CITY OF DELPHOS, OHIO

UNIFORM RULES AND REGULATIONS

TO COMPLEMENT INCOME TAX ORDINANCE #1984-39

AS AMENDED BY ORDINANCE #1989-45

ARTICLE I

Section 1 of the ordinance deals only with the purposes for which the tax collected will be used.

ARTICLE II

DEFINITIONS

As used in these rules and regulations, the following words shall have the meaning ascribed to them in this article, except as and if the context clearly indicates or requires a different meaning.

ADMINISTRATOR means the individual designated by the ordinance, whether appointed or elected, to administer and enforce the provisions of the ordinance.

ASSOCIATION means a partnership, cooperative, limited partnership, or any other form of unincorporated enterprise owned by two or more persons.

THE BOARD means the Board of Review provided for by Section 13 of the ordinance.

BUSINESS means an enterprise, cooperative activity, profession or undertaking of any nature conducted for profit or ordinarily conducted for profit whether by an individual, partnership, association, corporation or any other entity. The ordinary administration of a descendent’s estate by the executor or administrator, and the mere custody, supervision and management of trust property under passive trust, whether intervivos or testamentary, unaccompanied by the actual operation of a business as herein defined shall not be construed as the operation of a business.

BUSINESS ALLOCATION as used in these regulations, means the portion of net profits to be allocated to the City of Delphos, Ohio, hereinafter referred to as “this municipality”, as having been made in the City of Delphos, Ohio, either under separate accounting method, or under the three factor formula of property, payroll and sales, provided for in Section 3 of the ordinance.

CITY means the City of Delphos, Ohio.

CORPORATION means a corporation or joint stock association organized under the laws of the United States, the State of Ohio, or any other state, territory, or foreign country or dependency.

DAY means any portion of any calendar day.

EMPLOYEE means one who works for wages, salary, commission or other types of compensation in the service of an employer. Any person upon whom an employer is required to withhold for either federal income or social security or on whose account payments are made under the Ohio Workers’ Compensation law shall prima facie be an employee.

EMPLOYER means an individual, partnership, association, corporation (including a corporation not for profit), governmental body, unit or agency, board, body, bureau, department, sub-division, or unit, or any other entity, who or that employs one or more persons on a salary, wage, commission, or other compensation basis, whether or not such employer is engaged in business. When the employer is a corporation, the officer or employee of the corporation having control or supervision of, or charged with the responsibility of filing the report and making payment, is personally liable for failure to file the report or pay the tax due as required by this ordinance. The dissolution of a corporation does not discharge an officer’s or employee’s liability for a prior failure of the corporation to file returns or pay tax due.

FISCAL YEAR means an accounting period of twelve (12) months or less ending on any day other than December 31^st. Only fiscal years accepted by the Internal Revenue Service for federal income tax purposes may be used for the City of Delphos’s tax purposes.

GROSS RECEIPTS means total income from any source whatsoever.

NET PROFITS means a net gain from the operation of a business, profession, enterprise or other activity after provision for all ordinary, reasonable and necessary expenses either paid or accrued in accordance with the accounting system used by the taxpayer for federal income tax purposes, without deduction of taxes imposed by this ordinance, federal, state, and other taxes based on income exclusive of the amount of Ohio franchise taxes computed on the net worth basis; and in the case of an association, without deduction of salaries paid to partners, and other owners; and otherwise adjusted to the requirements of this ordinance.

NON-RESIDENT means an individual domiciled outside of Delphos.

NON-RESIDENT UNINCORPORATED BUSINESS ENTITY means one not having an office or place of business within Delphos.

THE ORDINANCE means Ordinance No. 1984-39 as amended by Ordinance No. 1989-45 enacted by the Council of Delphos and any amendments and supplements thereto effective January 1, 1985, and January 1, 1990, respectively, and continuing until amended by Delphos City Council. (Note: hereinafter this will be referred to as “effective period of ordinance”.)

PERSONS means every natural person, partnership, fiduciary, association, corporation, or other entity. Whenever used in a clause prescribing or imposing a penalty, the term PERSON as applied to any unincorporated entity shall mean the partners or members thereof, and as applied to a corporation, the officers thereof, and in the case of any unincorporated entity or corporation not having any partner, member or officer within the City of Delphos, and employee or agent of such unincorporated entity or corporation who can be found within the corporate limits of the City of Delphos.

PLACE OF BUSINESS means any BONA FIDE office, other than a mere statutory office, factory, warehouse, or other space which is occupied and used by the taxpayer in carrying on any business activity individually or through one or more of his regular employees regularly in attendance.

RESIDENT means an individual domiciled in the City of Delphos.

RESIDENT UNINCORPORATED BUSINESS ENTITY means an unincorporated business entity having an office or place of business within the City of Delphos.

TAXABLE INCOME means wages, salaries and other compensation paid by an employer or employers before deductions of any kind, and/or the net profits from the operation of a business, profession or other enterprise or activity adjusted in accordance with the provisions of the ordinance and these regulations.

TAXABLE YEAR means the calendar year, or the fiscal year, used as the basis on which net profits are to be computed under the ordinance, and in the case of a return for a fractional part of a year, the period for which such return is required to be made.

TAXPAYER means an individual, association, corporation or other entity required by the ordinance to file a return and/or to pay a tax.

In all definitions and these regulations the singular shall include the plural and the masculine shall include the feminine and the neuter.

ARTICLE III

IMPOSITION OF TAX

A. Bases

1. Resident Employee:

a. In the case of residents of the City of Delphos an annual tax of one and one-half percent

(1.5%) is imposed on all salaries, wages, commissions, and other compensation earned

during the effective period of the ordinance. For the purpose of determining the tax on

the earnings of resident taxpayers taxed under Section 3, paragraph A-1 of the

ordinance, the source of the earnings and the place or places in or at which the services

were rendered, are immaterial. All such earnings wherever earned or paid are taxable.

b. The following are items which are subject to the tax imposed by Section 3, paragraph

A-1 of the ordinance:

1. Salaries, wages, bonuses and incentive payments earned by an individual whether

directly or through an agent and whether in cash or in property for services rendered

during the tax period as:

01. An officer, director or employee of a corporation (including charitable and other

non-profit organizations) joint stock association, or joint stock company;

02. An employee (as distinguished from a partner or member) of a partnership,

limited partnership, or any form of unincorporated enterprise owned by two or

more persons;

03. An employee (as distinguished from a proprietor) of a business, trade or

profession conducted by an individual owner;

04. An officer or employee (whether elected, appointed or commissioned) of the

United States Government or of a corporation created and owned or controlled

by the United States Government, or any of its agencies; or of the State of Ohio

or any of its political subdivisions or agencies thereof, or any foreign country or

dependency except as provided in Section 3 of the ordinance.

05. An employee of any other entity or person, whether based upon hourly, daily,

weekly, semi-monthly, monthly, annual, unit of production or piece work rates;

and whether paid by an individual, partnership, association, corporation

(including charitable and other non-profit corporations), governmental

administration, agency, authority, board, body, branch, bureau, department,

division, sub-division, section or unit, or any other entity.

.2 Commissions earned by a taxpayer whether directly or through an agent and whether

in cash or in property for services rendered during the effective period of the

ordinance, regardless of how computed or by whom or wheresoever paid.

01. If amounts received as a drawing account exceed the commissions earned and

the excess is not subject to the demand of the employer for repayment, the tax

is payable on the amounts received as a drawing account.

02. Amounts received from an employer for expenses and used as such by the

individual receiving them are not deemed to be compensation if the employer

deducts such expenses or advances as such from his gross income for the

purpose of determining his net profits taxable under federal law, and the

employee is not required to include such receipts as income on his federal

income tax return.

03. If commissions are included in the net earnings of the trade, business,

profession, enterprise, or activity, carried on by an unincorporated entity of

which the individual receiving such commission is owned or part owner and

therefore subject to the tax under paragraphs A-3 or A-4 of Section 3 of the

ordinance, they shall not be taxed under Section 3, paragraph A-1.

.3 Fees, unless such fees are properly includible as part of the net profits of a trade,

business, profession, or enterprise regularly carried on by an unincorporated entity

owned or partly owned by said individual and such net profits are subject to the tax

under Section 3, paragraph A-3 of the ordinance.

.4 Other compensation, including tips, bonuses or gifts of any type, and including

compensation paid to domestic servants, casual employees and other types of

employees.

.5 Payments made to employees by an employer as vacation wages are taxable.

Payments made to an employee by an employer under a wage continuation plan

during periods of disability or sickness, are taxable.

c. Where compensation is paid or received in property, its fair market value at the time of

receipt, shall be subject to the tax and to withholding. Board, lodging, and similar items

received by an employee in lieu of additional cash compensation shall be included in

earnings at their fair market value.

.1 In the case of domestics and other employees whose duties require them to live at

their place of employment or assignment, board and lodging shall not be considered

as wages or compensation earned.

1. Non-Resident Employee:

a. In the case of individuals who are not residents of the City of Delphos there is imposed

under Section 3, paragraph A-2 of the ordinance, a tax of one and one-half percent

(1.5%) on all salaries, wages, commissions, and other compensation earned during the

effective period of the ordinance for work done or services performed or rendered

within the City of Delphos whether such compensation or remuneration is received or

earned directly or through an agent and whether paid in cash or in property. The

location of the place from which payment is made is immaterial.

1. The items subject to tax under Section 3, paragraph A-2 of the ordinance are the same

as those listed and defined in Article III-A. For the methods of computing the extent of

such work or services performed within the City of Delphos, in cases involving

compensation for personal services partly within and partly without the City of Delphos,

see Article VI-A.6.

3. a. Imposition of Tax on Net Profits of Resident Unincorporated Businesses:

.1 In the case of resident unincorporated businesses, professions, enterprises,

undertakings or other entities conducted, operated, engaged in, prosecuted or carried

on, irrespective of whether such taxpayer has an office or place of business in the

City of Delphos, there is imposed an annual tax of one and one-half percent (1.5%)

on the net profits earned, accrued or received during the effective period of the

ordinance attributable to the City of Delphos, under the formula or separate

accounting method provided for in Section 3 of the ordinance, derived from sales

made, work done or services performed or rendered and business or other

activities conducted in the City of Delphos.

.2 The tax imposed on resident associations or other unincorporated entities owned by

two or more persons is upon the entities rather than the individual members or

owners thereof but the tax imposed on an unincorporated resident entity owned by

one person is upon the individual owner. (For tax on that part of a resident owner’s

distributive share of net profits not taxed against the entity, see Article III-A.3b).

.3 The tax imposed by Section 3, paragraph A-3a of the ordinance is imposed on all

resident unincorporated entities having net profits attributable to the City of Delphos

under the method of allocation provided for in the ordinance, regardless of where the

owner or owners of such resident unincorporated business entity reside.

.4 Resident unincorporated entities owned by two or more persons all of whom are

residents of the City of Delphos shall disregard the method of allocation provided for

in the ordinance and pay the tax on their entire net profits thereof. In such case, the

tax paid by the entity shall constitute all tax due from the owners or members of the

entity for their distributive share of such net profits; however, an additional return

shall be required from any such owner or member having taxable income other than

the distributive share of the net profits from the entity.

1. Imposition of Tax on Resident’s Distributive Share of Profits of a Resident

Unincorporated Business Entity, Not Attributable to the City of Delphos.

.1 A resident individual who is sole owner of a resident unincorporated entity shall

disregard the business allocation formula and pay the tax on the entire net profits of

his resident unincorporated business entity.

.2 In the case of a resident individual partner or part owner of a resident unincorporated

entity, there is imposed an annual tax of one and one-half percent (1.5%) on such

individual’s distributive share of net profits earned, accrued or received during the

effective period of the ordinance not attributable to the City of Delphos, under the

method of allocation provided for in Section 3 of the ordinance, and not taxed

against the entity. (See Article XV).

4. a. Imposition of Tax on Net Profits of Non-Resident Unincorporated Businesses:

.1 In the case of non-resident unincorporated businesses, professions, enterprises,

undertakings, or other activities conducted, operated, engaged in, prosecuted or

carried on, there is imposed an annual tax of one and one-half percent (1.5%) on the

net profits earned, accrued or received during the effective period of the ordinance

attributable to the City of Delphos, under the formula or separate accounting method

provided for in the ordinance.

.2 The tax imposed on non-resident unincorporated entities owned by two or more

persons is upon the entities rather than the individual members or owners thereof.

(For tax on that part of a resident owner’s distributive share of net profits not taxed

against the entity, see Article III-A.4b.)

.3 Non-resident unincorporated entities owned by two or more persons all of whom are

residents of the City of Delphos may elect to disregard the method of allocation

provided for in the ordinance and pay the tax on the entire net profits. In such case,

the tax paid by the entity shall constitute all tax due from the owners or members of

the entity for their distributive share of the net profits; however, a return shall be

required from such owner or member having taxable income other than the

distributive share of the net profit from the entity. See Article XV for Credits.

1. Imposition of Tax on Resident’s Share of Profits of a Non-Resident Unincorporated

Business Entity Not Attributable to the City of Delphos. See Article XV for Credits.

.1 A resident individual who is sole owner of a non-resident unincorporated business

entity shall disregard the business allocation formula and pay the tax on the entire net

profits of his unincorporated entity.

.2 In the case of a resident individual partner or part owner of a non-resident

unincorporated entity, there is imposed an annual tax of one and one-half percent

(1.5%) on such individual’s distributive share of net profits earned, accrued or

received during the effective period of the ordinance not attributable to the city under

the method of allocation provided for in Section 3 of the ordinance and not taxed

against the entity by this municipality.

5. Imposition of Tax on Net Profits of Corporations.

a. In the case of corporations, whether domestic or foreign and whether or not such

corporations have an office or place of business in the City of Delphos, there is imposed

an annual tax of one and one-half percent (1.5%) on the net profits earned, received or

accrued during the effective period of the ordinance attributable to the City of Delphos

under the formula or separate accounting method provided for in the ordinance.

2. In determining whether a corporation is conducting a business or other activity in the

City of Delphos, the provisions of Article III-B of these regulations shall be applicable.

3. Corporations which are required by the provisions of Sec 5727.38 to 5727.41, inclusive,

of the Revised Code of Ohio, to pay an excise tax in any taxable year as defined by the

ordinance, may exclude that part of their gross receipts upon which the excise tax is

paid. In such case, expenses incurred in the production of such gross receipts shall not

be deducted in computing net profits subject to the tax imposed by the ordinance.

6. Amplification:

In amplification of the definition contained in Article II-A of these regulations but not

limitation thereof, the following additional information respecting net business profits is

furnished.

a. NET PROFITS

.1 Net profits as used in the ordinance and these regulations means net profits derived

from any business, profession or other activity or undertaking carried on for profit or

normally carried on for profit.

.2 Net profits as disclosed on any return filed pursuant to the provisions of the

ordinance shall be computed by the same accounting method used in reporting net

income to the Federal Internal Revenue Service (providing such method does not

conflict with any provisions of the ordinance). Net profits, shown on returns filed

pursuant to the ordinance must be reconciled with the income reported to the Federal

Internal Revenue Service.

b. GROSS RECEIPTS

.1 Gross receipts shall include but not be limited to income in the form of commissions,

fees, rentals from real and tangible personal property, and other compensation for

work or services performed or rendered as well as income from sales of stock in

trade.

.2 From gross receipts there shall be deducted allowable expense to arrive at the net

profit subject to tax.

c. EXPENSES

.1 All ordinary, reasonable and necessary expenses of doing business including

reasonable compensation paid employees, shall be allowed but no deduction may be

claimed for salary or withdrawal of a proprietor or of the partners, members, or

other owners of an unincorporated business or enterprise.

01. If not claimed as part of the cost of goods sold or elsewhere in the return filed,

there may be claimed and allowed a reasonable deduction for depreciation,

depletion, obsolescence, losses resulting from theft or casualty, not compensated

for by insurance or otherwise of property used in the trade or business, but the

amount may not exceed that recognized for the purpose of the federal income

tax. Provided, however, that loss on the sale, exchange or other disposition of

depreciable property or real estate, used in the taxpayer’s business shall not be

allowed as a deductible expense.

02. Current amortization of emergency facilities under the provisions of the Internal

Revenue Code, if recognized as such for federal income tax purposes, may be

included as an expense deduction hereunder.

03. Where depreciable property is voluntarily destroyed only the cost of such

demolition and the undepreciated balance thereof will be allowed as an expense

in the year of such demolition, to the extent allowable for federal income tax

purposes.

04. Bad debts in a reasonable amount may be allowed in the year ascertained

worthless and charged off, or at the discretion of the Administrator (if the

reserve method is used), a reasonable addition to the reserve may be claimed,

but in no event shall the amount exceed the amount allowable for federal

income tax purposes.

05. Only taxes directly connected with the business may be claimed as a deduction.

If for any reason the income from property is not subject to the tax, then taxes

on and other expenses of said property are not deductible. In any event, the

following taxes are not deductible from income: (1) the tax under the ordinance;

(2) federal or other taxes based upon income exclusive of the amount of Ohio

franchise tax computed on the net worth basis; (3) gift, estate or inheritance

taxes; and (4) taxes for local benefits or improvements to property which tend to

appreciate the value thereof.

06. In general, non-taxable income and expenses incurred in connection therewith

are not to be considered in determining net profits. Income from intangibles by

way of dividends, interest and the like, shall not be included if such income is

subject to taxation under the intangible personal property laws of the State of

Ohio or is specifically exempt from taxation under said law.

07. If the taxpayer reports income that is nontaxable under the ordinance and such

amounts are deducted in order to reconcile the City of Delphos return with the

taxpayer’s federal income tax return, expenses attributable to this non-taxable

income shall not be allowed. In the absence of records showing the actual

expenses attributable to such nontaxable income, and upon approval of the

administrator, such amount shall be deemed to equal five percent of such

nontaxable income.

08. With respect to certain tangible personal property used in business, the “federal

investment credit” for current year investments, as determined for federal

income tax purposes, shall be treated as a deduction from income with respect

to new or used property, (subject to federal tax limitations in the case of used

property, acquired after December 31, 1961), and the remaining costs shall be

depreciated in succeeding years on the same basis used for federal income tax

purposes. In the event the “Federal Investment Credit” is required to be

adjusted by reason of a sale or other early disposition affecting the original

amount of the “Federal Investment Credit,” such adjustment must be reported

and treated as taxable income under the ordinance in the year of such sale or

other early disposition.

09. Capital gains and losses from sale, exchange or other disposition of property

shall not be taken into consideration in arriving at net profits earned. Any

amount received on a sale or other disposition of tangible personal property used

in business, in excess of book value, shall be treated as taxable income under the

ordinance to the extent of depreciation allowable (under the ordinance). The

balance shall be treated as a capital gain.

10. Deductions for charitable contributions will not be allowed as a business

deduction.

7. Rental from Real Property

a. Rentals received by the taxpayer are to be included only if and to the extent that the

rental, ownership, management, or operation of the real estate from which such rentals

are derived (whether so rented, managed, or operated by the taxpayer individually or

through agents or other representatives) constitutes a business activity of the taxpayer, in

whole or in part.

b. In determining the amount of gross monthly rental of any real property, periods during

which (by reason of vacancy or any other cause) rentals are not received shall not be

taken into consideration by the taxpayer.

c. Rentals received by a taxpayer engaged in the business of buying and selling real estate

shall be considered as part of business income.

d. Real property, as the term is used in this regulation, shall include commercial property,

residential property, farm property, and any and all other types of real estate.

e. In determining the taxable income from rentals, the deductible expenses shall be of the

same nature, extent, and amount as are allowed by the Internal Revenue Service for

federal income tax purposes.

f. Residents of the City of Delphos are subject to taxation upon the net income from rental

(to the extent above specified), regardless of the location of the real property owned.

g. Non-residents of the City of Delphos are subject to such taxation only if the real

property is situated within the City of Delphos.

h. Corporations owning or managing real estate are taxable only on that portion of income

derived from property located in the City of Delphos.

8. Patents and Copyrights:

a. Income from patents or copyrights is not to be included in net profits subject to the tax

if the income from such patents or copyrights is subject to the State Intangible tax.

Conversely, such a state intangible tax is not deductible in determining city tax. Such

items shall be clearly disclosed on an attachment to be filed with the City tax return.

B. Allocation of Business Profits.

A request to change the method of allocation must be made in writing before the end of the

taxable year.

1. Separate Accounting Method.

a. The net profits allocable to the City of Delphos from business, professional or other

activities conducted in the City of Delphos by corporations or unincorporated entities

(whether resident or non-resident) may be determined from the records of the taxpayer

if taxpayer has bona fide records which disclose with reasonable accuracy what portion

of his net profits is attributable to that part of his activities conducted within the City of

Delphos.

b. If the books and records of the taxpayer are used as the basis for apportioning net

profits rather than the business allocation formula, a statement must accompany the

return explaining the manner in which such apportionment is made in sufficient detail

to enable the administrator to determine whether the net profits attributable to the City

of Delphos are apportioned with reasonable accuracy.

c. In determining the income allocable to the City of Delphos from the books and records

of a taxpayer an adjustment may be made for the contribution made to the production

of such income by headquarters activities of the taxpayer, whether such headquarters is

within or without the City of Delphos.

2. Business Allocation Percentage Method.

a. STEP1: Ascertain the percentage which the average net book value of real and tangible

personal property, including leasehold improvements, owned or used in the business and

situated within the City of Delphos is of the average net book value of all r