State of Ohio Controversy As Emergency COVID Orders Expire
Post Pandemic Views of Ohio Controversy Many of the health mandates issued by Ohio Governor Mike DeWine expired June 2, 2021 and all other health orders (except certain orders impacting assisted living and similar facilities), including capacity limits, social distancing rules, and the mask mandate, will end by July 1, 2021. Likewise, a series of lotteries have caused the Ohio vaccination rates currently at 45% to likely surge to almost 70% of the Ohio population by the end of June. Many Ohio governmental offices and private companies are set for a July 2021 return to offices in at least partial capacities. As the pandemic fog lifts, many of our clients have asked what to expect in Ohio tax controversy and legislative developments.
Audit Commencement Activity Increasing The Ohio Department of Taxation (“ODT”) worked diligently off-site during the pandemic. There was an intentional delay in new audits and other audit activity from March 2020 through July 2020 in an effort to let area taxpayers focus on the fall-out of the pandemic. However, last fall and into calendar year 2021 we have seen a distinct increase in new audits, particularly related to taxpayers that were regularly audited in the past. Many of these taxpayers had the statute of limitations expire on a few years since the last audit and have pursued participatory audits to eliminate penalties and accelerate the speed of the audit. Even in instances where ODT won’t agree to a participatory audit, there is potential to ease the audit process and accelerate the speed of an audit. Likewise, it is a great time for taxpayers that have not yet been contacted to request an Ohio voluntary disclosure agreement (“VDA”). New or existing filers can use a VDA to bring their tax liability current and avoid penalties and reduce the look back period. Finally, taxpayers may have more successful settlement discussions at this level because of ODT’s desire to resolve backlogs. ODT Appeals Division Comes Close to Current For most tax matters, the ODT Audit Division first completes a field or desk audit and then issues an assessment. For refund claims, the ODT Refund Division may review and deny the refund claim. The issuance of an assessment or the denial of a refund are both appealable to the ODT Appeals Division, which involves an attorney review of the legal and factual issues in a matter. The ODT Appeals Division has had a significant backlog the last few years before the pandemic, particularly in the Ohio Commercial Activity Tax (“CAT”), due to some personnel leaving for other positions. During the pandemic, the ODT Appeals Division made significant strides in resolving its older cases. They hired additional staff and (based on a presentation given earlier this year) have decreased the average age of cases to 18 months. They have also set a goal of resolving matters within 12 months. As a result, there has been a significant amount of Final Determinations issued, which are appealable to the Ohio Board of Tax Appeals (discussed below). If a taxpayer has a matter before the ODT Appeals Division that has been lingering for some time, it is a great time to reach out to confirm status, provide additional information, have settlement discussions, and otherwise try to resolve your matter without pursuing litigation. Ohio Board of Tax Appeals (the “Board”) Docket Final Determinations issued by the ODT Appeals Division are appealable to the Board, which is an administrative tribunal. Proceedings before the Board include the submission of testimony and evidence via hearing or stipulation and briefing. While the social distancing mandates also impacted in-person meetings and hearings in the prior two levels (ODT Audit and Appeals Division), the mandate eliminated hearings before the Board for part of the pandemic. The Board has been allowing 2 hour video hearings more recently but both parties have to agree and the time limit has been an issue for most Tax Commissioner cases, which include CAT, sales and use tax, the Financial Institution Tax, personal income tax, etc. Tax Commissioner cases often require the submission of evidence and testimony consistent with the Rules of Evidence, which will typically require a hearing longer than 2 hours. The delay in hearings and the increase in the issuance of Final Determinations will likely result in a significant backlog in cases at the Board. Taxpayers can expect delays in the litigation process. The backlog does likely provide an opportunity to settle matters and/or pursue steps like agreeing to reduced discovery and stipulations, which could help streamline the litigation process. Opportunities Overall With the fog lifting and the likely backlog of matters at various levels, there is a lot of potential for creative ways to settle and/or streamline audits, appeals, and litigation processes with ODT. Reaching out to higher level ODT personnel to join the discussion will also be key to resolving matters quickly and efficiently.