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Published: Saturday, 10/30/2004

Communities to vote on S corporation taxation

Voters in many areas of Ohio - including Maumee, Oregon, Sylvania, Holland, and Whitehouse in Lucas County - will be asked Tuesday whether taxing the profits of a little-known type of business organization called an S corporation should be continued.

Businesses that are organized as S corporations do not pay federal income taxes themselves, and depending where they're located, they don't pay local income taxes either.

Instead, their profits or losses show up on their shareholders' individual tax returns. And whether those are subject to local taxes depends whether the shareholder lives in an area that taxes S corporation profits.

S corporations have existed for about 50 years, and some municipalities have been taxing their shareholders' profits for decades. But dozens of Ohio cities and villages have a question about S corporations on the ballot Tuesday because of a decision made by the Ohio General Assembly last year.

The legislature decided that communities that want to keep taxing S corporation profits would have to ask voters for permission to do so on Tuesday. It's a one-chance proposition: If voters decide not to tax S corporation profits on Tuesday, community leaders do not get to ask again unless the legislature makes such provisions.

Tuesday's vote is only on shareholders' profits from S corporations based in Ohio Municipalities that wanted to tax their residents' profits on S corporations based out of state had to ask permission to do so in last November's election. Across the state, 24 communities put such issues on the ballot last year and 21 passed, said John Mahoney of the Municipal League.

The Municipal League has not attempted to estimate how many S corporations or shareholders of such corporations there are in Ohio.

In Maumee, Commissioner of Taxation Mike Rizzo estimated that the city takes in $10,000 a year in S corporation taxes from hundreds of residents who are shareholders.

Other area communities with S corporation questions on Tuesday's ballot include Findlay, Fostoria, Willard, Port Clinton, Fremont, and North Baltimore.

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