All businesses located in or working in Middletown must file a return annually regardless of the organization's form (C-Corporation, S-Corporation, Partnership, or Sole Proprietor) and regardless of whether the business had income or a loss for the year. Generally, a business will use Form BR (business return) to report its income and expenses. However, if you are employed as an individual but earn incidental income from a side business, you may simply include this in your individual return, Form IR, rather than fill out a separate business return (refer to Section A, question 6).

Unlike federal tax requirements for Middletown income tax purposes profits of S-Corporations and Partnerships are not passed through to shareholders or individual partners for inclusion in their individual returns (in most cases). An exception to this rule is a resident partner involved in a non-resident partnership, which isn't taxed (report on Form IR). S-Corporations and Partnerships and Partnerships must report and pay the Middletown income tax as a business using Form BR.

An Incorporated business should report all income earned for work performed in the City. If you performed work both inside and outside the City limits, an allocation may need to be made on page 2, Schedule Y of Form BR to determine the taxable portion to the City of Middletown.

The income that should be reported depends on whether both the owner and the business are resident or non-resident. An owner is a resident when his or her primary residence is within the city limits. A resident business is a business entity having an office, operation, or business site within the City.

• If the owner is a resident and the business is a resident then all income is subject to tax, regardless of where the work was performed.
• If the owner is a resident and the business is a non-resident, all income is subject to tax, regardless of where the work was performed. However, if taxes are paid to a city (other than Middletown) in which the business resides, then Middletown will grant the business a credit up to the amount paid to the other municipality (but not in excess of the 1.75% Middletown tax).
• If the owner is a non-resident and the business is a resident, then only income earned for work performed in the City is taxable.
• If the owner and the business are both non-resident, then only income earned on work performed in the City is taxable.

The determination of "Taxable income" for the local tax generally follows IRS rules. The exceptions are on Schedule X. Some of them are:

• Capital gains (except those taxed as ordinary income by the IRS), interest, and dividends are non-taxable.
• Capital losses are non-deductible.

A Corporation or Partnership may carry forward the loss and can offset it against its future taxable income for up to five years.

For Unincorporated businesses, if you operated more that one Middletown business, a net operating loss can be used to offset profits from any other type of Middletown business you operate. The remainder of the loss that could not be offset to other business profits can be carried forward to be used as a future offset for up to five years. Net operating losses cannot be used to offset wages.

Yes, you may combine the results on one Form BR. Where the businesses are relatively small, (see Section A, question 6), you may use Form IR. In both cases attach copies of all applicable federal reporting forms (Schedule C, E, etc.).