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Notable Changes to Ohio Taxes & Repeal of Ohio Sales Tax on Employment Services
Enacted on June 30, 2021, Ohio State Budget Bill H.B. 110 (Bill) makes several important tax changes for taxpayers to consider.
Most notably, the Bill repealed Ohio sales and use tax on employment services and employment placement services, applicable October 1, 2021. Taxpayers should review their vendor contracts for possible reductions in negotiated purchase prices to ensure tax is no longer charged/paid on employment services starting in October. In addition, taxpayers should review their direct pay permits or use tax accounts to make sure that necessary adjustments are in place for October to avoid overpaying tax and needing to file refund claims related to employment services.
On the other hand, vendors of employment services should review their service agreements and related tax provisions regarding the collection of sales taxes. Vendors should consider adjusting or revising tax terms in these agreements so Ohio sales tax is no longer collected and remitted for employment services starting in October.
The Bill also extends temporary withholding relief to December 31, 2021. This relief does not apply for the purposes of an employee’s tax liability. Effective January 1, 2022, employers will be required to revert to the pre-COVID-19 20-day rule, where employees create nexus for employers if they are in the state for 20 days.
The Bill creates and modifies several tax credits, mainly permitting taxpayers to include work-from-home employees in their annual 2020 Job Creation Tax Credit reporting. It reduces the personal income tax rate from five categories ranging from zero percent to 4.797 percent to four categories ranging from zero percent to 3.99 percent.
Finally, the Bill changes the method of calculating the Commercial Activity Tax (CAT) minimum tax by creating a permanent CAT exemption for Bureau of Workers’ Compensation dividend refunds received by employers. It also stipulates that taxpayers should calculate the annual minimum tax application to the first $1 million in taxable gross receipts based on the taxpayer’s taxable CAT gross receipts reported in the prior year, rather than the current calendar year.
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