As the first half of the Ohio General Assembly's legislative session for 2016 comes to a close, most around Capital Square would classify the past five months as a bit unusual. Election years are always a slightly lighter load due to many reasons, but this election year saw Ohio's Governor John Kasich running for President. That created an interesting dynamic for all who roam the halls of the Ohio Statehouse. The legislature has held fewer session days for the first half of the year than in normal years, but the issues it tackled have been difficult.
One issue that created a flurry of activity as the session days dwindled was repayment to the federal government of a loan that Ohio took to shore up its unemployment compensation fund. The deadline to pay back the feds without incurring penalties is November 10, 2016. Ohio is only one of two states (and the Virgin Islands) who has not paid back its debt. The state has been charging companies a significant additional unemployment fee per employee to help pay down the debt. For this coming year, employers were facing payment of $168 per employee rather than the $42 they would otherwise owe. Rather than costing Ohio's businesses billions of dollars, legislators gave the state authority to pay the remainder of the debt now, end the federal surcharge and in its place implement a state surcharge that would be temporary until the money is recouped. This plan allows Ohio to avoid any penalties from the federal government while still paying and recouping the money that is owed. It is expected that the larger issue of unemployment reform will continue to be worked on in the summer months with action taken in the fall.
Last fall Ohio voters had the opportunity to vote on legalizing marijuana for personal use. While that initiative failed, it did bring the conversation of legalizing marijuana for medicinal use to the forefront of the General Assembly’s priorities. Legislative leaders promised to work on legislation this year, knowing that another ballot initiative would be on the horizon. After a special House committee held many hearings around the state, House Bill 523 was formally introduced in the House. While the House and the Senate have varying viewpoints on the legislation, an agreement was eventually struck that would allow the use of marijuana for the treatment of certain diseases. While the bill is on its way to the Governor for signature, a ballot initiative is still in the works. Supporters of that initiative contend that the legislation does not go far enough and does not bring relief to those suffering from chronic diseases fast enough (it will be more than a year before patients could be prescribed medical marijuana). We expect more discussion on this issue between now and November.
Joint Economic Development District Reform
Joint economic development districts (JEDDs) have been an economic development tool for townships since the 1990’s. Last spring, one of the original drafters of the JEDD concept introduced House Bill 182 which sought to reform the JEDD law to reduce confusion and to help expand the JEDD law’s purpose to redevelopment. A few years ago there were a number of issues in central Ohio with a similar economic development tool, a joint economic development zone (JEDZ). Townships were, in some circumstances, establishing the JEDZ’s boundary to geographically include existing businesses and use the monies for general fund purposes, which they could accomplish because the residents could vote to impose the new tax on businesses and employees working in the JEDZ, but not be subject to the JEDZ tax themselves. Because of these types of abuses, the ability to establish a new JEDZ was repealed in 2014. Unlike the former JEDZ laws, a JEDD requires that a majority of the property owners and business owners approve the creation of the JEDD. While the process has prevented some of the same abuse, a few townships are now trying to establish the JEDD’s boundary to geographically include existing businesses. ZHF worked closely with the sponsor, Rep. Kirk Schuring, to ensure that an existing business, of any size, had an opportunity to file a complaint in common pleas court to obtain an “opt-out” of a JEDD if certain criteria were met. There is a need for some technical changes to the law to clarify the common pleas court appeal process. Although the bill is headed to the Governor for his signature, we expect to work further on this issue over the summer and in the fall.
Tax Expenditure Review Committee Created
The legislature continued its goal of reviewing all tax expenditures by passing House Bill 9 and creating a Tax Expenditure Review Committee. Although the 2020 Tax Policy Study Commission that was created in the biennial budget last year is charged with review all tax issues, the Tax Expenditure Review Committee will be a bipartisan committee made up of three members from the House, three members of the Senate and the Ohio tax commissioner. The committee is charged with reviewing every tax expenditure in Ohio at least once every eight years and to make recommendations whether the expenditure should continue, be modified or be eliminated. The committee is charged with setting a schedule for review of each tax expenditure. The committee will issue reports to the General Assembly and it is expected that the reports will be used in crafting future tax policy. The committee may review concepts including the classes of people, businesses or organizations impacted by each expenditure; the fiscal impact to the state and local taxing authority; public policy agendas that might support the expenditure; and the unintended consequences of keeping or eliminating an expenditure.
Proposed Employment Services Tax Repeal
One piece of legislation that did not make it through both chambers this spring is the bill that proposes to repeal the sales and use tax on employment services. House Bill 343 was introduced last fall and has some momentum, but has also been met with significant resistance as drafted. Currently, employment services are taxable in Ohio, which is one of only a handful of states that impose a tax on these types of services. The bill, as it is currently written, would entirely repeal the sales tax on employment services, a tax that was imposed during the economic downturn of the early 1990s. House Bill 343 was modified to delay the repeal until the next budget cycle (July of 2017) before it was voted out of the House committee. However, some key legislators have expressed concern that eliminating the tax would create a budget shortfall to the state, per year, of roughly $130 million and $38 million to local governments. Thus, it seems unlikely that the bill will become law as it is currently written. The legislators appear to understand that there are some significant policy issues with the tax and may support some clarifications designed to eliminate the uncertainty of the exclusions and reduce the amount of resources spent during the audit process on this issue. We expect to work on the bill over the summer months with the sponsors and interested parties in the hopes of reaching agreement in time for the lame duck session in November and December.
Municipal Income Tax Withholding Due Dates
Following House Bill 5's reform of the municipal income tax system in Ohio, several areas needed to be clarified. One area that received some clarification was the due date and application of the mailbox rule to certain municipal withholding tax payments. Language was included in Senate Bill 172 to change the due date for quarterly withholding payments to the last day of the month following the end of each calendar quarter. Also, a provision was added that clarifies when certain electronic payments will be deemed received by each municipality (effectively allowing an “electronic mailbox rule” for the deemed payment date of the electronic payment).
Pass-Through Entity Tax Reform
Senate Bill 288 was proposed earlier this year to reform the application of the pass-through entity tax. The bill is still pending before the Senate Ways & Means Committee while a working group of interested parties addresses some technical and policy issues with the original language. For instance, the bill proposes to change the way certain trusts are taxed in Ohio. We expect that work on the bill will continue over the summer with a goal of enacting a revised bill in the fall.
Although things will become quieter in the halls of the Statehouse over the next few months, work will continue on many issues behind the scenes, some discussed above, in preparation for the lame duck session in November and December.
ZHF’s team of professionals is involved with these and other legislative matters. We stand ready to assist you with your legislative needs.
If you would like to discuss any Ohio legislative issue, please contact any of our professionals.