Ohio GOP Bill Would End Municipal Tax Loss Expiration, Reshaping What Businesses Owe

COLUMBUS, OHIO — Ohio Rep. Steve Demetriou has introduced legislation that would eliminate the state’s five-year time limit on how long businesses can carry forward net operating losses to offset future municipal income taxes, a change supporters say would better reflect long recovery cycles but could delay some local tax collections. Demetriou, a Republican from Bainbridge Township, introduced House Bill 642 on Jan. 7, 2026, according to a press release issued by Ohio House Republicans and the bill’s introduced version. The measure would amend sections 718.01, 718.81 and 718.84 of the Ohio Revised Code. The bill’s stated purpose is “to remove a five-year limit on municipal income tax net operating loss carry-forwards,” according to the introduced text. Under current Ohio law governing municipal income taxes, most net operating losses for municipal tax purposes can be carried forward for up to five consecutive taxable years after the year the loss was incurred. If a taxpayer does not use the loss within that window, any remaining portion expires. House Bill 642 would remove that expiration date. Instead of ending after five years, net operating losses could be carried forward until they are fully used, the bill text indicates. The proposed change would apply within Ohio’s municipal income tax system and primarily affects businesses and other taxpayers who have experienced losses that exceed profits in later years. Supporters argue that a strict five-year limit can penalize taxpayers whose revenue rebounds slowly or whose losses are large. In their press release, Ohio House Republicans said the legislation would “better reflect business revenue cycles” and would align municipal tax treatment “more closely with federal standards.” The release did not provide additional details about projected fiscal effects for municipalities. The bill’s language also indicates what it would not change. The measure would not allow net operating losses to offset qualifying wages, which remains prohibited under the municipal income tax framework described in the bill summary materials. The legislation also would not change how losses are calculated, only how long they may be used. It would preserve the general rule that losses can reduce taxable income only down to zero in a given year, rather than creating a refund or allowing negative taxable income. The proposal could affect municipal governments by changing the timing of tax collections in years when businesses apply older losses against current income. The bill does not eliminate municipal income tax liability; it would allow businesses to keep applying eligible losses until they are exhausted. House Bill 642 also retains existing distinctions for so-called “pre-2017 net operating loss carryforwards.” The introduced text continues to define those losses as net operating losses incurred in taxable years beginning before Jan. 1, 2017, that may be carried forward “for the number of taxable years provided in the resolution or ordinance or until fully utilized, whichever is earlier.” Based on the introduced bill text, House Bill 642 would not reduce or restrict pre-2017 carryforward rights that may already exist under local ordinances adopted before Jan. 1, 2016. As of the materials provided, the bill is listed as “as introduced” in the 136th General Assembly (2025–2026). Information about committee assignment or hearing dates was not included in the documents. -------------------- At Cleveland 13 News, we strive to provide accurate, up-to-date, and reliable reporting. If you spot an error, omission, or have information that may need updating, please email us at tips@cleveland13news.com. As a community-driven news network, we appreciate the help of our readers in ensuring the integrity of our reporting.