The state Senate gave final passage to S.B. 18 by a 33-0 vote, shortly after the state House of Representatives voted to pass the bill 96-0 and accept amendments that the House Ways and Means Committee made to the legislation Tuesday. The bill would provide a commercial activity tax exemption for forgiven PPP loan amounts under December's Consolidated Appropriations Act
, and clarify that expenses paid with covered loans can be deductible.The legislation will now head to Republican Gov. Mike DeWine. A representative for the governor did not immediately respond to a request for comment. However, one of the bill's primary sponsors, Sen. Kristina Roegner, R-Hudson, said in a statement shared with Law360 that she expects the bill "will soon become law."
Under the bill, Ohio will conform to the temporary federal income tax exclusion for the first $10,200 in unemployment benefits received by taxpayers with less than $150,000 in federal adjusted gross income, or $300,000 for joint filers.
The bill would also allow the state tax commissioner to temporarily waive any interest or penalties if a taxpayer does not make a full and timely payment of state and school district income taxes due to unemployment benefits received in 2020. Taxpayers would have to file a timely 2020 return to be eligible for the relief. Moreover, the bill would provide a commercial activity tax exclusion for Ohio Bureau of Workers' Compensation dividends paid to employers for 2020 and 2021.
If enacted, the bill would take immediate effect. Roegner said on the Senate floor that the emergency clause was necessary because the state's customary 90-day waiting period for legislation would have the measure's provisions take effect after the state's tax deadline, which was extended Wednesday to match the federal May 17 date.
"With an already complex tax season, further complicated by the pandemic, it is vital we make these adjustments to ensure Ohio taxpayers' best interests are protected," Roegner said in her statement after the bill's passage.
The bill also conforms to the federal allowance of a 30-year depreciation period for certain residential rental property and the temporary full deduction for business meals. Starting Jan. 1, 2022, the bill will allow taxpayers to elect to have state income taxes withheld from unemployment benefits.
Altogether, the bill is expected to cost the state more than $200 million in tax revenue for the 2022-23 biennium. Zach Schiller, research director at the progressive research group Policy Matters Ohio, told Law360 that the legislation is "a mixed bag" that provides tax relief for lower-income taxpayers receiving unemployment benefits and for higher-income owners of pass-through businesses that received PPP loans.
Current Ohio law allows a personal income tax exclusion of the first $250,000 of business income, meaning that the additional PPP tax relief will flow to owners of pass-through businesses who may not have been as financially harmed by the coronavirus pandemic as lower-income taxpayers, Schiller said.
"We're throwing away what could be tens of millions of dollars in revenue to people who don't need it and in a way can't be expected to have much of a positive economic impact," he said.
Schiller also questioned whether the exclusion for workers compensation dividends, which the fiscal note said could result in a revenue loss of several million dollars, would violate the American Rescue Plan Act
's requirement that states can't use federal pandemic aid to pay for tax cuts.Schiller noted that states are still awaiting guidance from the U.S. Department of the Treasury on the policy and that it's an open question as to whether conforming to the federal code would qualify as a tax cut under the act's language. But he said that the bill's dividend exclusion was unrelated to federal conformity and could potentially be problematic for the state, depending on what the department's guidance says.
Treasury Secretary Janet Yellen responded Tuesday to 21 Republican attorneys general who asked the department to narrowly interpret the act's tax cut restriction provision. Yellen said that the act doesn't crimp states' abilities to cut taxes altogether and that states can cut taxes as long as they don't use the federal relief to offset the tax cuts.
Republican Ohio Attorney General Dave Yost sued Treasury in federal court last week and is seeking an injunction on the act's provision that restricts state tax cuts.
--Additional reporting by Asha Glover and Abraham Gross. Editing by Neil Cohen.
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