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STARTING AND OPERATING A BUSINESS IN OHIO Copyright © 2004, Michael D. Jenkins
CONTENTS OF THIS SECTION:
I. INTRODUCTION I. INTRODUCTION Ohio has a fairly typical tax and legal structure under which businesses must operate, not markedly dissimilar to that of most other states. Like most states, Ohio imposes an income tax, a franchise tax on corporations, a sales and use tax, various excise taxes, with property taxes imposed at the local level. The state has also adopted a limited liability company (LLC) law, and a limited liability partnership (LLP) law, so that businesses operating in Ohio in LLC or LLP form may thus obtain the advantages of limited liability, without incorporating or becoming subject to corporate taxation, generally. However, since 1998, an 8.5% tax has been imposed on the Ohio-apportioned income of all "qualifying pass-through entities," such as S corporations, partnerships, and LLCs that are taxable as partnerships, if the recipient shareholder, partner, or LLC member is not an Ohio resident individual or a corporation filing Ohio franchise tax returns. A 5% withholding tax is also imposed on the profits allocable to nonresident individual investors in a qualifying pass-through entity. At present, the state's economy is somewhat sluggish, in terms of the level of unemployment and other economic measures, but is slowly recovering from the recent recession. For example, in July, 2004, the Ohio rate of unemployment was 5.9%, down from a rate of 6.3% a year earlier, but still higher than the national unemployment rate of 5.5% in July, 2004. To view the latest federal Bureau of Labor Statistics unemployment rate data for Ohio or any other state, visit the BLS website. II. LEGAL ENTITIES -- FILING FEES AND REPORTING REQUIREMENTS. (a) In General. A business that operates in Ohio can operate as a sole proprietorship, a general or limited partnership, a corporation, or a limited liability company. In addition, like the federal tax law, the state income (franchise) tax law also recognizes S corporations, for tax purposes, and generally allows the income or losses of an S corporation to "flow through" and be taxed or deducted at the shareholder level, rather than taxing the corporation itself as an entity. Ohio also provides for limited liability partnerships, in which no partner is liable for debts of the partnership, in general, as in the case of a corporation or LLC, but with fewer legal formalities than are required for either a corporation or an LLC. Each of the above entities is discussed below, along with the basic requirements for forming such an entity and any general ongoing (non-tax) reporting requirements that are applicable to it. The tax treatment of each form of legal entity is discussed in Section IV below. (b) Sole Proprietorships. In general, sole proprietorships in Ohio can be formed with no formalities. However, as discussed in Section IV(b), it will generally be necessary to obtain one or more local business licenses from cities or counties in which you operate and, in some cases, state licenses, as well. No separate tax form filing is required, generally, for a sole proprietorship, under the Ohio income tax law. Instead, as with the Schedule C on your federal Form 1040, you simply report the net income or loss from your sole proprietorship on your state personal income tax return. See Section IV(c) for information on the Ohio income tax and filing requirements for individuals. (c) Partnerships. As a rule, general partnerships in Ohio can be formed with no formalities, although it is highly advisable to have a written partnership agreement. However, as discussed in Section IV(b), it will generally be necessary to obtain one or more local business licenses from cities or counties in which you operate and, in some cases, state licenses, for any type of partnership, including general or limited partnerships, or limited liability partnerships. A limited partnership, in which there is at least one general partner (who is liable for partnership debts) and at least one limited partner (who is not liable for partnership debts), may also be formed under Ohio law. Unlike a general partnership, a limited partnership must generally have a written partnership agreement, and must file a certificate of limited partnership with the Ohio Secretary of State, together with a filing fee of $125. Foreign limited partnerships must also register before they are allowed to do business in Ohio, and must pay a registration fee of $125. For information on limited partnership filing requirements, see the contact information for the offices of the Ohio Secretary of State, listed in Section VI(a). Limited liability partnerships (LLPs) are a new form of partnership permitted under the laws of Ohio. Like an LLC, an LLP provides limited liability for its owners, while retaining the tax advantages of a partnership for federal and Ohio state income tax purposes. However, unlike an LLC, an LLP typically operates like a regular partnership, and is not required to file articles of organization. To obtain LLP status in Ohio, a partnership must register with, and pay a filing fee of $125 to the secretary of state. Foreign LLPs, those created under the laws of another state, must register with the secretary of state and pay a fee of $125. Every LLP doing business in Ohio, including both domestic and foreign LLPs, must file a biennial report with the Ohio Secretary of State by July 31 of each odd-numbered year and pay a filing fee of $25. For more information on LLP registration and reporting requirements, see the contact information for the offices of the secretary of state, listed in Section VI(a). Note that one potential drawback of LLPs, if you will do business in other states besides Ohio, is that some states, like California and New York, only recognize certain types of professional partnerships as LLPs. If yours is not a professional partnership, such other states may simply treat your LLP like an ordinary general partnership, with no limitation of liability. A partnership agreement, for any type of partnership, should spell out in considerable detail such matters as the following:
Partnerships, as entities, are not subject to state income tax in Ohio. Instead, the income or losses of the partnership, as allocated among the partners, must be reported on the personal income tax returns of the individual partners (or on the corporate tax returns of any corporate partners). While the state does not require filing of a state partnership information return, a partnership with Ohio-source income and with two or more nonresident partners may elect to file a single nonresident tax return on behalf of all the nonresident partners. For details on Ohio partnership tax filing requirements, see Section IV(c). (d) Corporations. To form a corporation in Ohio, you must file articles of incorporation with the Ohio Secretary of State and pay a fee of at least $125, or a larger fee, based on the number of authorized shares of stock, if issuing or authorizing over 1,500 shares:
OHIO CORPORATION FILING FEES
----------------------------
Up to 1,000 shares 10 cents a share
Next 9,000 shares 5 cents a share
Next 40,000 shares 2 cents a share
Next 50,000 shares 1 cent a share
Next 400,000 shares 1/2 cent a share
Over 500,000 shares 1/4 cent a share
A foreign corporation (one formed under the laws of another state or a foreign country), must obtain a certificate of authority before it may legally conduct business in Ohio, by filing an application for a certificate of authority and paying a license application fee of $125. In addition, a foreign corporation is subject to the franchise tax and, like a domestic corporation, must pay a fee based on its shares of capital stock that are allocable to Ohio. It must file by March 31 each year an Annual Statement of Proportion of Capital Stock, Form 7, and pay a fee if there is any increase in the amount of the foreign corporation's stock that is allocable to Ohio. For more information on filing articles of incorporation or applying for a certificate of authority to do business in Ohio, see the contact information for the offices of the secretary of state, listed in Section VI(a). In addition to paying federal income taxes on its income, a corporation that does business in Ohio must also file corporate franchise (income) tax returns with the state. See Section IV(c) for a discussion of state corporate tax rates and tax return filing requirements. For tax forms and more information on corporate franchise taxes in Ohio, see the contact information for the offices of the Ohio Department of Taxation listed in Section VI(a). (e) S Corporations. An S corporation is simply a regular corporation that has elected, for federal or state income tax purposes, or for both, to be taxed somewhat like a partnership, with its income, losses and tax credits flowing through to its owners, who report such income, losses, or credits on their individual tax returns. Ohio recognizes S corporations for income tax purposes, and treats them in a manner similar to the federal tax treatment, with regard to their income or losses. An S corporation is also exempt from the franchise tax based on capital. To maintain its S corporation status, it is necessary for a corporation to file a report between the first day of January and March 31 each year to report that such an election is still in effect for federal income tax purposes. (f) Limited Liability Companies. Ohio, like every other state in the U.S., has adopted a limited liability company (LLC) law. Thus, in addition to the traditional choices of a sole proprietorship, partnership, or corporation, a business that operates in Ohio may also choose to operate in the form of an LLC. In most states, LLCs are very attractive entities for many small businesses, in that they offer the same protection as a corporation from creditors for debts of the business, while offering much of the flexibility plus the flow-through tax treatment of a partnership for federal tax purposes. See Section IV(c) for a discussion of the income tax treatment of LLCs under Ohio tax laws. To form an LLC under the laws of Ohio, it is necessary to file articles of organization with the secretary of state, which must be accompanied by a filing fee of $125. Foreign LLCs, those formed under the laws of another state, must obtain a certificate of authority to do business in Ohio, by filing an application for a certificate of authority with the secretary of state and paying a filing fee of $125. Ohio state law now recognizes the validity of one-member LLCs. While state law formerly required and LLC to have two or more members, this was changed, after the federal income tax regulations were modified to allow one-member LLCs to be treated as sole proprietorships for federal tax purposes. For more information on filing articles of organization for an LLC, see the contact information for the offices of the secretary of state, listed in Section VI(a). III. BUSINESS ACQUISITIONS (a) In General. When acquiring an existing business, there are a number of state legal and tax issues you or, preferably, your business attorney, should attend to before closing the purchase. These include matters such as doing a title search for any real property that is being acquired, checking for any recorded security interests on personal property items, and thoroughly researching county, state, and federal records for any judgment liens, tax liens, or other liens, before property is acquired. You will also benefit from consulting a tax advisor before the agreement of sale is negotiated, in order to seek a structuring of the agreement so that the purchase price is allocated among the assets in a way that favors you. You may be able to obtain considerable tax savings if the purchase price is allocated in a way that gives you the best possible tax results under federal and state income tax laws, and other state tax laws, such as sales/use tax or property tax laws. Depending upon the state (or states) in which the seller's assets are located, you may also have to comply with state bulk sale or bulk transfer laws. You should also obtain tax releases from various state taxing agencies, as discussed below. (b) Bulk Sale Laws. Typical bulk sale laws require either publication of legal notices to all creditors in advance of the sale and recording of such notices in some cases, or maintenance of detailed lists of the property to be transferred, for inspection by the public. Ohio is one of the business-friendly states that has repealed its bulk sale laws, so you no longer have to be concerned with this requirement when buying a business in Ohio. (c) Tax Releases. When you acquire an existing business, you will want to make sure that you do not unwittingly become liable for any unpaid taxes owed by the seller. Typically, to protect yourself, you will need to receive a tax release or releases from various state taxing agencies, for such taxes as sales and use tax, income tax withholding, and state unemployment taxes, in each state in which the seller does business. If you fail to obtain such a release or written statement from the tax agency that the seller is not delinquent on any tax payments, you will be held responsible for such tax if it is not withheld from the purchase price proceeds and paid to the state at the time the sale of the business transpires. In Ohio, you should obtain tax releases for unemployment taxes, from the Ohio Bureau of Job and Family Services, and a sales tax release, which the seller can obtain by submitting a Sales Tax Release issued by the Department of Taxation. Ohio law requires that an escrow account be set up when you buy a business, and that sufficient funds be withheld in escrow for liabilities of the seller, including any sales tax. The escrowed funds must not be released to the seller until the seller provides you with the Sales Tax Release, or you will be liable, as successor to the seller's business, for any unpaid sales and use taxes of the seller. (d) Unemployment Tax Rating of Seller. In addition to obtaining tax releases, you may find it advantageous to succeed to the seller's unemployment tax experience rating, if the seller has a tax rate lower than you would otherwise obtain as a new business. However, in Ohio, unlike most other states, if you acquire all of the assets of a business you will automatically inherit the tax experience rate of the seller, whether you wish to or not. Thus, when you are investigating the purchase of an existing business, you need to find out what unemployment tax rate you will be acquiring. IV. OHIO TAXES AND OTHER GENERAL REQUIREMENTS. (a) In General.
Businesses in Ohio are
subject to a wide range of taxes, most of which are comparable
to those in most other states, in reach and in tax rate.
Ohio income tax rates on individuals and the franchise tax
on business corporations (and on LLCs that are taxable as
corporations) are neither particularly high nor low. However,
unlike most other states, most large cities in Ohio impose
income taxes ranging between 0.25% and 2.85% on all compensation
of residents (or compensation earned in such a city by
nonresidents), and on all the income derived from any form
of unincorporated business in which a resident has ownership
(or income of an unincorporated business earned within
such city, in the case of nonresidents). An Ohio appellate
court has held that it is not unconstitutional for two
cities to tax an individual's income, where the taxpayer
lives in one city and works in another. E. Cleveland
v. Talley, Ohio App.., Dkt. No. 2003-Ohio-2003, 2/20/2003.
A number of school districts in the state also impose
income taxes on district residents. (b) State and Local Licensing. Nearly any business, operated anywhere in the United States, will have to have at least one government license of some kind. In most cases, this will be a local license, issued by your city or county. Before you open your business, contact your local city or county hall and find out if your particular business needs one or more local licenses. Most kinds of local business licenses are granted upon payment of a fee, with no further requirements, except possibly for annual or other periodic renewal fees. However, if you are engaging in any kind of food business, you will usually need to also obtain a health department permit and show that you are in compliance with health department food-handling requirements. In addition, be sure to check with an attorney or local government zoning or planning department officials to determine if your business will be in compliance with all local zoning and planning restrictions. If you own or rent any type of facility, you will generally need fire department permits, showing that you meet fire safety codes and any construction or improvements to an existing structure will usually require a building permit. If you intend to simply operate your business from your home, you may be in violation of local zoning requirements, but this is less likely to be a concern if you don't have clients, customers, suppliers, or employees coming to your house on business, on a regular basis. State governments have also traditionally required special licenses for many kinds of professionals, such as physicians, dentists, lawyers, and accountants. To further protect consumers, Ohio has expanded the list of occupations that must be licensed by the state to include many other occupations. Most state licenses not only require payment of fees, but are only issued for a given profession or occupation upon showing that you have completed certain educational or experience requirements, or passed certain tests, or some combination of the foregoing. For information on state licensing and business registration requirements in Ohio, see the contact information for the offices of One-Stop Business Permit Center, which is part of the Ohio Department of Development, listed in Section VI(a). (c) Income and Franchise Taxes. Ohio has both an individual income tax and an income tax (the franchise tax) on corporations. The Ohio individual income tax is imposed at a maximum tax rate of 7.5%, ordinarily. However, the rates are reduced under a complex formula when the state exceeds certain budget targets, so that, for example, the top rate in 2000 was 6.98%, on taxable income in excess of $200,000. No reduction has been available in tax years 2001 to the present, so the full 7.5% tax rate has applied to taxable income in excess of $200,000. The tax bracket amounts will be indexed for inflation after 2004. Individual taxpayers generally pay state income tax on their business earnings from a sole proprietorship, or on their share of the earnings of a pass-through entity, such as a partnership or S corporation or LLC. The Ohio personal income tax return is Form IT-1040, which must be filed with the state Department of Taxation by April 15th each year. Partnerships, or entities taxable as partnerships, such as LLCs, are not subject to state income taxation in Ohio, and unlike most other states, Ohio does not require partnerships to file a state information return. However, nonresident partners are required to pay Ohio income tax on their shares of Ohio-source income of a partnership. A partnership with two or more nonresident partners can file a composite tax return, Form IT-4708, for all the nonresident partners, which must be filed, with full payment of the tax, by April 15th, for a calendar year partnership. Form IT-4708NR(ES) may be used to make estimated tax payments on behalf of the nonresident partners during the year. In addition, beginning in 1998, an 8.5% entity-level income tax was imposed on the Ohio-apportioned income of all "qualifying pass-through entities," such as S corporations, partnerships, and LLCs that are taxable as partnerships, if the recipient shareholder, partner, or LLC member is neither an Ohio resident individual nor a corporation filing Ohio franchise tax returns. A 5% withholding tax is also imposed on the profits allocable to nonresident individual investors in such a qualifying pass-through entity. The rules for paying the pass-through entity taxes and filing of the appropriate forms (Form IT-1140 or Form IT-4708) are quite complex, so you may need to consult a knowledgeable Ohio income tax advisor to comply with the pass-through entity tax requirements. Individual wage earners or persons with income from a business are also subject to city income taxes in many Ohio cities, with rates that can range from 0.25% to 2.85% of taxable income. In addition, Ohio school districts are also allowed to impose income taxes on residents, at rates of 0.5% to 2.0% on taxable income. As of June 30, 2003, some 134 Ohio school districts (of 612 in the state) levied school district income taxes. Individual taxpayers doing business as sole proprietors, or who are partners in partnerships, or members of LLCs, are required to make payments of estimated Ohio individual income taxes, on Form IT-1040ES, if their net tax liability (not covered by withholding) exceeds $500. Estimated tax payments are due in four installments, on the 15th day of the 4th, 6th, and 9th months of the taxable year, and the 15th day of the first month of the following year. To avoid penalties for underpayment of estimated tax, you must generally pay in 90% of the current year's tax. However, no penalty for underpayment will be imposed if you pay in an amount at least equal to 100% of your tax for the prior year, if the prior year was a full taxable year of 12 months. The Ohio corporate franchise (income) tax, on corporations other than S corporations, is the higher of:
There is also a first tier litter tax (on corporations other than certain family farms) at the rate of 0.11% on the first $50,000 or income and 0.22% on the excess income; or, under the net worth computation, or 0.00014 times net worth, with a maximum first tier litter tax of $5,000 a year. A second tier litter tax also applies to certain sellers and large manufacturers that contribute to the litter stream. This tax is 0.22% on the excess income over $50,000, or 0.00014 times net worth, but is also limited to a maximum of $5,000. The state corporation income tax return is Form FT-1120, Corporation Franchise Tax Report. A corporation may file its return by January 31 of each year and pay all of its tax. If it does not, it must instead pay 1/3 of the tax by January 31 and the balance with its return by March 31. However, it may request an extension until May 31, in which case it would pay a second third of the tax by March 31, and the balance with the return by May 31. In Ohio, a limited liability company (LLC) is taxed in the same manner as a partnership, thus avoiding the possible double taxation of income that can occur with a corporation. Note that under IRS regulations, effective since 1997, an LLC is now able to elect to be treated as a partnership if it has more than one owner, or as a sole proprietorship if it does not, for federal tax purposes. Ohio law has been amended so that it now permits the formation of a one-owner LLC, following the adoption of 1997 IRS regulations that allow for noncorporate treatment of such one-owner LLCs. Note that it is not always entirely clear whether an LLC is a "single-member LLC" LLC or not, where the "single owner" is a married couple who hold the entire ownership of the LLC in some form of co-tenancy, such as joint tenants with right of survivorship, tenants by the entirety, or as tenants in common. The federal Internal Revenue Service (IRS) has taken a very lenient position in Rev. Proc. 2002-69, where a couple hold the LLC interest as community property, ruling that the IRS will accept whatever choice the couple make, either to disregard the LLC as an entity (treating it as a "single-member LLC") or to treat it as a partnership between the husband and wife. However, Ohio is not a community property state, so where the LLC is owned by a husband and wife in some form of co-tenancy, it is unclear whether the IRS treatment would be as lenient as for community property owners, since the IRS has not issued any published rulings on whether an LLC can be a disregarded entity if held in one of the various forms of co-tenancy by a married couple, rather than being held as community property. Thus, it is also unclear, where an LLC is owned by a husband and wife as co-tenants, whether Ohio would treat the LLC as a single-member LLC or as a partnership. As described above with regard to partnerships, an LLC that is taxable as a partnership may be subject to the "qualified pass-through entity" tax and reporting requirements, for state income tax purposes. (d) Sales and Use Tax. Ohio imposes a general sales tax on retail sales of tangible personal property and certain types of services at the statewide rate of 5% (temporarily increased to 6% from July 1, 2003 through June 30, 2005). Also, local governments levy local sales taxes, at varying tax rates. Sellers are required to obtain a vendor's permit for each place of business where taxable sales are to be made and to collect and pay over the state and local sales and use taxes to the Department of Taxation. Combined state and local tax rates range from 6.5% to as high as 8% in various jurisdictions within Ohio. Recent Ohio legislation has extended the scope of the sales tax to include the following services:
Effective as of December 9, 2004, delivery charges on items subject to sales or use tax are also subject to tax. There are numerous exemptions from the sales tax, the most important of which is the resale exemption. If you are a wholesaler or retailer who purchases goods that you will resell, your purchase of such goods may qualify as an exempt sale for resale. Similarly, if you sell goods to wholesalers or retailers for resale by them, your sale may also qualify as an exempt sale for resale. In any such transaction, the exemption is ordinarily available only if the purchaser gives the seller a valid resale certificate, certifying that the items are being purchased for resale, and not for use or consumption by the buyer. Ohio has announced it will continue to impose sales and use taxes on sales of Internet access services to businesses, as it had been doing so before the enactment of the federal Internet Tax Freedom Act in October, 1998. It is one of the few states that does so. However, it is imposed only where the service is sold for business use. A shadow tax, the use tax, is also imposed at the same rate as the sales tax. It is primarily intended to tax property that is acquired from sources outside of the state, in transactions not subject to sales tax, when such property is used or consumed within Ohio. Use tax may also apply to items purchased on an exempt basis, such as for resale, if such items end up being used or consumed, instead of being resold. Before making any taxable sales, you will need to register with the Department of Taxation on Form ST-1, Application for Vendor's License to Make Taxable Sales. There is an initial fee of $25, and an annual renewal fee of $10 for each license, due by February 1. For more information on Ohio sales and use tax registration and compliance, see contact information for the offices of the Ohio Department of Taxation in Section VI(a). (e) Real and Personal Property Taxes. In Ohio, as in every other state, any business real estate you own will be subject to real property taxes. In general, there is little that you must do, unless you wish to challenge your assessed valuation, since the assessor will bill you for each year's real property taxes as they come due. Ohio also imposes personal property taxes on tangible personal property, for which the filing requirements can be quite complex. Unlike most states, Ohio's personal property tax laws do not exempt business inventories, which are taxed based on their average monthly values. However, inventories are only taxed at 25% of their true value, and this tax is being phased out since 2002 (assessment rate reduced to 23% in 2003-2005), and may be reduced by 2% a year in 2006, depending on the amount of tax collected. Effective for 2007 and later years, the assessment rate for inventories will be reduced by 2% each year until it is zero. Other personal property will continue to be assessed at 25% of actual value. While Ohio generally taxes tangible personal property, it does not impose a property tax on intangible personal property, such as stocks, bonds, promissory notes, and other such paper assets, except in the case of certain dealers in intangible property, who pay a property tax on intangibles in lieu of any other property taxes. Every owner of business personal property must file Form 920 with the county auditor, if the property is located in only one county, or Form 945 must be filed with the state Tax Commissioner, if taxable personal property is located in more than one county. An Ohio Balance Sheet, Form 921, must accompany either of the above forms, and other personal property tax forms may also be required. A $10,000 exemption is allowed against the taxable value of all business personal property. (f) Other Business Taxes. Ohio imposes a number of other taxes on businesses, including:
(g) Trade Names. A trade name, also known as a fictitious or assumed name, is any name used in the course of business that does not include the actual legal names of all the owners of the business. Thus, if your business goes by any name other than your own real name, it is operating under a trade name. The same is true of a corporation, if it operates under a name other than its legal name. A trade name might also be one that suggests the existence of additional owners, by using such words as "company," "associates," or "group." In most states where you do business, it will be necessary to register a trade, fictitious, or assumed name, so that people who do business with you can find out who the actual owners of your business are. You may also want to register any such trade name, as a means of protecting against other companies usurping that particular trade name. Ohio law permits registration, with the secretary of state, of a trade name used in a business or trade and to which the user asserts a right to exclusive use. A business using a fictitious name that does not wish to register it as a trade name, or cannot do so because the name is not available for registration, must register the fictitious business name with the secretary of state on Form NFO, Report of Use of Fictitious Name. There is a $50 fee for trade name registration or for registering a fictitious name. V. EMPLOYER REQUIREMENTS IF YOU HAVE EMPLOYEES (a) Employer Registration and Withholding. If you have any employees, you will already be withholding federal income tax and FICA taxes from their wages. Since Ohio imposes a state income tax on the income of individuals, you will need to also withhold Ohio income tax from the wages of your employees, as well as city income taxes in most cities, and school district taxes on wages as well, in some districts. As soon as you begin to pay wages, you must register as an employer with the Department of Taxation by filing Form IT-1, Combined Application for Registration as an Ohio Withholding/School District Withholding Agent, and should also check with your local municipal tax office as to whether withholding of city income taxes is required where your business is located. For more information on Ohio income tax withholding and registration requirements for employers, see the contact information for the offices of the Department of Taxation, listed in Section VI(a). (b) Unemployment and Other State Payroll Taxes. If your business employs one or more individuals in each of 20 weeks during the current or preceding calendar year or if your payroll amounts to $1,500 in any calendar quarter in either such year, you, as an employer, will be required to pay state unemployment tax based on the amount of such wages paid. Employers subject to the Ohio unemployment tax are required to register with the Unemployment Compensation Division of the Ohio Bureau of Job and Family Services on Form JFS-66300. New employers are required to pay tax at rates that vary by industry, on the first $9,000 (in 2004) of wages paid to each employee. Generally, the new employer rate is 2.7%, but is higher (3.7% in 2004) for construction industry employers. After you have had employees for a while, you will develop an unemployment tax experience rating. This rating is based on the number of employees you terminate who then claim unemployment benefits and the amount of such benefits paid to those former employees, under complex formulas. The state will inform you when they have assigned you an individual tax rate based on your firm's experience rating. That rate may be higher or, if you have had relatively few benefit claims charged to your account, lower than the standard new employer tax rate for your industry that you were initially paying. All state unemployment taxes are imposed upon you as the employer, and, under Ohio law, cannot be charged to your employees or withheld from their wages. For more information on your Ohio unemployment tax obligations as an employer, see the contact information for the offices of the Ohio Bureau of Job and Family Services, Unemployment Compensation Division, listed in Section VI(a). (c) Workers' Compensation. In Ohio, virtually all businesses with one or more employees are required by law to have workers' compensation insurance, except those able to self-insure. However, a sole proprietor, a partner in a partnership, or an officer in a family farm corporation is generally not considered an employee, but coverage may be elected for such individuals. Workers' compensation provides wage loss and medical benefits to employees injured on the job and it protects you, as an employer, from legal action for damages for injuries or job-related illnesses suffered by your employees. In effect, it is a "no-fault" insurance system for work-related injuries or illnesses. Thus, if you fail to obtain required workers' compensation insurance, and an employee is injured on the job, you will have opened yourself to unlimited liability and severe legal consequences, so it is very important to obtain workers' compensation insurance for your employees. Be aware that neither general liability nor health and accident insurance can properly substitute for workers' compensation insurance. As an employer, you must notify injured employees of their benefits and post a notice in the workplace informing your employees of your most recent payment of premiums for their workers' compensation coverage. For more detailed information regarding your obligations as an employer under the Ohio workers' compensation laws, contact your insurance carrier or see the contact information for the offices of the Ohio Bureau of Workers' Compensation, listed in Section VI(a). (d) State Wage and Hour Laws. Some employees of certain small firms not engaged in interstate commerce are not covered by the federal minimum wage and overtime laws. In general, Ohio law requires most employers to pay a state minimum hourly wage that is currently $4.25 an hour (and was not increased to keep up with the last increase in the federal minimum wage). Some small employers, with less than $500,000 of annual gross sales, need only to pay a state minimum wage of $3.35 an hour, and employers with less than $150,000 of annual gross sales are only required to pay a minimum wage of $2.80 an hour. Note that, as under federal wage-hour laws, certain classes of executive, administrative, and professional employees are exempted from the Ohio wage-hour rules. Businesses with at least $150,000 a year in gross sales are required to pay time-and-a-half for overtime hours worked in excess of 40 hours a week, as under federal law. Besides the federal wage-hour posters that you must display in the workplace, you must also display a state wage-hour poster, which you can obtain from the Wage and Hour Bureau of the Ohio Department of Commerce. In addition to wage-hour laws, most businesses are subject to federal child labor laws, which put numerous restrictions on the working hours and kinds of work in which minors under the age of 18 may engage. Your business must also be cognizant of similar state child labor laws, in Ohio. Ohio law generally requires that any minor you wish to hire, who is of compulsory school age, must first provide you with an age and schooling certificate from the superintendent of education. An exception is made for 16- and 17-year olds during summer vacation, who may instead provide you with proof of age and written consent of a parent to work for you. An employer who employs minors must post a notice in the workplace at all times, listing all minors who are employed at the site. (e) State Occupational Safety and Health Laws. Employers in Ohio must comply with state and federal job safety laws designed to prevent injuries resulting from unsafe or unhealthy conditions in the workplace. While nearly half of the states have their own agencies which enforce health and safety laws for private employment in their state, Ohio is one of the states that does not, instead relying on the federal Occupational Safety and Health Administration (OSHA) to enforce such requirements in Ohio. However, the Ohio Bureau of Occupational Safety and Health can assist you with information and free on-site safety consultations, to help you comply with the federal OSHA requirements at your workplace. Note that while you may obtain a free safety consultation from federal OSHA experts, they must and will cite you for any violations they discover at your workplace. This is not the case with state safety inspections. If you request a safety consultation from the Bureau of Occupational Safety and Health, and they detect violations, they will not cite you if you promptly correct the unsafe conditions. For information on your job safety and health obligations as an employer, required posters, and possible on-site safety consultations, see the contact information for the Columbus offices of the Bureau of Occupational Safety and Health, Ohio Department of Commerce, listed in Section VI(a). (f) Other Miscellaneous State Labor Laws. Other Ohio labor laws you need to be aware of, as an employer, include the following: (1) Wage payments to employees. Employers in Ohio are generally required to pay wages at least twice a month. (2) Right-to-work laws. About half the states have enacted "right-to-work" laws, which guarantee that no person may be denied employment for refusing to join a union or for not paying union dues, thus banning either "union shop" or "agency shop" agreements, or both. In a union shop, an employee not belonging to a union may be hired but then must join the union, usually within 30 days. In an agency shop, an employee need not join the union but, to remain employed, must pay union dues. Ohio does not have such a right-to-work law and allows union shop or agency shop contracts between an employer and a union. (3) State anti-discrimination laws. In addition to complying with federal anti-discrimination laws, employers with 4 or more employees must also be aware of and comply with state civil rights laws in Ohio. State law prohibits discrimination in employment on the basis of race, color, religion, sex, national origin, disability, age, or ancestry. Employers subject to the Ohio anti-discrimination laws must display a poster informing employees of their rights. You can obtain this poster from the Columbus office of the Ohio Civil Rights Commission, at the address listed in Section VI(a). (4) Reporting new hires. Under federal welfare reform laws, employers in all states are now required to report newly-hired (or rehired) employees to a designated state agency within 20 days after the date of hire. Ohio employers must report new hires to the Ohio New Hire Reporting Program, administered by the Ohio Department of Job and Family Services. See address information and a link to the Ohio New Hire Reporting Program web site in Section VI. VI. STATE SOURCES OF HELP AND INFORMATION (a) Key State Agencies Contact Information. Ohio, as many states have done in recent years, has set up a "one-stop" center to help your new or existing businesses to obtain all necessary state licenses and permits from a single office, without your having to go from agency to agency to meet all the legal and regulatory licensing requirements. Also, you can register your business with the state for Ohio income tax, sales and use tax, as well as employer withholding, on a single state application form, Form IT-1, Combined Application for Registration as an Ohio Withholding/School District Withholding Agent, with the Ohio Department of Taxation, whose address is listed below. To obtain business registration forms, one-stop permit assistance, and information on starting or relocating your business in Ohio, contact one of the Ohio Small Business Development Centers, at the address listed in Section VI(b), or contact:
Addresses and other contact information for other key Ohio government agencies mentioned in this book are listed below for your convenience. SECRETARY OF STATE. Contact the office of the secretary of state for information on:
STATE SALES TAX. Obtain your sales and use tax license or permit and information on the Ohio sales and use tax law, from the following agency Department of Taxation. See the address information listed above for that agency. EMPLOYER WITHHOLDING. Contact the Department of Taxation, at the address listed above for that agency, to register as an employer, for purposes of Ohio income tax withholding. OHIO NEW HIRE REPORTING PROGRAM. Report newly hired or rehired employees to the Department of Job and Family Services' Ohio New Hire Reporting Program within 20 days after hiring, at the Web address listed in Section VI(c), or mail to:
STATE OSHA PROGRAM.For information on both federal and state occupational safety and health laws that affect you as an employer in Ohio, contact the Bureau of Occupational Safety and Health, of the Ohio Department of Commerce, at the address listed above for that agency. STATE ANTI-DISCRIMINATION LAWS. Contact the following state agency for more detailed information on Ohio civil rights laws that may apply to your business, and to obtain anti-discrimination notices you are required to post in the workplace:
(b) Small Business Development Centers. A number of Small Business Development Centers (SBDCs) are located throughout Ohio to assist you. These centers, usually located on college campuses, provide a wealth of start-up information and sponsor frequent business-oriented seminars. Contact one of the SBDC offices such as the one listed below for information, or for the location of other SBDCs nearer to you.
(c) Internet Sites. If you have access to the Internet, there is a wealth of state and even local business information provided by state and local governments. All states now have a state government Web page, and most major state agencies also have sites on the Internet where you can obtain useful small business information on matters such as state taxes, financing sources, or the addresses and phone numbers (or e-mail addresses) of various state and federal agencies' offices in Ohio. To start your Internet search for Ohio state government information, you may want to begin with the following Internet sites: State of Ohio home page: Ohio state agencies (links to state agency web sites): Ohio Department of Taxation (tax forms and information): Secretary of State Business Organization Filing Fees: Ohio New Hire Reporting Program (on-line reporting of new hires): Ohio Laws (Text of Ohio Statutes, Rules, and Constitution):(d) Financing Sources. For information and help on locating financing for your small business, contact the nearest U.S. Small Business Administration office in Ohio. For state government sources of financing, under the Chapter 166 Direct Loan Program and other state financing programs, contact the following state agency:
The address of the SBA District Office in Cleveland is:
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Copyright © 2004 Michael D. Jenkins
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