Tuscarawas County Auditor’s Office
New Business Guide
Local/Municipal Income Taxes
By law, municipalities and villages can raise income taxes on the earnings of employees and on the profits of businesses. Cities can raise up to a 1% tax without a vote; any amounts above this must be approved by voters.
Different cities may have different ordinances which can cause some frustration in the administration of your tax returns, so your best chance of success is to either contact that taxing agency or a tax professional.
Below are some of the special issues which pertain to local taxes:
If performing work or paying payroll in a city, you must file a return and/or withhold taxes.
If your principal business location is in a city, you must file a return with the resident city.
WHEN DO I WITHHOLD/PAY A LOCAL TAX?
- If your principal place of business is located within a city’s limits, you must withhold payroll taxes on all payroll paid on employees working there; you must also file a tax return to the City for taxation on the profits of your business.
- If you have a business activity within a city, even if you do not have a place of business located there, the payroll paid to employees on the dates of activity should be withheld and remitted to that city. Special formulas exist for the calculation of taxable income in a city for purposes of taxing the profits of your business and a return should be filed for that year.
- Businesses who show a taxable loss still have a requirement to file a city tax return if they did business or are located in the city. Adjustments may be required to your loss figure for income and/or deductions which do not apply to city taxation. Generally, most municipalities allow a five-year loss carry forward which can be offset against future year’s income, so it is beneficial to file the returns.
MUST I WITHHOLD PAYROLL TAXES FOR AN EMPLOYEE’S RESIDENT CITY IF THE EMPLOYEE’S RESIDENT CITY HAS A HIGHER TAX RATE THAN THE ONE WHERE MY BUSINESS IS LOCATED?
Generally, there is no requirement that a business withhold local taxes above the amount of the business resident city. Employees will have a responsibility to file and pay taxes on their payroll when this occurs and they will have to pay the difference between their city rate and the rate of withholding. Employers do have the option of withholding the amount from the employee’s payroll as a voluntary withholding.
Most cities give credits for the amount of taxes withheld in another city, limited to their actual tax rate. Individuals/Businesses involved in such a situation should consult a tax advisor as to the proper manner of filing returns and claiming credits.
DO I NEED TO FILE A CITY RETURN IF MY BUSINESS IS LOCATED IN A TOWNSHIP?
If you own a business that travels to a city to provide services, you are required to file a return with that municipality. If you have employees earning payroll in that city, then you may also be required to withhold and remit payroll taxes as well. Consult a business advisor if this situation applies to you.
MUNICIPAL TAX RATES IN TUSCARAWAS COUNTY NON-INCLUSIVE
Businesses are encouraged to seek the advice of a tax professional in dealing with local taxes.