Guidance out for BID & SALT bills, OSCPA joins fight for muni tax refunds

OSCPA staff report

OSCPA filed an amicus brief on Aug. 10 to support taxpayers in their efforts to obtain 2020 municipal income tax refunds based on the Society's position that taxing persons who neither work nor live in a jurisdiction is unconstitutional.

In the amicus brief, OSCPA argues that the cities are “effectively interpreting R.C. 718.011 and Section 29 as a taxing provision, or in the alternative, as a situsing of where income was earned provision, but that is not what R.C. 718.011 or Section 29 says or means. R.C. 718.011 is not a taxing provision, nor does R.C. 718.011 situs where income is earned for purposes of imposing tax. It is a safe harbor to simplify employer withholding. It clearly states that the deemed location is “for purposes of division (B)(1)” - (where the 20-Day Withholding Exception is codified) and does not determine the ultimate taxability of the wages in the hands of the employee.”

Section 29 and R.C. 718.011 of House Bill 197, a 2020 law change early in the pandemic, was intended to address the significant withholding challenges faced by employers of workers who suddenly were working remotely – often outside the city where the business itself was located. However, many cities where the money was withheld refused to grant refunds to the remote taxpayers.

In addition, Gov. DeWine signed in June OSCPA-supported Senate Bill 246 and House Bill 515, also known as the SALT and BID bills respectively. The SALT cap parity bill levies a tax on a pass-through entity's income apportioned to Ohio and authorizes a refundable income tax credit for an owner for such tax paid. S.B. 246 takes effect on Sept. 13, 2022.

IRS Notice 2020-75 is what allowed states to enact legislation to clarify that taxes paid by a PTE do not count towards an owner’s $10,000 state and local tax limitation deduction for federal income tax purposes.

The BID bill clarifies that gains from the sale of an ownership interest in a business is considered ‘business income” for Ohio income tax purposes, and thus eligible for the BID. The sale must satisfy either of the following: (1) the sale is treated for federal income tax purposes as the sale of assets – i.e. 338(h)(10); or, (2) the seller was involved in the day-to-day management (material participation) of the business during the taxable year in which the sale occurred or during any of the five preceding years.

H.B. 515 is a remedial measure intended to clarify existing law. It also applies to any petition for reassessment or any appeal thereof; to any application for refund or any appeal thereof pending on or after the effective date; and to any transaction that is subject to an ODT audit on or after the effective date of Sept. 23, 2022.

The Ohio Department of Taxation is expected to issue more guidance on both H.B. 515 and S.B. 246. To date, ODT released an initial round of guidance on the SALT deduction cap parity. Also, ODT recently presented at a conference where they provided further details on both the SALT and BID bills.