Expiration of the 50% NOL Phase-In for Ohio Municipal Income Taxes

When Ohio House Bill 5 (HB5) was enacted in December, 2014, net operating loss carryforwards (NOLs) were standardized requiring all municipalities in Ohio that impose a tax to allow a 5-year NOL carryforward. In the process of making NOLs uniform, the law imposed a 50% limitation on the amount of NOL that could be used to offset income for municipalities that had a tax prior to January 1, 2016. In effect, the NOL was limited to the lesser of 50% of the adjusted federal taxable income or 50% of the unutilized NOL. The law included a provision that put a time-frame on the 50% limitation. Ohio Revised Code 718.01(D)(3)(c) indicated for tax years beginning in 2018-2022 the 50% limit applied, but for tax years beginning in 2023 or later the full amount of the unutilized and unexpired NOL could be used to offset a taxpayer’s income.

Looking Forward
NOLs and how they can be used on Tax Year 2023 net profit returns are summarized below:

  • Effective for tax years beginning in 2023, all RITA municipalities now allow a 5-year NOL carryover at 100% of the unutilized and unexpired NOL or 100% of the adjusted federal taxable income (AFTI). NOLs are no longer limited to 50%. For a complete listing of all RITA municipalities visit https://www.ritaohio.com/Municipalities
  • Any NOLs generated in tax years beginning in 2018, 2019, 2020, 2021 and 2022 that were not previously used may be used at 100% to offset AFTI in 2023.
  • NOLs generated in 2017 have expired. In some cases, these were never able to be fully utilized. If any of the 2017 NOL was unused after the 2022 return was filed, it can no longer be utilized to offset income.
  • For tax years beginning in 2023, pre-HB5/Post Apportioned (municipality-specific) NOLs are nearly all expired. Unless there is a NOL generated in the Villages of McDonald and/or Jewett that is being carried forward from tax years beginning prior to January 1, 2017, any unutilized NOL has expired. Note: Prior to HB5 McDonald allowed a 10-year NOL and Jewett permitted a 7-year NOL.
  • When making final 2023 estimate projections or when deciding whether or not to make an extension payment, keep in mind you can now use the full, unexpired NOL that is available. As a reminder, a taxpayer must make timely estimated payments equal to 100% of the prior year’s liability or 90% of the actual tax due to avoid unpaid estimated income tax penalties and interest.

Take a look at the examples here to see how these rules could play out.