July 12, 2022
Ohio Supreme Court to review Ohio city income tax imposition on remote workers
On June 7, 2022, the Supreme Court of Ohio accepted an appeal of a decision by the Court of Appeals for Hamilton County to uphold Cincinnati's imposition of income tax on a nonresident working remotely during the COVID-19 pandemic.
The case, Schaad v. Adler, Appeal No. C-210349; 2022-Ohio-340, involves the dismissal of a complaint claiming that 2020 Ohio House Bill 197 (HB 197) violated the Ohio and U.S. Constitutions (Tax Alert 2021-2227). This is one of several cases that Buckeye Institute employees had filed in various counties in Ohio challenging HB 197, which deems remote work performed by an employee working from home during the COVID-19 pandemic to occur at an employee's principal place of business. Buckeye Institute employees have had similar appeals dismissed in other Ohio counties (Tax Alert 2022-0549), but this is the first case where the Supreme Court of Ohio has accepted the appeal.
HB 197 was enacted in March 2020 in response to the COVID-19 pandemic (Tax Alert 2020-0888). HB 197 included Section 29, which deems employees to be performing personal services at their principal place of work, even though their employer requires them to perform those services at another location, such as their home, because of the COVID-19 emergency. This provision was intended to mitigate the administrative burden on employers of withholding and remitting tax to each employee's municipality of residence and, instead, allow the employer to withhold tax based on the employee's principal place of work. Section 29 did not expressly address whether employees' wages are subject to municipal income tax by their principal place of work or place of residence.
In 2021, the Ohio legislature enacted 2021 OH House Bill 110 (HB 110), which allows employees working remotely to claim refunds of tax paid to the principal-place-of-work municipalities, including tax that was withheld by their employers, for days that the employee worked elsewhere during 2021. (See Tax Alert 2021-1322.) The employee personal income tax refund provisions of HB 110, however, did not expressly apply to the 2020 tax year.
During 2020, Buckeye Institute employees initiated challenges to HB 197 in various Ohio counties seeking a declaratory judgment that HB 197 violates the U.S. Constitution and the Ohio Constitution. The county courts have dismissed these complaints to date. The dismissals have noted the strong presumption of constitutionality accorded to enacted legislation, the exigent circumstances of the COVID-19 pandemic, and the reasonable association of an employee's remote work with the activity of an employer's office as supporting imposition of a municipal tax.
While HB 110 clarified the availability of refunds for 2021, the availability of refunds for 2020 is still an open question. The Supreme Court of Ohio's review of this case will affect 2020 refunds. In addition, the court's decision also may provide guidance as to how Ohio cities may tax remote work, as many employers allow employees to work remotely or have entered into hybrid work arrangements involving both remote and in-office work.