Buckingham, Doolittle & Burroughs, LLC

In the fall 2020, Ohio passed a law giving employers flexibility to withhold income taxes as if employees were still working at the office, even if they were working remotely in a different municipality due to COVID-19. See H.B. 197. It essentially provided administrative relief to employers because they are not required to withhold tax for every jurisdiction where their employees reside while working from home during the pandemic. The Buckeye Institute and others challenged the law as unconstitutional (Due Process violation) because there is no connection between the city and the income being taxed. Accordingly, it alleged that Ohio had no authority to pass the law, and that employers should be required to withhold tax where the employees’ services are being performed—in their home municipality.

Recently, the Franklin County Court of Common Pleas dismissed the Buckeye Institute’s challenge, finding that Ohio possessed the authority to “establish municipal income allocation rules among Ohio taxing authorities in order to efficiently and uniformly coordinate intrastate taxation of Ohio residents.” The Buckeye Institute and others continue to challenge the law in various Ohio municipalities, and certain legislators are pushing for repeal. The Ohio House recently posted H.B. 157 which clarifies H.B. 197 to allow refunds. The case might be headed to the Ohio Supreme Court to decide fundamental due process and constitutional questions.

If the law is struck down, it could mean large administrative burdens and substantial revenue loss for employers and cities who would be met with a flood of refund claims for withholding taxes.

We will continue to monitor this and update you with any new developments.