CLEVELAND, Ohio – As Ohioans ponder how their lives could change after Governor Mike DeWine lifted most of the coronavirus public health ordinances in June, cities that lost thousands of commuters to their home offices during the pandemic have one other question in mind: does this mean? End of the days of income taxes being levied on remote workers too?
The problem has hovered over cities like Cleveland and Columbus since the pandemic began, when Ohio lawmakers passed sweeping law allowing municipalities to continue to tax people who work overseas for up to 30 days after the state of emergency was lifted.
When DeWine announced Wednesday night that Ohioans would no longer have to wear masks or practice social distancing, cleveland.com wondered if that news marked an end to the state of emergency – and the practice of taxing people who worked for months at home.
The answer appears to be no, according to DeWine’s spokesman, who made it clear that while the declaration of emergency will be lifted soon, the state of emergency remains in place.
But that doesn’t mean that cities and villages that rely on commuters’ income taxes can breathe easily.
Under current Ohio law, cities’ ability to tax remote workers who live and work outside their borders could expire as early as August, Ohio Municipal League executive director Kent Scarrett said in an interview.
“We’re still under the gun,” said Scarrett. “The clock gets louder the more it ticks.”
Millions of dollars may be at stake, especially if remote workers who do not live in the same cities as where they work continue to work from home instead of returning to their offices after the emergency statement ends.
Here’s a look at the current status of the income tax issue and why it shouldn’t be swayed by DeWine’s announcement on Wednesday.
What happens to the city’s income tax revenue if the state of emergency is lifted?
Following the pandemic law passed in early 2020, people who work from home will continue to be taxed by the city they worked in before the pandemic. A suburban resident whose office is in downtown Cleveland still pays Cleveland taxes even though he hasn’t set foot in town in over a year.
However, this provision expires 30 days after the urgency declaration was lifted, meaning that tax laws would return to normal prior to the pandemic, where workers are generally taxed based on where they work.
What is the difference between the Emergency Statement and the Public Health Orders that will end on June 2nd?
State law gives the governor the power to declare a state of emergency, which, among other things, allows Ohio to receive emergency aid from the federal government, such as FEMA funding, Scarrett said.
Another part of Ohio law gives the state Department of Health the power to issue ordinances to protect people, such as the mask mandate and social distancing requirements. DeWine said these public health instructions will end on June 2nd, spokesman Dan Tierney said in an email.
The governor can reset the emergency declaration at any time. But so far he has made no announcements about it.
The difference is crucial when it comes to income tax rules. Both Scarrett and Jay Carson of the Buckeye Institute – an Ohio conservative think tank challenging tax law in court – said DeWine’s announcement questioned them whether the rollback would apply to the emergency declaration as well.
The Ohio Municipal League, a statewide nonprofit that represents towns and villages, spoke to the DeWine government following the announcement and confirmed that it only applies to health care jobs, Scarrett said.
Why might the income tax rules change in August?
In March Ohio lawmakers passed law restricting the governor’s power to give health instructions. Within the legislature, the legislature gave itself the opportunity to put down declarations of emergency made by the governor.
Under these new powers, the declaration of emergency could be knocked down as early as July 23, Scarrett said.
“And 30 days after that, the temporary withholding tax [for income taxes] will end, ”he said.
Carson, a senior litigation attorney at the Buckeye Institute, agreed with Scarrett’s interpretation of the law, saying he expected tax withholding to be refunded after that 30-day window.
The institute has filed lawsuits in Cleveland, Cincinnati, Toledo and Columbus, arguing that it is illegal to tax people where they do not live or work. A Franklin County judge dismissed the Columbus case, but the Institute is appealing the ruling and the other cases are pending.
If the urgency is lifted and the income tax rule expires before the cases are resolved, Carson said his organization could adjust the relief requested by the courts. Instead of calling for an end to the provision, the institute would just try to allow taxpayers to reclaim the taxes they paid to one city while working elsewhere, he said.