Almost one-year ago to the day of this article, the coronavirus forced Ohio’s employers to ask themselves if they were essential businesses, and if not, to send employees home to work remotely. This massive disruption to the local income tax withholding ecosystem required a temporary solution to maintain the status quo of that ecosystem. Otherwise, employers could be required to withhold local income tax for employees at each residential city even though the employer had no connection to those cities. To avoid this chaos and change, House Bill 197 was amended to include temporary law provisions before it was enacted. Section 29 of that temporary law told employers they could continue to withhold income taxes as if employees continued to work at their regular work locations. This temporary relief continues until the governor’s state of emergency executive order is rescinded (Executive Order 2020-01D).
Fast forward one year and the pandemic is still with us and the landscape of how and where we work may be permanently altered. There is some optimism that the pandemic is winding down given the speed with which vaccines are made available, but even with that news, no one knows exactly what the post-pandemic workplace will look like. Will employees return full-time to a worksite, will employees be granted flexibility and work remotely during a work week or will some employers simply decide to go virtual and keep employees at remote work locations? That answer may not be known for a couple of years.
On Tuesday I testified in front of the House Ways & Means Committee on House Bill 157. That bill would simply repeal section 29 of House Bill 197 without regard for the fact that the pandemic is not over, and employers have not returned to a work pattern that resembles life before the pandemic hit. During the hearing, the committee asked witnesses for an end date if the immediate repeal was unacceptable. There seems to be consensus to use a convenient tax calendar date such as December 31, 2021. This date is better than a repeal taking place on a random date ninety-days after enactment of the bill. And it is better than a date dependent on the rescission of the executive order. Given the recent news, that recission could happen this summer.
I believe the bill could also be an opportunity to address the shortcomings of the current municipal income tax system. After the pandemic is over going to work may continue to include the short commute to the home office or kitchen table. These remote work locations will require employers to track workdays. Tracking will be expensive to install and full compliance with the complex municipal tax code may be difficult to achieve. Likewise, this bill should be the opportunity to address the cumbersome requirements cities and tax collection agencies place on both employers and employees when an employee seeks a refund of local income taxes. Finally, if a number of commuters switch to remote work locations this will cause budget holes for the cities reliant on nonresident commuters. In the short-term these budget holes will be filled with federal relief dollars, but that money is short-term relief and the long-term funding issues brought by a shrinking number of nonresident commuters should be addressed now while there is federal funding to backstop any deficits.
I had hoped that HB 157 or the companion Senate Bill 97 would be the start of a larger conversation on local funding, reform of the complex and inflexible municipal income tax code and streamlining the refund process. Unfortunately, it appears that this need for reform will be kicked down the road and will not be addressed in either HB 157 or SB 97. That leaves employers with a post pandemic return to an unchanged complex and costly local income tax structure that will create compliance headaches for both employers and employees.