Temporary working capital

Ohio passes budget with tax cuts and telework refunds in 2021

“href =” https://www.law360.com/tax-authority/articles/1398609/# “> Paul Williams ·

Ohio lawmakers passed a two-year budget that would cut personal tax rates by 3% while eliminating the top bracket, ban cities from imposing local taxes on remote workers in 2021, and offer relief tax for certain commercial investments.

The $ 74 billion FY2022-2023 budget, HB 110, drew bipartisan support in the Republican-controlled General Assembly on Monday evening, as the Senate passed the legislation by a 32-1 vote and the House of Representatives approving it 82-13. . The bill, which resulted from an agreement of the conference committee on competing versions of the legislation of both houses, will head to Republican Governor Mike DeWine, who has a veto right by element.

Beginning in tax year 2021, the budget would remove Ohio’s top tax bracket with a rate of 4.797% and reduce the rate for the next bracket from 4.413% to 3.99%, the new maximum rate. The remaining three lower rates would be reduced by 3% overall, and the income threshold before the lowest tax rate applied would be raised to $ 25,000 from $ 22,150.

“It’s important for the people of Ohio to know that we think it’s their money first, not government money,” Senate Speaker Matt Huffman, R-Lima, said on Monday in a statement. release shared with Law360. It is estimated that the budget will provide approximately $ 2 billion in total breaks during the biennium.

Additionally, the budget would partially overturn a 2020 law allowing cities to impose local income taxes on employees who worked from home during the coronavirus pandemic. The budget would allow workers to claim refunds for the 2021 tax year but not for the 2020 tax year.

Currently, Ohio considers remote work performed during the pandemic to occur at an employee’s primary workplace. But the budget would make it clear that for tax year 2021, this provision would provide relief from withholding rather than determining an employee’s location for municipal income tax. The budget would also end the relief from the holdback on December 31, 2021.

When lawmakers considered reversing the change in tax source, local governments urged lawmakers not to allow refunds for the closed fiscal year of 2020, claiming a retroactive change could cripple municipal budgets. A series of legal challenges to the 2020 supply change are infiltrating Ohio courts, where non-residents argued that cities were unconstitutionally taxing them while working remotely.

Richard Fry, partner at Buckingham Doolittle & Burroughs LLC, said that while the budget may be aimed at easing financial pressure on cities, it still leaves the door open to future challenges regarding the 2020 tax year. Municipalities could still be forced to pay for these taxes if the courts were on the taxpayer’s side, he said.

“You can legislate a lot of things, but you can’t legislate the constitution,” Fry told Law360 on Tuesday. “As long as the tax would be unconstitutional, it would not save municipalities in this regard.”

While many Democrats voted in favor of the budget, touting its formula for funding schools, they were also unhappy with some of its tax provisions. Minority Parliamentary Leader Emilia Strong Sykes, D-Akron, and Rep. Erica C. Crawley, D-Columbus on Tuesday sent a letter to DeWine calling on him to veto income tax cuts, claiming that they would disproportionately favor high income earners.

“While this budget has been given to some, others have been left behind with a tax advantage that benefits millionaires and billionaires while working people see very little,” Sykes said in a statement.

The letter also called on the governor not to allow local income tax refunds for 2021, saying it could cost cities millions of dollars and “pull the rug out of Ohio communities by changing the intention to the enabling law “. Further, the letter asked DeWine to veto a provision that would eliminate the state tax expenditure review committee, which is required by law to review tax credit programs every eight years.

DeWine’s office did not immediately respond to a request for comment on Tuesday.

The budget would also create a host of new tax breaks or incentive programs for businesses, including a sales tax exemption for placement services, which help find temporary jobs for potential employees, and deductions. tax for capital gains from investments in certain Ohio corporations.

Under the bill, “megaprojects,” which are to make at least $ 1 billion in investments or create $ 75 million in payroll in Ohio, could also qualify for certain tax credits up to. 30 years, instead of the current limit of 15 years. Companies that supply qualifying quantities of products to megaprojects would also benefit from a tax exclusion for commercial activities. Lawmakers had previously considered a stand-alone bill to offer these tax incentives, claiming that they would help attract investment from large companies.

Fry called the employment services tax exemption a good change in policy, despite its two-year revenue forecast of $ 300 million, saying it could offer tax relief to recruitment agencies while Ohio tries to fill positions, even temporarily, as he recovers from the pandemic. He also said the blanket exemption would bring certainty to businesses, noting that several court cases have reduced range employment service companies that owe sales tax.

But Zach Schiller, research director at Policy Matter Ohio, a progressive research group, told Law360 he believes the budget’s tax exemptions and cuts were bad policy decisions, calling them a giveaway to corporate groups. and high income at the expense of low income residents. .

“They really took advantage of the tax breaks,” Schiller said. “When you put together the tax breaks and the income tax cuts, it represents a reduction of over $ 2 billion in the biennium. We think it could be much better spent on utilities.

A report the group released in conjunction with the Left Institute on Taxation and Economic Policy found that the average personal tax cut from the budget for the poorest 80% of taxpayers, or those earning less than $ 107,000, would be $ 43 per year. Meanwhile, the richest 5% of taxpayers, or those earning more than $ 228,000, would receive nearly 60% of the benefits of tax cuts, according to the report.

DeWine is due to act on the budget by Thursday, the start of the state’s new fiscal year.

–Edited by Vincent Sherry.

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