To the dismay of many Ohio municipalities, many of which are looking to supplement lost revenue by requesting tax rate increases and identifying non-filers, House Bill 5 became effective January 1, 2016.
HB 5, which is Ohio’s second municipal standardization act, made various changes to the casual entrant rules (ORC Sec. 718.011). Previously, an employer was required to withhold local income tax on employees who visited a city more than 12 days during the year and to withhold retroactively back to Day 1.
Beginning in 2016, employees may spend up to 20 days in a city before the employer is required to withhold income tax. Furthermore, withholding begins on Day 21; the employer is no longer required to look back to Day 1.
However, there are exceptions to the casual entrant rules, including athletes/entertainers, small employers with less than $500,000 of revenue and certain worksite locations. "Worksite location" means a construction site or other temporary worksite in this state at which the employer provides services for more than 20 days during the calendar year. Construction contractors that expect to spend 20 days or more in a city are required to begin withholding city income tax on Day 1 not Day 21.
We have seen several Ohio cities begin demanding vendor and subcontractor lists from developers performing projects within their city. The cities are using these lists to verify vendors are properly withholding income tax on wages and filing city business income tax returns. While many developers are hesitant to provide information about their vendors, if a project has received local funding or incentives, some cities are stipulating that vendor information must be supplied to be in compliance with the incentive agreement terms.
If you are a contractor or construction-related business that may have a site in an Ohio municipality for more than 20 days, consult with your tax advisors to ensure your employee withholdings are accurate in accordance with HB 5.
Cohen & Company is not rendering legal, accounting or other professional advice. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts and circumstances.