By Greg Saul, Esq., CAE, OSCPA tax policy director
Governor Mike DeWine signed House Bill 110 into law early July 1 after using his pen to exercise 14 line-item vetoes. Two days earlier the House voted 82-13 and the Senate 32-1 to adopt the conference committee report on the $72 billion two-year budget.
In addition to funding all state operations for the next two years, the bill overhauls K-12 school funding, provides $250 million in broadband support for underserved areas, and makes Juneteenth (June 19) a state holiday, among many other changes. Of note, the bill also makes numerous tax policy changes, many of which OSCPA actively advocated to enact. Highlights include:
Municipal Income Tax: OSCPA successfully secured language (TAXCD74) that extends through the end of 2021 the application of the temporary municipal income tax withholding provision for employers enacted last year in House Bill 197 as Section 29. The bill allows – but does not require – employers to continue withholding municipal income taxes based on where the employer is located through the end of 2021, but beginning in 2022 the normal 20-day withholding rule will apply at the location where the employee is working. Because the governor’s state of emergency order was recently rescinded, this temporary withholding provision was originally set to expire July 18.
On the refund issue, OSCPA supported clarifying language that Section 29 was not intended to apply to the taxability of the employee’s wages. Although OSCPA preferred the Senate’s original language that would have granted refunds for both tax years 2020 and 2021, the final version of H.B. 110 only clarified 2021 – the House Bill 157 approach. At least for tax year 2021, this change will allow qualified employees to receive a refund of taxes withheld to a municipality where they neither lived nor physically performed services. The courts will need to decide the refund issue for 2020.
House Bill 110 also provides that the net profit tax payroll factor should be calculated at the principal place of work location through the end of 2021.
State Income Tax: House Bill 110 (TAXCD47) enacted a 3% across-the-board income tax rate cut for taxable years beginning in 2021 (there is no additional reduction in tax year 2022), and further consolidated the income tax brackets from the current five to four by bringing Ohio’s top rate down to 3.99% on 2021 income greater than $110,650. The new law also increases the income level at which the first tax bracket begins, from $22,150 to $25,000 in 2021. The language only suspends the annual inflation indexing adjustments for tax brackets for 2021 (not for 2022) but does suspend the indexing for exemption amounts for both 2021 and 2022.
Because of the administrative burden placed on our members when it was first enacted in S.B. 26 (133rd GA), OSCPA also successfully advocated (TAXCD27) to eliminate the NAICS code requirement on the Ohio tax return when taxpayers claim the business income deduction.
Two other income tax deductions were also enacted, both beginning in tax year 2026: One for venture capital gains originally introduced as House Bill 174 (TAXCD53) and the second on the capital gain from the sale of a business (TAXCD52).
Sales/Use Tax: House Bill 110 (TAXCD68) eliminates from the sales and use tax employment services (providing personnel to perform work under the supervision and control of the purchaser) and employment placement services (locating employment for a job seeker or locating job candidates for an employer). OSCPA first recommended eliminating the taxability of these transactions in our 2016 Ohio Tax Reform Task Force report.
Commercial Activity Tax: OSCPA successfully advocated for a permanent Commercial Activity Tax exemption for Bureau of Workers’ Compensation dividends paid to employers, beginning with dividends paid in 2022 (TAXCD69). S.B. 18 enacted earlier this year exempted BWC dividends paid in 2020 and 2021.
Early in the budget bill process, OSCPA also successfully secured the removal of an attempt to codify an administrative rule providing a common ownership test for CAT taxpayer groups (TAXCD34).
To see the full array of expenditures and policy changes in H.B. 110, click here https://www.legislature.ohio.gov/legislation/legislation-summary?id=GA134-HB-110
Note: References to TAXCD## are in the following comparison document.