Columbus Income Tax Final Return When You Sell

Columbus Has Its Own Income Tax

The City of Columbus taxes wages earned in the city and the net profits of businesses operating there. The rate has been 2.5 percent since 2020. The city's Income Tax Division administers it, separately from the State of Ohio.

That means a Columbus company usually has city tax accounts that the state knows nothing about. Selling the business doesn't close them for you.

Two Accounts Most Sellers Hold

If you have employees working in Columbus, you have a withholding account. You withhold city tax from paychecks, file quarterly withholding returns and file a year end reconciliation that ties those returns to employees' W2 forms.

If your business earns a profit in Columbus, you also have a net profit account. You file an annual business return, due on the 15th day of the 4th month after your tax year ends. For calendar year companies, that's April 15.

Many companies file both online through the city's tax portal. Pass entities like S corporations and partnerships file business returns too, even in a loss year.

How Do I Close the Withholding Account?

The quarterly withholding return asks whether the account should be inactivated, with a space for the effective date and an explanation. On your last return after the sale, answer yes, give the date, and note that the business was sold.

Then file the year end reconciliation for the wages you paid. The city expects quarterly returns even for quarters with no payroll, so closing the account properly stops future notices for periods after you've sold.

An account left open after a sale keeps asking for returns. Closing it takes one checkbox and a date.

The Final Net Profit Return

In an asset sale, your old entity stops operating in Columbus. It files a final net profit return covering the year of the sale, and that return will usually include the gain on selling the business assets.

How that gain is taxed at the city level depends on how the sale is structured and how your entity is set up. This is a good question to bring to your CPA early, because it affects what you keep.

In a stock sale, the entity keeps operating under its new owner, so its city accounts stay open. The purchase agreement will say who pays the city tax for periods before closing.

What Buyers and Lenders Will Ask For

City income tax isn't covered by the state's sales tax holdback rule, but buyers still ask about it. Expect requests for:

• Recent quarterly withholding returns and proof of payment
• The last two or three annual business returns
• Any notices or balances owed to the city
• Which other Ohio cities your employees work in

Unpaid withholding is the item that worries buyers most, because it's money taken from employees' paychecks. Settle any balance before you go to market.

Suburban Cities Have Their Own Accounts

If your company operates or has employees working in Dublin, Westerville, Hilliard, Grove City or another Ohio city, you probably have accounts there too. Some suburbs collect their own tax, and others use a regional collection agency.

Each city account needs its own final returns. Make a list of every city where you withhold or file, and add each one to the closing calendar.

Put It on the Closing Calendar

City returns sit alongside the state filings. Our guide to Ohio final tax returns after a sale lists the state deadlines, and sales tax successor liability explains the holdback buyers use.

For the overall order of steps, see how to sell a business in Columbus.

This guide is general information, not tax advice. City tax rules and forms change, so confirm the details with the Columbus Income Tax Division or your CPA.

For a private estimate of what your company could sell for, use the value form or call (614) 555-0148.