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Ohio tax conformity talks grind on

Written on Mar 18, 2021

By Greg Saul, Esq., CAE, OSCPA director of tax policy 

The Ohio House Ways & Means Committee on March 16 held its fifth hearing on tax conformity legislation – Senate Bill 18 – but did not vote on the bill. 

The legislation, which is supported by OSCPA, would ensure Ohio’s deductibility of forgiven PPP loan expenses and exclude Ohio Bureau of Workers’ Compensation dividends (refunds) from the Commercial Activity Tax. Because S.B. 18 is emergency legislation, it would be enacted immediately upon the Governor’s signature. 

The bill will incorporate into Ohio law several of the federal tax law changes to the Internal Revenue Code which became law between March 27, 2020 and S.B. 18’s eventual effective date. 

The Ohio Senate and the Ohio Department of Taxation had already agreed to conform to all of the provisions (including PPP deductibility of expenses) from the “Consolidated Appropriations Act (CAA),” H.R. 133 of the 116th Congress, signed into law on Dec. 27. 

However, S.B. 18 has been held up the past couple of weeks in the House Ways & Means Committee because of the recent changes made by the federal American Rescue Plan Act (H.R. 1319), signed into law on March 11 by President Biden. 

Now the Ohio House and ODT are reviewing whether to conform to all provisions or decouple from anything in the enacted version of the American Rescue Plan Act. The big question mark is the retroactive federal provision for taxpayers who do not have to pay income tax on the first $10,200 of unemployment benefits received in 2020 if their modified adjusted gross income was less than $150,000. The IRS just recently issued guidance on its implementation. The ODT has estimated the provision will reduce Ohio revenue by $79 million to $125 million. 

House Ways & Means Chair Derek Merrin, R-Monclova Township, said on Tuesday that the committee is planning to vote S.B. 18 out on March 23. Members concerned about PPP deductibility and other tax conformity issues are encouraged to reach out to their state representative. OSCPA’s easy-to-use letter-writing software will enable you to make your voice heard in less than five minutes.  

At Tuesday’s hearing, the committee accepted two amendments to S.B. 18. The first one (currently H.B. 124) was offered by Rep. Bill Roemer, R-Richfield, and reduces the rate of Ohio’s withholding on income generated from pass-through entities, such as partnerships and S-corporations. The amendment equalizes Ohio’s PTE withholding rates on nonresident investors in Ohio-operating PTEs with the Ohio income tax rate, currently 3% on business income above $250,000. Current law requires these entities to withhold on behalf of nonresident individuals at 5% and other PTEs (nonindividuals) at 8.5%. The rate changes to 3% apply to a PTE’s taxable years beginning on or after Jan. 1, 2023. 

The second amendment to S.B. 18 was offered by Rep. Mark Fraizer, R-Newark, and would allow individuals, at the time they apply for unemployment benefits, to elect to have state income tax withheld from their benefits. Current law allows individuals to request that the Department of Job and Family Services withhold federal income tax on their benefits, but it does not specifically allow such a request for state income tax. It also allows individuals already receiving unemployment benefits who elected to have federal income tax withheld to elect to also have state income tax withheld. These changes would apply to unemployment compensation benefits paid on or after Jan. 1, 2022.