either through that city's administrator (often RITA or CCA) or, by election under ORC 718.80, through the state Tax Commissioner.
How Ohio municipal income tax works for businesses
In Ohio, cities and villages can levy their own income tax. ORC Chapter 718 sets the ground rules every municipality must follow: what income can be taxed, how business profit is divided among cities, when returns are due, and how withholding works. Each city then sets its own rate and credits by ordinance.
A business can meet municipal income tax in two ways:
- As a taxpayer on its own net profit, in each city where it does business.
- As an employer withholding city tax from employees' wages and sending it to the city where the work is done.
A few rules apply statewide. ORC 718.04(C) requires every city to tax income at a uniform rate. It also bars a city from levying a rate above 1% without voter approval, unless the higher rate was already in place on or before March 23, 2015. So rates vary city by city, and a business working in five cities may face five different rates.
Municipal tax is separate from state taxes. For the state side, see our guides to Ohio employer withholding registration and the Ohio Commercial Activity Tax.
What is the municipal net profit tax?
Net profit is the base cities tax for a business. ORC 718.01(D) defines it two ways, depending on who the taxpayer is:
| Taxpayer | Net profit starts from |
|---|---|
| Individual (sole proprietor, landlord, farmer) | Net profit reported on federal Schedule C, Schedule E, or Schedule F, reduced by any net operating loss carried forward |
| Any other person (corporation, LLC taxed as a partnership or corporation, partnership) | Adjusted federal taxable income, reduced by net operating losses from tax years beginning in 2017 or later, within the statute's limits |
Single-member LLCs
Under ORC 718.01, "taxpayer" does not include a disregarded entity, apart from a narrow exception for certain LLCs owned by another LLC that have filed separately since 2003. For most single-member LLCs that are disregarded for federal tax purposes, the owner reports the LLC's profit on the owner's own municipal return rather than the LLC filing one. Our guide to the Ohio single-member LLC covers how that structure works more broadly.
If your LLC has elected corporate tax treatment, it is a taxpayer in its own right and files its own net profit returns. That is one of the less obvious effects of the choice discussed in our Ohio LLC vs. S corp guide.
Which Ohio cities can tax your business profit?
A business that operates both inside and outside a city does not pay that city tax on all of its profit. ORC 718.02(A) divides net profit among cities using the average of three ratios:
- Property: the original cost of real and tangible personal property owned or used in the city, compared to everywhere. Rented property counts at eight times the annual rent.
- Payroll: wages paid for work performed in the city, compared to all wages.
- Sales: gross receipts from sales, rentals, and services made or performed in the city, compared to all gross receipts.
Average the three percentages and apply the result to net profit. A contractor based in one city that earns 30% of its receipts on jobs in a second city, with some payroll there too, will owe that second city tax on a share of its profit.
If those factors do not fairly reflect your business activity in a city, ORC 718.02(B) lets the taxpayer request, or the tax administrator require, an alternative method. That is worth raising with your accountant if, for example, your property is concentrated in one city but your work happens in others.
City income tax withholding for employers
ORC 718.03(A) requires each employer located or doing business in a taxing city to withhold that city's tax from employees' qualifying wages earned there. The employer may also withhold for the employee's city of residence if the employee asks.
The 20-day rule
Employees who travel to job sites create the hard cases. Under ORC 718.011(B), an employer generally does not have to withhold for a city where an employee worked 20 or fewer days in the calendar year. Exceptions apply, including when the employee's principal place of work is in that city. Once the 20-day line is passed, withholding for that city begins.
Remitting and reconciling
| Schedule | Who | Due |
|---|---|---|
| Monthly | Withheld more than $2,399 for the city in the prior calendar year, or more than $200 in any month of the preceding quarter | 15 days after the end of each month |
| Quarterly | Everyone else | Last day of the month after each quarter |
| Annual reconciliation | Every employer that withheld or should have | Last day of February |
A city may require larger employers to remit semimonthly or by electronic funds transfer (ORC 718.03(B)(2)). As with state withholding, the employer is liable for tax it should have withheld, and the responsible officer or employee can be held personally liable (ORC 718.03(G), (I)).
When municipal net profit returns and estimates are due
For a taxpayer that is not an individual, ORC 718.05 makes the annual net profit return due on the 15th day of the fourth month after the end of the taxable year. If the business's unextended federal return is due later than that, the city return follows the federal due date instead. For a calendar-year corporation, that means April 15.
- No payment is required if the amount due on a return is $10 or less.
- Estimated tax: ORC 718.08 requires a declaration of estimated taxes for the current year if the amount payable as estimated tax is at least $200.
- Attachments: for a taxpayer that is not an individual, the administrator may require a copy of the federal return, such as Form 1065, 1120, or 1120-S, and little else (ORC 718.05).
Each city where you have apportioned profit gets its own return, unless you make the state election described below. Check each city's website for its forms and whether it accepts electronic filing.
Where to file: city tax offices, RITA, and CCA
Every taxing city has a tax administrator, but many hand the work to a regional agency. Before you file, find out who administers each city you owe. The city's website or finance office will tell you, and it takes a few minutes to confirm before the first return goes out.
| Administrator | What it is |
|---|---|
| RITA (Regional Income Tax Agency) | Formed in 1971, when 38 municipalities set up the Regional Council of Governments. RITA says it now administers income tax for more than 360 Ohio cities and villages. Businesses can register and file net profit and withholding returns online. |
| CCA (Central Collection Agency) | Run by the City of Cleveland's Division of Taxation since January 1, 1967. CCA says it serves over fifty member municipalities. |
| The city's own tax office | Some cities administer their own tax. Their forms and filing systems are on the city's website. |
A business with work in several cities may deal with RITA for some, CCA for others, and a city tax department for the rest. Keep a simple list: city, administrator, account number, and filing frequency for both net profit and withholding.
Setting up city tax accounts when you start or expand
Forming the company with the Secretary of State does not open any city tax account. Each one is set up with the city's administrator, and the first step is knowing which cities you are in.
- Start with the city where your office, shop, or yard sits. A business run from a home office should check that city too; our guide to the home-based business LLC in Ohio covers the zoning side.
- List every city where employees work more than 20 days a year, or where an employee's principal place of work is. Each one is a withholding account.
- List every city where you have property, payroll, or receipts that put some of your profit there under the three-factor formula. Each one is a net profit filing, unless you make the state election.
- For each city, find the administrator (city office, RITA, or CCA), register, and note the account number and due dates.
Contractors feel this most, because jobs move from city to city through the year. If you are starting a trade business, our guide to starting a contracting business in Ohio walks through the other registrations that come with it. Keep a running log of job-site days and receipts by city from the first job. Reconstructing it at year end from invoices is slow and often incomplete.
The centralized filing election under ORC 718.80
A business can choose to file its municipal net profit tax with one office instead of many. ORC 718.80(A) lets a taxpayer elect to have the state Tax Commissioner serve as the sole administrator of each municipal income tax for which it is liable. The commissioner then administers it under ORC 718.80 through 718.95.
- Who can elect: a taxpayer other than a natural person. ORC 718.81 excludes individuals, so sole proprietors cannot use it.
- How: file the commissioner's form listing every municipality where the business conducted business in the previous taxable year (ORC 718.80(B)(1)).
- Deadline: on or before the 15th day of the fourth month after the start of the taxable year. For a calendar-year business, April 15.
- How long: the election covers that year and every later year until you terminate it (ORC 718.80(B)(3)(a)).
- Ending it: file a termination form on or before the 15th day of the fourth month of any taxable year (ORC 718.80(B)(3)(b)).
Filing under the election
ORC 718.85 sets the rules once you elect. One annual return goes to the Tax Commissioner by the 15th day of the fourth month after year end, or the federal due date if later. Payment is made payable to the Treasurer of State. A business that requested a federal automatic extension automatically gets an extension to the 15th day of the 11th month after year end, but the extension does not extend the time to pay. The statute refers to electronic filing through the Ohio Business Gateway.
The cities still matter. Each city on your list certifies its tax rate to the commissioner and sends over your net operating loss carryforwards, credits, and overpayments, so those carry into the state-administered return (ORC 718.80(C)).
Should your business make the 718.80 election?
There is no single right answer. Here is how the tradeoff usually looks:
| Points in favor | Points to weigh |
|---|---|
| One return and one payment instead of a return in every city | The election is for net profit tax; check how your employee withholding is handled in each city |
| One set of rules under ORC 718.80 to 718.95 | Once made, it stays in place until you file a timely termination |
| Useful for contractors and multi-site businesses with profit in many cities | A business in one or two cities may gain little |
Whether the election fits your business depends on how many cities you work in, how your profit is apportioned, and how your accountant handles your returns now. Talk to your accountant before the April deadline, not after.
City tax notices, collections, and your statutory agent
Routine city tax mail goes to the address on your city tax account. If a city or its administrator sues the company to collect, the complaint is served on the company's statutory agent, the same as any other lawsuit.
That is when it matters who your agent is. With our Ohio statutory agent service, service of process is treated as urgent: every authorized contact is notified, and we escalate to a phone call if nobody acknowledges it. State and tax correspondence we receive is scanned the same business day and the original kept for three years. If you are moving into Ohio from another state, our guide to Ohio foreign LLC registration covers the state filing; city tax accounts are set up separately with each administrator.
We do not prepare municipal returns or give tax advice. Talk to your accountant about apportionment, which cities you owe, and whether the state election makes sense for you.
Ohio municipal income tax questions for businesses
Does a single-member LLC file its own Ohio municipal net profit return?
Usually not, because ORC 718.01 excludes most disregarded entities from the definition of a municipal taxpayer. A single-member LLC that is disregarded for federal tax purposes generally has its profit reported on the owner's municipal return. A narrow exception applies to some LLCs owned by another LLC that filed separately since 2003. An LLC taxed as a corporation files its own return.
What federal return do Ohio cities require with a business net profit return?
Ohio cities can require a business to attach a copy of its federal return, such as Form 1065, 1120, or 1120-S, to its municipal net profit return. ORC 718.05 limits what a tax administrator may require from a taxpayer that is not an individual to that federal return, plus supporting documents for amended returns or refund requests.
Do businesses have to make estimated Ohio municipal income tax payments?
Yes, a business must declare and pay estimated Ohio municipal income tax if its estimated tax for the year is at least $200. ORC 718.08 sets that threshold. Overpayments credited from a prior year count toward what has been paid. Each city's administrator, or the Tax Commissioner under the 718.80 election, publishes the estimate forms and dates.
Does a federal extension extend the Ohio centralized municipal net profit return?
Yes, under the 718.80 election a business that requested a federal automatic extension automatically gets an extension of its municipal net profit return. ORC 718.85(D) moves the due date to the 15th day of the 11th month after year end. The extension covers filing, not payment, so estimate and pay what you owe by the original due date.
Can a sole proprietor use the state centralized municipal net profit filing?
No, a sole proprietor cannot use Ohio's centralized municipal net profit filing election. ORC 718.81 defines a taxpayer for the election to exclude natural persons. Sole proprietors file net profit with each city's administrator. Corporations, partnerships, and LLCs that are taxpayers in their own right can elect by the 15th day of the fourth month of the taxable year.
How do I end the Ohio municipal net profit tax election under ORC 718.80?
File the Tax Commissioner's termination form on or before the 15th day of the fourth month of the taxable year when you want the change to start. ORC 718.80(B)(3) sets that deadline. After a timely termination, you file net profit returns with each city's administrator again. The commissioner notifies the cities on your most recent return.
How is business profit split among Ohio cities for municipal income tax?
Ohio splits business profit among cities using the average of three factors: property, payroll, and sales in each city compared to everywhere. ORC 718.02(A) sets the formula, and rented property counts at eight times annual rent. If the result does not fairly represent your activity, ORC 718.02(B) allows an alternative method by request or by the administrator's requirement.
When must an employer withhold Ohio municipal income tax for traveling workers?
An employer generally must start withholding a city's income tax once an employee works more than 20 days in that city during the calendar year. ORC 718.011 sets the 20-day rule, with exceptions such as when the city is the employee's principal place of work. Track job-site days by city so withholding starts on time.
How often do Ohio employers remit municipal income tax withholding?
Ohio employers remit city withholding monthly if they withheld over $2,399 for that city last year or over $200 in any month of the prior quarter. Otherwise payments are quarterly. ORC 718.03 sets the schedule. The annual withholding reconciliation is due by the last day of February.
Can an Ohio city raise its municipal income tax rate above 1% without a vote?
No, an Ohio city cannot raise its municipal income tax rate above 1% without approval from a majority of voters. ORC 718.04(C)(2) requires the election. A city that already had a rate above 1% on or before March 23, 2015 may keep levying it as its original ordinance provides. Every city must tax at a uniform rate.
Related Ohio guides
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