OSCPA advances muni tax over the years

One of OSCPA’s top legislative priorities for years has been achieving meaningful reforms to Ohio’s municipal tax structure—the most complicated in the nation. The success in passing a series of reforms in recent years has been a culmination of OSCPA’s hard work and consistent advocacy for Ohio’s accounting and business community.

The impact of House Bill 5, signed into law December 19, 2014—and effective for taxable years beginning on or after January 1, 2016—was a significant victory for Ohio CPAs. A partnership of more than 30 organizations representing hundreds of thousands of businesses and professionals and led by OSCPA, the Ohio Municipal Tax Reform Coalition worked collaboratively to drive muchneeded reforms to the state's municipal income tax code.

In 2017, OSCPA continued the work with Ohio leaders and the Coalition again to pass additional, pro-business reforms that reduce costs and red tape, making it easier for taxpayers to comply with filing requirements. The law changes, effective for taxable years beginning on or after January 1, 2018, eliminated the sales factor throwback rule and created a centralized filing and payment option for the municipal net profits tax, saving taxpayers significant administrative costs.

Three years later on Nov. 5, 2020, OSCPA prevailed again after the Ohio Supreme Court in Athens v. McClain upheld by a 6-1 vote the constitutionality of the reforms and denied the lawsuit collectively filed by more than 160 cities seeking to overturn laws that enabled sweeping, pro-taxpayer municipal income tax changes.

“Challenges with municipal tax filings have long been one of the biggest complaints our members and the Ohio business community have raised,” said Greg Saul, Esq., CAE, OSCPA director of tax policy. “For the past couple of decades, OSCPA invested significant resources to achieve the positive changes Ohio now has in place, but more still needs to be done. We will continue to move the ball forward and to protect the important reforms that were already accomplished.”

In early 2020, the pandemic began to impact municipal tax. The legislature passed Section 29 of House Bill 197 to quickly address a variety of employer withholding issues, followed the next year by introducing H.B. 157. The latter legislation, ultimately amended into H.B. 110, clarified for tax year 2021 that the original legislative intent of H.B. 197 was to apply solely to employer withholding and not to determine the location where a nonresident employee’s wages should be subject to tax liability, thus paving the way for qualified remote workers to receive refunds for tax year 2021. Refunds for tax year 2020, though, are still tied up in litigation across the state.

H.B. 110 also addressed employer withholding changes made in response to the pandemic. The bill allowed employers to continue (but did not require) withholding municipal income taxes based on where the employer was located through the end of 2021. However, beginning Jan. 1, 2022, the normal pre-pandemic withholding rules began applying again at the location where the employee is providing the services.

Specifically, H.B. 110 sunset at the end of 2021 the temporary rule that treated those working from a location other than their regular place of employment during the pandemic as working in the office for municipal income tax purposes. It also required municipalities to approve employees' requests for a refund of taxes withheld under the rule on and after Jan. 1, 2021.

House Bill 228 is another recent piece of legislation updating the net profits tax by extending the state-administered opt-in or opt-out date for calendar year taxpayers to April 15 rather than March 1 and requiring the tax commissioner to notify municipal corporations when a taxpayer has optedin or out of the state-administered tax, rather than requiring the taxpayer to notify each municipal corporation. Saul offered proponent testimony for H.B. 228 in April 2021, and it became law on February 7, 2022. It also allows passthrough entities to deduct pensions or benefits paid to retirees, for municipal tax purposes.

And this year the House took up House Bill 519, which seeks to make changes to the administration and enforcement of municipal income taxes, and it passed the House on a 61-29 vote on March 30, 2022. H.B. 519 had been previously amended in committee by bill sponsor Rep. Bill Roemer, CPA. The amendment (1) limits the late filing penalty to $25, rather than the bill's previous cap at 50% of tax liability or the $150 cap in current law; (2) requires any late filing penalty assessed on a taxpayer’s first late filing to be refunded or abated once the taxpayer files the overdue return.

Saul testified in favor of H.B. 519 in February, and the bill is currently awaiting hearings in the Senate Ways and Means Committee. The Society will testify in support as we did in the House, and OSCPA will continue to fight for these and other commonsense changes with the business community in mind when it comes to the municipal income tax code.

Interested in volunteering for the OSCPA advocacy team? Get in touch at government@ohiocpa.com.