Legislation addresses recent ODT audits over SBD/BID

Written on Aug 31, 2017

By Gregory Saul, Esq., CAE, director of tax policy

The Ohio Society of CPAs has been busy over the summer working to address issues rising over the Ohio Department of Taxation’s audit positions on the Small Business Deduction and Business Income Deduction, most recently small businesses who utilize the services of Professional Employer Organizations.

Rep. Gary Scherer, CPA, R-Circleville, on Wednesday introduced House Bill 334 to amend Revised Code section 5733.40(A)(7) to provide that wages and guaranteed payments paid by a Professional Employer Organization to the owner of a pass-through entity that has contracted with the PEO may be considered business income for purposes of the SBD/BID. The bill also applies retroactively to taxable years beginning on or after Jan. 1, 2013.

On Aug. 16, ODT held its quarterly Ohio Virtual Tax Academy where they highlighted the top five “most common errors” when auditing the SBD/BID. Clocking in at the top was the “indirect vs constructive ownership” issue. This was most recently clarified by ODT in a “Taxpayer Notice” released on Mar. 29, 2017. The Ohio Society previously engaged on this issue to allow for application of the federal attribution rules of IRC section 318 for purposes of determining whether the 2013-14 SBD ownership requirements had been met.

The second “most common error” concerned compensation and PEOs, which is the subject being addressed by H.B. 334. ODT previously indicated that audits would be suspended while the legislation is pending. Therefore, members with clients under audit should take advisement of H.B. 334 and may consider filing a petition for reassessment if the client has already been assessed.

In other legislative news, Reps. John Becker, R-Union Township, and David Leland, D-Columbus, on Wednesday introduced House Bill 333 to amend Revised Code section 5747.08 to allow married couples to elect to file either separate state tax returns or a joint state return, irrespective of their federal filing status. OSCPA recently advocated for the legislature to address the marriage tax penalty in our Tax Reform Task Force report.

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