Ohio municipal income tax laws often add a layer of complexity for businesses operating within the state. Back in March, as companies scrambled to move employees to telework locations (employees’ homes in most instances), state lawmakers took action in an attempt to simplify municipal income tax compliance for businesses. Section 29 of Ohio House Bill 197 states that during the period of emergency declared by Executive Order 2020-01D, issued on March 9, and for 30 days after the conclusion of that period, any day on which an employee performs personal services at a location, including the employee’s home, shall be deemed to be a day performing personal services at the employee’s principal place of work. While this meant that businesses were not troubled with having to change their Ohio local income tax withholding processes for employees working remotely, it also meant that employees were being required to pay tax to Ohio local jurisdictions where they weren’t even allowed to work.
On July 2, the Buckeye Institute, an Ohio-based think tank whose mission is to advance free-market public policy, along with three of its individual employees, filed a lawsuit calling for the court to declare Section 29 of Ohio HB 197 unconstitutional. The lawsuit argues that subjecting an employee’s wages to taxation at their principal place of work for time periods in which the employee was prohibited from working at that location is unlawful. It also claims this unlawful taxation is in violation of due process rights under the Fifth and Fourteenth Amendments to the U.S. Constitution and violates Article I, Section 1 of the Ohio Constitution.
In August, Senate Bill 352 was introduced to the Ohio General Assembly by Senator Kristina Roegner to address the issue. If enacted, SB 352 would repeal Section 29 of HB 197 and nonresidents would only be required to pay tax in localities in which they are physically present performing services.
While the passage of SB 352 in its current form may result in a lower tax bill for employees in some situations, it will certainly create administrative headaches for employers. Stay tuned as Schneider Downs continues to monitor this situation and track progress of SB 352. In the meantime, if you have any questions, please do not hesitate to contact your Schneider Downs tax advisor.
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