OSCPA staff report
As we reported recently, the Ohio Society of CPAs’ latest legislative effort seeks a legislative fix to create a Commercial Activity Tax exclusion for 2020 Bureau of Workers Compensation dividend payments.
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The nearly $8 billion issued to employers by the Ohio Bureau of Workers’ Compensation are almost certainly subject to the Commercial Activity Tax and income tax, Ohio Department of Taxation officials told the Senate Ways and Means Committee on Tuesday.
Responding to a question from State Sen. Kristina Roegner, R-Hudson, during his Feb. 2 proponent testimony on Senate Bill 18, ODT Legislative Director Tim Lynch said the agency currently views the dividends as taxable under the CAT.
“The department has been asked to look at this a number of times,” Lynch said. “We view this as taxable. We haven’t found a way to say that it is not taxable under the CAT. It’s a dividend return of, I believe, 372 percent over the principal, which causes that to be a taxable gross receipt.”
Lawmakers could pass legislation exempting the BWC dividends from the CAT, Lynch said.
Even if the Legislature passes a bill making that change on the CAT, the dividends are “probably” subject to income taxes under federal law, ODT income tax counsel Matt Dodovich told Roegner.
“Obviously, since Ohio starts with federal adjusted gross income to the extent that the Internal Revenue Service finds these amounts to be taxable, we would follow suit, unless there was a specific deduction for them, which there is not under Ohio law presently,” Dodovich said. “The standard definition of income under the Internal Revenue Code is any accretion of wealth. So, to the extent that benefits are being paid in excess of what was being paid in, it probably would be income under the Internal Revenue Code.”
BWC issued billions of dollars in dividends in 2020 to Ohio employers to help ease the effects of the COVID-19 pandemic on businesses. BWC is scheduled to begin sending 1099s to employers this week, according to BWC Interim Administrator/CEO John Logue.
OSCPA Tax Policy Director Greg Saul, Esq., CAE, who also testified Feb. 2 in support of Ohio’s tax conformity legislation, told lawmakers his organization was “caught off guard” that the BWC dividends are subject to the CAT.
“This issue really came about because the BWC , for the first time, has received a legal opinion that they have to issue 1099-Gs, and 1099s had not been issued in the past,” Saul said. “So, I think this is why this has come up, just because those 1099s are going out.”
“The BWC has given these checks in the past – they’ve called them ‘rebates’ some years, the last couple years they’ve been calling them ‘dividends,’” Saul said. “They did three rounds of the BWC checks this year, and the first couple, to my understanding, were return of premium. The third one was more of the investment portfolio earnings. … It is my understanding though, that there is no differentiation among the three BWC payments that went out in 2020. All three of those are going to be listed on the 1099-G form.
“So that dollar amount, which was a total of about $8 billion – and we’re very thankful that money went into the economy – but I don’t think there’s really any argument, at least from the (OSCPA) members I’ve talked to, that they are paying income tax on those,” Saul continued. “It just came as a surprise that the BWC refunds would be subject to the CAT. We have been in discussions with ODT and the Governor’s office, and I believe at some point very soon we will have an amendment or a legislative fix to that language. Whether it goes into this bill or another bill, I would defer to the committee.”
Hannah News Service, Inc. contributed to this report.