Tax and Finance Management

State Budget Process Enters Final Stretch; Negotiations Will Determine Fate of Tax Provisions

On a 25-8 vote, the Ohio Senate this week approved its version of the state operating budget (House Bill 110), setting up a likely showdown with the House. The measure totals $74.5 billion over two years in General Revenue Fund spending and $160.9 billion in total state spending.

Included in the Senate-approved budget are OMA-supported provisions to repeal Ohio’s sales tax on employment services and reduce personal income taxes by 5% across the board. The sales tax change has been a top priority of the OMA Tax Committee and, if enacted, would be transformational for Ohio’s manufacturing climate. The sales tax provision will be heavily debated in conference committee. OMA members should contact their state lawmakers to convey its importance.

The biggest hurdle for budget negotiators will be K-12 school funding. The House included what it called the Fair School Funding Plan, a complete overhaul of K-12 financing. The Senate replaced it with their own new formula a week ago, saying their proposal is more sustainable. The budget must be passed by the end of June. 6/10/2021

State Tax Revenues Exceed Estimates by 34% in May

Due to this year’s delayed tax filing deadline, May was a big month for Ohio’s tax revenues, according to data from the Office of Budget and Management. Total General Revenue Fund tax receipts finished the month $744.7 million (34.1%) above estimates — although the Commercial Activity Tax was below the monthly estimate by $3.7 million (-1.1%).

For the fiscal year, which ends June 30, receipts are beating forecasts by $1.17 billion (5.2%). The non-auto sales tax has exceeded estimates by $647 million (7.4%) for the year; the auto sales tax has surpassed estimates by $228 million (15.7%). 6/10/2021

Report: Many Employers Not Taking Advantage of COVID-19 PTO Credit

Many business owners are encouraging their employees to get the COVID-19 vaccine — but according to a report by the Cincinnati Business Courier (subscription), many employers aren’t pursuing available tax credits for providing paid time off for workers to be vaccinated.

The U.S. Department of the Treasury has stated that employers can take tax credits for up to 80 hours of paid sick leave equal to the employee’s regular wage, capped at $511 a day — up to $5,110. Businesses can claim the credit quarterly through Sept. 30 of this year. 6/9/2021

Cybersecurity Insurance: One Manufacturer’s Story

In order to redirect funds to make improvements to existing systems, Behlen Mfg. Co. — a mid-sized manufacturer in the Midwest — dropped its existing cyber insurance coverage. The company intended to obtain a new policy once the improvements were complete, but during this time, it suffered a cyber attack.

The National Association of Manufacturers (NAM) has posted this short interview with the general counsel of Behlen so other manufacturers can learn more about their situation and NAM’s Cyber Cover, a cybersecurity and risk mitigation program. 6/10/2021

Manufacturers Score Big Tax Win in Senate Budget

Ohio Senate leadership this week unveiled its version of the state budget (House Bill 110). The $75 billion, two-year budget bill includes provisions that would eliminate Ohio’s sales tax on employment services used by businesses to hire temporary or permanent workers — saving Ohio employers an estimated $303 million over the biennium. It also includes a 5% across-the-board personal income tax cut, worth an estimated $874 million.

The elimination of the employment services tax has been a longtime priority for Ohio manufacturers. (Read the OMA’s comments on the budget’s tax relief measures.) Overall, the Senate budget includes roughly $1.3 billion in tax cuts. (This budget comparison document shows all the changes made by the Senate thus far.)

Other key tax-related provisions include:

• An extension through the end of 2021 of Ohio’s temporary law that allows municipal income tax withholdings to be based on an employee’s principal work location, not where he/she is working remotely during COVID-19. (This gives employers needed certainty.)
• Modifications to the Job Retention Tax Credit with OMA-supported language that encourages more capital investment in Ohio.
• A permanent Commercial Activity Tax exemption for BWC dividends paid to employers. (This exemption was included in Senate Bill 18, signed into law earlier this year, but it only applies to dividends paid in 2020 and 2021.)

Once the full Senate passes its version of the budget — expected to occur next week — House and Senate leaders, along with the governor, have until June 30 to iron out differences and enact a final budget. Ohio’s new fiscal year begins July 1. 6/2/2021

OMA Tax Committee Reviews State, Federal Activity

The OMA Tax and Finance Committee — chaired by Meredith Mullett, manager of tax compliance for The J.M. Smucker Company — met virtually this week. Members were briefed on the OMA’s major Statehouse activities, including the association’s work on a proposed repeal of Ohio’s employment services tax (see related story).

Members heard from Justin Stallard, partner at OMA Connections Partner RSM, regarding recent federal tax and financial developments, including the latest on the Paycheck Protection Program (PPP) and Employee Retention Credit. Chris Netram, vice president of tax and domestic economic policy for the National Association of Manufacturers, provided insight on the Democrats’ proposed changes to the federal tax code. (The U.S. Treasury Department recently released the “Green Book” — a detailed explanation of the Biden administration’s tax proposals.)

The committee is scheduled to meet again Oct. 13. 6/2/2021

House Passes Muni Tax Withholding Measure

Clearing the House this week, employers are one step closer to having certainty on how they must treat income tax withholdings for their employees. House Bill 157 would extend through the end of the year a temporary provision that allows municipal income tax withholdings to be based on an employee’s principal work location, not where he/she is working remotely during COVID-19. The bill now heads to the Senate for consideration. 5/27/2021

House Advances Bill to Change COVID-19 Rules for Local Income Tax Collection

Ohioans working from home in 2021 could end up paying taxes to the city where they live – not where their company has an office – if House Bill 157 becomes law. This week, the House Ways and Means Committee advanced the measure for consideration by the full House.

Before the vote, the OMA testified in support of a new substitute bill. As originally introduced, HB 157 would have immediately repealed a temporary provision that currently allows municipal income tax withholdings to be based on an employee’s principal work location, not where he/she is working remotely during COVID-19.

The sub-bill made several changes, including:

• Extends the temporary withholding provision through the end of the year (Dec. 31, 2021).
• Provides employers a “safe harbor” by waiving penalties and interest for employers that withheld municipal income tax on employees’ wages in accordance with the temporary provision.
• Includes language prohibiting a municipality, as a condition for processing an individual’s request for a refund, from requiring an employer to provide any documentation other than a statement verifying the number of days an employee worked at their principal work location.

For the latest information on this bill and other tax-related legislation, join the OMA’s Tax and Finance Committee meeting on Wednesday, June 2 from 10 a.m. to noon. Register here. 5/20/2021

At a Glance: Corporate Tax Rates Worldwide

President Joe Biden has pointed to corporate tax rates as one way to raise federal revenue, while critics of that plan — including the National Association of Manufacturers — have said doing so would make the U.S. much less competitive and cost American jobs.

HowMuch.net has published this infographic to compare corporate tax rates across the globe. The U.S. is currently in the middle of the pack with a top statutory corporate tax rate of 25.77%. Meanwhile, the Tax Foundation notes that corporate rates globally have declined over the past four decades. 5/18/2021

A Look at Combined Rates for Federal Taxes

On Capitol Hill, the Joint Committee on Taxation (JCT) has released data showing what Americans pay in their combined federal taxes based on their income level. As reported by the Tax Foundation — using data from 2018, the most recent year available — the JCT says the bottom 50% of income earners faced an average rate of 6.3% compared to 32.9% for the top 0.01% of earners.

The Tax Foundation notes that the income tax is the most progressive aspect of the federal tax system, providing an effective rate of -2% for the bottom half of earners when factoring refundable tax credits. 5/17/2021