Challenge to Ohio’s COVID-19 Remote Worker Withholding Statute Dismissed
In the fall 2020, Ohio passed a law giving employers flexibility to withhold income taxes as if employees were still working at the office, even if they were working remotely in a different municipality due to COVID-19. See H.B. 197. It essentially provided administrative relief to employers because they are not required to withhold tax for every jurisdiction where their employees reside while working from home during the pandemic. The Buckeye Institute and others challenged the law as unconstitutional (Due Process violation) because there is no connection between the city and the income being taxed. Accordingly, it alleged that Ohio had no authority to pass the law, and that employers should be required to withhold tax where the employees’ services are being performed—in their home municipality.
Recently, the Franklin County Court of Common Pleas dismissed the Buckeye Institute’s challenge, finding that Ohio possessed the authority to “establish municipal income allocation rules among Ohio taxing authorities in order to efficiently and uniformly coordinate intrastate taxation of Ohio residents.” The Buckeye Institute and others continue to challenge the law in various Ohio municipalities, and certain legislators are pushing for repeal. The Ohio House recently posted H.B. 157 which clarifies H.B. 197 to allow refunds. The case might be headed to the Ohio Supreme Court to decide fundamental due process and constitutional questions.
If the law is struck down, it could mean large administrative burdens and substantial revenue loss for employers and cities who would be met with a flood of refund claims for withholding taxes.
We will continue to monitor this and update you with any new developments. If you have questions about how a repeal of HB 197 or clarification of H.B. 157 could impact your business, or any other issues concerning Ohio municipal tax, do not hesitate to contact us.
Attorney Steven A. Dimengo is Managing Partner of Buckingham, Doolittle & Burroughs, LLC. He helps clients with complicated tax challenges including Ohio sales/use, income, commercial activity and federal taxes and has represented clients before the Ohio Supreme Court. Steve can be reach at [email protected] or 330.258.6460.
Richard B. Fry III is a partner and Buckingham’s Taxation Practice Group Chair. He focuses on state and local tax compliance and controversies, including Ohio and multistate sales/use tax, commercial activity tax, and personal income tax issues. Rich can be reached at [email protected] or 330.258.6423
Nathan M. Fulmer is an associate in Buckingham’s Taxation Practice Group. He represents clients on a broad range of tax planning and controversy matters. His joint degree in taxation allows him to provide unique solutions when assisting clients on business matters. Nate can be reached at [email protected] or 330.258.6464.
About Buckingham, Doolittle & Burroughs:
Buckingham, Doolittle & Burroughs, LLC is a corporate law firm that counsels middle-market executives and business leaders all over Ohio and beyond. With offices in Canton, Akron, and Cleveland, Buckingham offers clients Business Law Reimagined through sophisticated and practical legal services. Serving the region for more than 100 years, Buckingham’s mission is to deliver meaningful experiences through the practice of law, exceed expectations in terms of service, counsel and business sense, and to offer continuous value to the industries, communities and clients they serve. For more information, news and updates, visit bdblaw.com.