Did you know Ohio’s current local income tax structure allows municipalities to tax employees even if they do not physically work in the city that is taxing them?
This is a common rationale: employees can be taxed based upon where they work because that they are using city resources like police, fire, and other public services while they are at work.
However, what happens when people stop actually working at that location? Gov. Mike DeWine’s statewide COVID-19 Stay-at-Home order earlier this year has forced many employees to work from home.
This means Ohioans are paying taxes to cities whose services they no longer use, undermining the principle used to tax them.
In July, The Buckeye Institute and three of its employees filed a lawsuit against the City of Columbus and the State of Ohio. The lawsuit asserts it is unconstitutional to allow cities to tax income of workers who do not live there, and were not permitted to work there during the Stay-at-Home order.
In order to comply with Ohio’s emergency orders, which required nonessential businesses to close, The Buckeye Institute required its employees to work from home.
Subsequently, HB 197 was signed into law and deemed all work performed at private homes during the public health emergency to have been performed at the employees’ principal place of work for the purposes of taxation.
According to The Buckeye Institute, this is unlawful taxation, “a clear violation of due process rights under the Fifth and Fourteenth Amendments to the U.S. Constitution and violates Article I, Section 1 of the Ohio Constitution.”
Two pieces of legislation, inspired by The Buckeye Institute’s lawsuit, have been introduced in the Ohio Legislature. HB 754, and its companion SB 352, would amend income tax withholding rules for work-from-home employees related to the COVID-19 pandemic. Ohio workers would be taxed where they live rather than where they work.
The lawsuit and pending legislation of HB 754 and SB 352 could benefit taxpayers during the pandemic by simplifying how they pay taxes.