1. Withholding Under Substitute House Bill 5 130 th General Assembly Effective January 1, 2016 Presented by Richard Donnelly, The Regional Income Tax Agency Revised 1/13/15 1

2. Disclaimer The following materials are for educational/ demonstration purposes only. These materials are not to be construed or relied upon as legal or tax preparation advice. 2

3. The REAL Disclaimer The information, interpretations, and policy statements presented in this seminar are based on The Regional Income Tax Agency’s current understanding of Substitute House Bill 5 (130 th General Assembly) and Am. Substitute House Bill 64 (131 st General Assembly). RITA’s interpretations and policy positions might change dramatically in the coming months. 3

4. What do the following cases have in common? Gesler v. Worthington Income Tax Bd. of Appeals, 138 Ohio St.3d 76, 2013-Ohio-4986 Gesler v. Worthington Income Tax Bd. of Appeals, 138 Ohio St.3d 76, 2013-Ohio-4986 Bosher v. Euclid Income Tax Bd. of Rev., 99 Ohio St.3d 330, 2003-Ohio-3886 Bosher v. Euclid Income Tax Bd. of Rev., 99 Ohio St.3d 330, 2003-Ohio-3886 Roxane Laboratories, Inc. v. Tracy, 75 Ohio St.3d 125, 1996 Roxane Laboratories, Inc. v. Tracy, 75 Ohio St.3d 125, 1996 Lancaster Colony Corp. v. Limbach, 37 Ohio St.3d 198, 1988 Lancaster Colony Corp. v. Limbach, 37 Ohio St.3d 198, 1988 Provident Bank v. Wood (1973), 36 Ohio St.2d 101 Provident Bank v. Wood (1973), 36 Ohio St.2d 101 Sears v. Weimer (1944), 143 Ohio St. 312 Sears v. Weimer (1944), 143 Ohio St. 312 4

5. They all uphold the following legal concept: It doesn’t matter what the legislature intended to write, it’s what they actually wrote that matters It doesn’t matter what the legislature intended to write, it’s what they actually wrote that matters Or, as stated in in Lancaster Colony, “the first rule of statutory construction is to look at the statute's language to determine its meaning. "If that inquiry reveals that the statute conveys a meaning which is clear, unequivocal and definite, at that point the interpretative effort is at an end, and the statute must be applied accordingly. Sears v. Weimer (1944), 143 Ohio St. 312." Or, as stated in in Lancaster Colony, “the first rule of statutory construction is to look at the statute's language to determine its meaning. "If that inquiry reveals that the statute conveys a meaning which is clear, unequivocal and definite, at that point the interpretative effort is at an end, and the statute must be applied accordingly. Sears v. Weimer (1944), 143 Ohio St. 312." 5

6. What was the intent of HB 5? To promote uniformity in municipal tax and make the lives of everyone easier (except perhaps the lives of municipal tax employees) To promote uniformity in municipal tax and make the lives of everyone easier (except perhaps the lives of municipal tax employees) However, if the statute conveys a meaning which is clear, unequivocal and definite, the intent doesn’t matter However, if the statute conveys a meaning which is clear, unequivocal and definite, the intent doesn’t matter 6

7. Withholding Uniformity: The Good News Effective January 1, 2016, ORC 718.03(B) established uniform due dates Effective January 1, 2016, ORC 718.03(B) established uniform due dates If prior year’s withholding was greater than $2,399, or if the taxes withheld (or required to be withheld) exceeded $200 in any month of the preceding quarter, the withholding must be remitted monthly and received by the 15th of the following month. Postmarks do not count.If prior year’s withholding was greater than $2,399, or if the taxes withheld (or required to be withheld) exceeded $200 in any month of the preceding quarter, the withholding must be remitted monthly and received by the 15th of the following month. Postmarks do not count. Otherwise, remit quarterly by the 15th day of the following month. Postmarks count. Otherwise, remit quarterly by the 15th day of the following month. Postmarks count. 7

8. Withholding Uniformity: The Mostly Good News Effective January 1, 2016, ORC 718.03(B) allows an exception to the uniform due dates Effective January 1, 2016, ORC 718.03(B) allows an exception to the uniform due dates If prior year’s withholding was greater than $11,999, or if the taxes withheld (or required to be withheld) exceeded $1,000 in any month of the preceding quarter, the municipality MAY require that the withholding be remitted and received by the third banking day after the 15th and last day of the month. Postmarks do not count.If prior year’s withholding was greater than $11,999, or if the taxes withheld (or required to be withheld) exceeded $1,000 in any month of the preceding quarter, the municipality MAY require that the withholding be remitted and received by the third banking day after the 15th and last day of the month. Postmarks do not count. 8

9. Withholding Uniformity: The Mostly Good News Effective January 1, 2016, ORC 718.03(B) also allows municipalities the option to mandate: Effective January 1, 2016, ORC 718.03(B) also allows municipalities the option to mandate: Payment of withholding by electronic fund transfer if the employer must use EFT for remitting federal taxes withheldPayment of withholding by electronic fund transfer if the employer must use EFT for remitting federal taxes withheld The option to require EFT remittance is not linked to a specific level of withholdingThe option to require EFT remittance is not linked to a specific level of withholding Whether or not EFT is required, EFT is an excellent way to meet the remittance due dates, especially those “received by” due datesWhether or not EFT is required, EFT is an excellent way to meet the remittance due dates, especially those “received by” due dates 9

10. Withholding Uniformity: More Good News Any employer with a RITA withholding account has a RITA e-file/e-pay account with us Any employer with a RITA withholding account has a RITA e-file/e-pay account with us An employer may need to establish a password and user name if the employer doesn’t have them already An employer may need to establish a password and user name if the employer doesn’t have them already Visit: www.ritaohio.com Visit: www.ritaohio.comwww.ritaohio.com 10

11. Withholding Uniformity: The “At Least It’s Uniform” News Effective January 1, 2016, ORC 718.03(B) makes clear that the employer, agent of the employer, or other payer is on the hook for the greater of the tax withheld or the tax required to be withheld Effective January 1, 2016, ORC 718.03(B) makes clear that the employer, agent of the employer, or other payer is on the hook for the greater of the tax withheld or the tax required to be withheld Liability follows the officers and other employees with check writing authority, and the liability is not discharged in bankruptcyLiability follows the officers and other employees with check writing authority, and the liability is not discharged in bankruptcy 11

12. Withholding Uniformity: The “At Least It’s Uniform” News Effective January 1, 2016, ORC 718.03(J) makes clear withholding on tips is required if those tips come under the control of the employer during processing (i.e., credit and debit card tips that the employer converts into cash for the employee) Effective January 1, 2016, ORC 718.03(J) makes clear withholding on tips is required if those tips come under the control of the employer during processing (i.e., credit and debit card tips that the employer converts into cash for the employee) Effective January 1, 2016, ORC 718.03(K) makes it clear that courtesy withholding is subject to the same due dates as mandatory withholding Effective January 1, 2016, ORC 718.03(K) makes it clear that courtesy withholding is subject to the same due dates as mandatory withholding 12

13. Withholding Uniformity: The “At Least It’s Uniform” News The definition of “qualifying wages” has been tweaked (often for clarity): The definition of “qualifying wages” has been tweaked (often for clarity): Third party disability payments are no longer included in qualifying wagesThird party disability payments are no longer included in qualifying wages Supplemental unemployment compensation is now clearly part of qualifying wagesSupplemental unemployment compensation is now clearly part of qualifying wages Clergy wages are now clearly part of qualifying wages (clergy housing is still exempt income)Clergy wages are now clearly part of qualifying wages (clergy housing is still exempt income) Wages that qualify for the foreign income exclusion are taxable qualifying wagesWages that qualify for the foreign income exclusion are taxable qualifying wages 13

14. Withholding Uniformity: Paved with Good Intentions The small employer withholding rules: The small employer withholding rules: A small employer is an employer whose gross receipts the previous year totaled less than $500,000A small employer is an employer whose gross receipts the previous year totaled less than $500,000 Gross receipts are from all sources, including intangible income, grants, and expense reimbursements (so payments made to a common paymaster to cover the related party’s payroll are included in gross receipts)Gross receipts are from all sources, including intangible income, grants, and expense reimbursements (so payments made to a common paymaster to cover the related party’s payroll are included in gross receipts) 14

15. Withholding Uniformity: Paved with Good Intentions The small employer withholding rules (continued): The small employer withholding rules (continued): To qualify for the small employer withholding rules, a small employer must have a fixed location in OhioTo qualify for the small employer withholding rules, a small employer must have a fixed location in Ohio A small employer with a fixed location in Ohio withholds as if all of the wages of all employees were earned for work performed at the fix locationA small employer with a fixed location in Ohio withholds as if all of the wages of all employees were earned for work performed at the fix location 15

16. Withholding Uniformity: Paved with Good Intentions The small employer withholding rules (continued): The small employer withholding rules (continued): If the employer qualifies to use the small employer withholding rules, the rules are not optional… unless the employer enters an agreement with the municipalities involvedIf the employer qualifies to use the small employer withholding rules, the rules are not optional… unless the employer enters an agreement with the municipalities involved 16

17. Withholding Uniformity: Paved with Good Intentions The small employer withholding rules (continued): The small employer withholding rules (continued): What happens if the small employer has three locations: Cleveland, Brecksville, and Olmsted Township?What happens if the small employer has three locations: Cleveland, Brecksville, and Olmsted Township? Employer must withhold either Cleveland or Brecksville tax on all employeesEmployer must withhold either Cleveland or Brecksville tax on all employees Principal place of work (we will discuss later) Principal place of work (we will discuss later) Main reporting office if no principal place of work Main reporting office if no principal place of work 17

18. Withholding Uniformity: Paved with Good Intentions The small employer withholding rules (example 1): The small employer withholding rules (example 1): Joe’s Plumbing’s only location in Ohio is in ClevelandJoe’s Plumbing’s only location in Ohio is in Cleveland Joe’s Plumbing’s gross revenue from all sources last year was $325,000Joe’s Plumbing’s gross revenue from all sources last year was $325,000 Joe’s Plumbing employs seven full-time employee who unclog drains in Cleveland, Cleveland Heights, Beachwood, Parma, and Rocky RiverJoe’s Plumbing employs seven full-time employee who unclog drains in Cleveland, Cleveland Heights, Beachwood, Parma, and Rocky River Each employee worked 40 days in each of the above municipalitiesEach employee worked 40 days in each of the above municipalities 18

19. Withholding Uniformity: Paved with Good Intentions The small employer withholding rules (example 1): The small employer withholding rules (example 1): Joe’s Plumbing withholds Cleveland tax on all qualifying wages of all employeesJoe’s Plumbing withholds Cleveland tax on all qualifying wages of all employees 19

20. Withholding Uniformity: Paved with Good Intentions The small employer withholding rules (example 2): The small employer withholding rules (example 2): Joe’s Plumbing’s only location in Ohio is in ClevelandJoe’s Plumbing’s only location in Ohio is in Cleveland Joe’s Plumbing’s gross revenue from all sources last year was $325,000Joe’s Plumbing’s gross revenue from all sources last year was $325,000 Joe’s Plumbing employs six full-time employee who unclog drains in Cleveland, Cleveland Heights, Beachwood, Parma, and Rocky RiverJoe’s Plumbing employs six full-time employee who unclog drains in Cleveland, Cleveland Heights, Beachwood, Parma, and Rocky River Each of the six employees worked 30 days in each of the above municipalitiesEach of the six employees worked 30 days in each of the above municipalities 20

21. Withholding Uniformity: Paved with Good Intentions The small employer withholding rules (example 3): The small employer withholding rules (example 3): Joe’s Plumbing’s only location in Ohio is in Prairie Township in Franklin CountyJoe’s Plumbing’s only location in Ohio is in Prairie Township in Franklin County Joe’s Plumbing’s gross revenue from all sources last year was $325,000Joe’s Plumbing’s gross revenue from all sources last year was $325,000 Joe’s Plumbing employs six full-time employee who unclog drains in Columbus, Dublin, Grove City, and HilliardJoe’s Plumbing employs six full-time employee who unclog drains in Columbus, Dublin, Grove City, and Hilliard Each of the six employees worked 30 days in each of the above municipalitiesEach of the six employees worked 30 days in each of the above municipalities 21

22. Withholding Uniformity: Paved with Good Intentions The small employer withholding rules (example 3): The small employer withholding rules (example 3): Joe’s Plumbing withholds municipal tax as if all work performed by all employees was in Prairie Township (thus, Joe’s Plumbing does not withhold workplace tax)Joe’s Plumbing withholds municipal tax as if all work performed by all employees was in Prairie Township (thus, Joe’s Plumbing does not withhold workplace tax) 22

23. Withholding Uniformity: Paved with Good Intentions The small employer withholding rules (example 3): The small employer withholding rules (example 3): Because each employee worked 30 days in each municipality, the Occasional Entrant Rule’s 20 day provisions would not applyBecause each employee worked 30 days in each municipality, the Occasional Entrant Rule’s 20 day provisions would not apply However if one or more employees worked 20 or fewer days in a municipality, the Occasional Entrant Rule’s 20 day provision would apply (we will discuss this later)However if one or more employees worked 20 or fewer days in a municipality, the Occasional Entrant Rule’s 20 day provision would apply (we will discuss this later) 23

24. Withholding Uniformity: Paved with Good Intentions The small employer withholding rules (example 4): The small employer withholding rules (example 4): Joe’s Plumbing’s has two locations in Ohio:Joe’s Plumbing’s has two locations in Ohio: One in Prairie Township in Franklin County One in Prairie Township in Franklin County One within the city limits of Delaware One within the city limits of Delaware Joe’s Plumbing’s gross revenue from all sources last year was $325,000Joe’s Plumbing’s gross revenue from all sources last year was $325,000 24

25. Withholding Uniformity: Paved with Good Intentions The small employer withholding rules (example 4): The small employer withholding rules (example 4): Joe’s Plumbing employs six full-time employee that unclog drains in Columbus, Delaware, Dublin, Grove City, and HilliardJoe’s Plumbing employs six full-time employee that unclog drains in Columbus, Delaware, Dublin, Grove City, and Hilliard Four employees work out of the office in Prairie township office Four employees work out of the office in Prairie township office Two employees work out of the office in the City of Delaware Two employees work out of the office in the City of Delaware Each of the six employees worked 30 days in each of the above municipalitiesEach of the six employees worked 30 days in each of the above municipalities 25

26. Withholding Uniformity: Paved with Good Intentions The small employer withholding rules (example 4): The small employer withholding rules (example 4): Joe’s Plumbing must withhold Delaware tax on all qualifying wages of all six employees, even those who work out of the Prairie Township locationJoe’s Plumbing must withhold Delaware tax on all qualifying wages of all six employees, even those who work out of the Prairie Township location 26

27. Withholding Uniformity: Paved with Good Intentions The small employer withholding rules (example 5): The small employer withholding rules (example 5): Jane’s Web Designs’ only location in Ohio is in YoungstownJane’s Web Designs’ only location in Ohio is in Youngstown Jane’s Web Designs’ gross revenue from all sources last year was $325,000Jane’s Web Designs’ gross revenue from all sources last year was $325,000 Jane’s Web Designs employs five full-time employeeJane’s Web Designs employs five full-time employee Two employees work at the Youngstown location: Jane and her secretary BobTwo employees work at the Youngstown location: Jane and her secretary Bob 27

28. Withholding Uniformity: Paved with Good Intentions The small employer withholding rules (example 5): The small employer withholding rules (example 5): Two of Jane’s Web Designs’ other employees work from their homes in Los Angeles, CA and only set foot in Youngstown for three days out of the year for the company’s annual New Years Party and open enrollment presentationsTwo of Jane’s Web Designs’ other employees work from their homes in Los Angeles, CA and only set foot in Youngstown for three days out of the year for the company’s annual New Years Party and open enrollment presentations 28

29. Withholding Uniformity: Paved with Good Intentions The small employer withholding rules (example 5): The small employer withholding rules (example 5): The last of Jane’s Web Design’s employees works from home in Auburn Township in Geauga County and skips the New Years Party for religious reasons and attends the annual open enrollment session by Skype. This employee has never even seen the Youngstown officeThe last of Jane’s Web Design’s employees works from home in Auburn Township in Geauga County and skips the New Years Party for religious reasons and attends the annual open enrollment session by Skype. This employee has never even seen the Youngstown office 29

30. Withholding Uniformity: Paved with Good Intentions The small employer withholding rules (example 5): The small employer withholding rules (example 5): As the law is written, Jane’s Web Designs withholds Youngstown tax on all qualifying wages of all employees… including the two employees in California and the Auburn Township employee As the law is written, Jane’s Web Designs withholds Youngstown tax on all qualifying wages of all employees… including the two employees in California and the Auburn Township employee Employees that do not owe the Youngstown tax will have to file for refunds Employees that do not owe the Youngstown tax will have to file for refunds 30

31. Withholding Uniformity: Paved with Good Intentions The small employer withholding rules (example 5): The small employer withholding rules (example 5): RITA will rely on Hillenmeyer v. Cleveland Board of Review (2015) to exempt wages earned outside of Ohio by non-Ohio residents from the small employer withholding requirements RITA will rely on Hillenmeyer v. Cleveland Board of Review (2015) to exempt wages earned outside of Ohio by non-Ohio residents from the small employer withholding requirements Similarly, RITA will not penalize a small employer whose fixed location is in a RITA municipality for failing to withhold on wages earned in a jurisdiction in Ohio that does not impose a municipal tax Similarly, RITA will not penalize a small employer whose fixed location is in a RITA municipality for failing to withhold on wages earned in a jurisdiction in Ohio that does not impose a municipal tax 31

32. Withholding Uniformity: Paved with Good Intentions The small employer withholding rules (example 6): The small employer withholding rules (example 6): MegaSecurity is the world’s largest provider of on-site security guards.MegaSecurity is the world’s largest provider of on-site security guards. MegaSecurity has only one fixed location in Ohio which is within the city limits of SanduskyMegaSecurity has only one fixed location in Ohio which is within the city limits of Sandusky MegaSecurity’s 2015 gross revenue was in the billionsMegaSecurity’s 2015 gross revenue was in the billions MegaSecurity has 257,492 employees worldwideMegaSecurity has 257,492 employees worldwide 32

33. Withholding Uniformity: Paved with Good Intentions The small employer withholding rules (example 6): The small employer withholding rules (example 6): MegaSecurity employs 7,847 employees in OhioMegaSecurity employs 7,847 employees in Ohio Only 123 of MegaSecurity’s employees work in Sandusky at the company’s fix location and at various client sitesOnly 123 of MegaSecurity’s employees work in Sandusky at the company’s fix location and at various client sites The remaining 7,724 employees work mostly in Cleveland, Columbus, Toledo and Cincinnati and most have never set foot in the Sandusky officeThe remaining 7,724 employees work mostly in Cleveland, Columbus, Toledo and Cincinnati and most have never set foot in the Sandusky office 33

34. Withholding Uniformity: Paved with Good Intentions The small employer withholding rules (example 6): The small employer withholding rules (example 6): Effective January 1, 2016, for the legitimate business purpose of liability management, MegaSecurity incorporates a subsidiary, MegaSecurity Ohio and transfers all of its Ohio employees to MegaSecurity OhioEffective January 1, 2016, for the legitimate business purpose of liability management, MegaSecurity incorporates a subsidiary, MegaSecurity Ohio and transfers all of its Ohio employees to MegaSecurity Ohio MegaSecurity Ohio, a separate legal entity, takes over the Sandusky fixed locationMegaSecurity Ohio, a separate legal entity, takes over the Sandusky fixed location MegaSecurity Ohio had gross revenue in 2015 of $0 (it didn’t exist in 2015)MegaSecurity Ohio had gross revenue in 2015 of $0 (it didn’t exist in 2015) 34

35. Withholding Uniformity: Paved with Good Intentions The small employer withholding rules (example 6): The small employer withholding rules (example 6): Is MegaSecurity Ohio with its 7,847 employees a small employer?Is MegaSecurity Ohio with its 7,847 employees a small employer? Does MegaSecurity Ohio have a fixed location in Ohio?Does MegaSecurity Ohio have a fixed location in Ohio? How does MegaSecurity Ohio withhold under the small business withholding rules as written?How does MegaSecurity Ohio withhold under the small business withholding rules as written? 35

36. Withholding Uniformity: Paved with Good Intentions The small employer withholding rules (example 6): The small employer withholding rules (example 6): Effective January 1 of the following year, for the legitimate purpose of consolidating the payroll activities of its subsidiaries, MegaSecurity creates a new subsidiary: MegaSecurity Associates and transfers all employee of MegaSecurity Ohio to MegaSecurity AssociatesEffective January 1 of the following year, for the legitimate purpose of consolidating the payroll activities of its subsidiaries, MegaSecurity creates a new subsidiary: MegaSecurity Associates and transfers all employee of MegaSecurity Ohio to MegaSecurity Associates MegaSecurity Associates is billed for one room in MegaSecurity Ohio’s Sandusky office where an employee that handles payroll disputes for Ohio and West Virginia worksMegaSecurity Associates is billed for one room in MegaSecurity Ohio’s Sandusky office where an employee that handles payroll disputes for Ohio and West Virginia works 36

37. Withholding Uniformity: Paved with Good Intentions The small employer withholding rules (example 6): The small employer withholding rules (example 6): Is MegaSecurity Associates with its 257,492 employees a small employer?Is MegaSecurity Associates with its 257,492 employees a small employer? Does MegaSecurity Associates have a fixed location in Ohio?Does MegaSecurity Associates have a fixed location in Ohio? How does MegaSecurity Associates withhold under the small business withholding rules as written?How does MegaSecurity Associates withhold under the small business withholding rules as written? 37

38. Withholding Uniformity: Paved with Good Intentions The basic Occasional Entrant Rule: The basic Occasional Entrant Rule: Extends from 12 to 20 the number of days an individual must perform services in a municipality before the employer is required to withhold taxExtends from 12 to 20 the number of days an individual must perform services in a municipality before the employer is required to withhold tax If the threshold is not exceeded, the employer withholds only for the employee’s “principal place of work” if that location is within a municipalityIf the threshold is not exceeded, the employer withholds only for the employee’s “principal place of work” if that location is within a municipality If the 20-day threshold is exceeded, the employer is not responsible for the withholding for the first 20 daysIf the 20-day threshold is exceeded, the employer is not responsible for the withholding for the first 20 days 38

39. Withholding Uniformity: Paved with Good Intentions The basic Occasional Entrant Rule: The basic Occasional Entrant Rule: If the employee is not a resident of a municipality for which the employer did not withhold because the employer correctly applied the Occasional Entrant Rule, that income is “Exempt Income” at the employee level as far as that nonresident municipality is concernedIf the employee is not a resident of a municipality for which the employer did not withhold because the employer correctly applied the Occasional Entrant Rule, that income is “Exempt Income” at the employee level as far as that nonresident municipality is concerned The exemption goes away if the employee claims a refund from the municipality to which the tax withheld on those exempt wages was remittedThe exemption goes away if the employee claims a refund from the municipality to which the tax withheld on those exempt wages was remitted 39

40. Withholding Uniformity: Paved with Good Intentions The basic Occasional Entrant Rule: The basic Occasional Entrant Rule: Qualifying wages are never exempt from the tax imposed by an employee’s resident municipalityQualifying wages are never exempt from the tax imposed by an employee’s resident municipality 40

41. Withholding Uniformity: Paved with Good Intentions The basic Occasional Entrant Rule (example 1): The basic Occasional Entrant Rule (example 1): So if John’s principal place of work is in Grove City, and he works 7 days in Columbus, and his employer correctly withholds Grove City tax on his wages earned in Columbus, andSo if John’s principal place of work is in Grove City, and he works 7 days in Columbus, and his employer correctly withholds Grove City tax on his wages earned in Columbus, and John is a Bexley resident, thenJohn is a Bexley resident, then John’s wages earned in Columbus are exempt income as far as Columbus is concerned unless John requests a refund of the Grove City tax withheld on those wages earned in ColumbusJohn’s wages earned in Columbus are exempt income as far as Columbus is concerned unless John requests a refund of the Grove City tax withheld on those wages earned in Columbus 41

42. Withholding Uniformity: Paved with Good Intentions The basic Occasional Entrant Rule (example 1): The basic Occasional Entrant Rule (example 1): Because John is a Bexley resident, John owes Bexley tax on all of his qualifying wages including those qualifying wages earned in Columbus that were exempt income as far as Columbus is concernedBecause John is a Bexley resident, John owes Bexley tax on all of his qualifying wages including those qualifying wages earned in Columbus that were exempt income as far as Columbus is concerned Bexley’s normal rules for granting residents credit for taxes paid to another municipality would applyBexley’s normal rules for granting residents credit for taxes paid to another municipality would apply 42

43. Withholding Uniformity: Paved with Good Intentions The basic Occasional Entrant Rule (example 2): The basic Occasional Entrant Rule (example 2): However, if Jane’s principal place of work is in Prairie Township, and she works 7 days in Columbus, and her employer correctly withholds no tax on her wages earned in Columbus, andHowever, if Jane’s principal place of work is in Prairie Township, and she works 7 days in Columbus, and her employer correctly withholds no tax on her wages earned in Columbus, and Jane is a Bexley resident, thenJane is a Bexley resident, then Jane’s wages earned in Columbus are exempt income as far as Columbus is concerned unless Jane requests a refund of the tax that wasn’t withheld on those wages earned in ColumbusJane’s wages earned in Columbus are exempt income as far as Columbus is concerned unless Jane requests a refund of the tax that wasn’t withheld on those wages earned in Columbus 43

44. Withholding Uniformity: Paved with Good Intentions The basic Occasional Entrant Rule (example 2): The basic Occasional Entrant Rule (example 2): Because Jane is a Bexley resident, she owes Bexley tax on all of her qualifying wages, even those wages that were exempt from Columbus withholding under the Occasional Entrant RuleBecause Jane is a Bexley resident, she owes Bexley tax on all of her qualifying wages, even those wages that were exempt from Columbus withholding under the Occasional Entrant Rule 44

45. Withholding Uniformity: Paved with Good Intentions The big exceptions to Occasional Entrant Rule: The big exceptions to Occasional Entrant Rule: Small employers that have a fixed location in Ohio (as discussed earlier)Small employers that have a fixed location in Ohio (as discussed earlier) Professional Athletes have no protection under the Occasional Entrant RuleProfessional Athletes have no protection under the Occasional Entrant Rule Professional Entertainers paid on a per-event basis have no protection under the Occasional Entrant RuleProfessional Entertainers paid on a per-event basis have no protection under the Occasional Entrant Rule 45

46. Withholding Uniformity: Paved with Good Intentions The big exceptions to Occasional Entrant Rule: The big exceptions to Occasional Entrant Rule: Public Figures paid to give speeches or paid to make public appearances have no protection under the Occasional Entrant RulePublic Figures paid to give speeches or paid to make public appearances have no protection under the Occasional Entrant Rule Promoters who had no protection under the old 12 day rule now have protection under the new 20 day rule provided they are themselves not public figures paid to give speeches or paid to make a public appearancePromoters who had no protection under the old 12 day rule now have protection under the new 20 day rule provided they are themselves not public figures paid to give speeches or paid to make a public appearance 46

47. Withholding Uniformity: Paved with Good Intentions The new exceptions to Occasional Entrant Rule: The new exceptions to Occasional Entrant Rule: Employees working at a “Presumed Worksite Location”Employees working at a “Presumed Worksite Location” If the employer can reasonably expect to be providing services at a jobsite in a municipality for more than 20 days during the year, the employer must withhold on all qualifying wages earned by employees working at that jobsite, even on those wages earned by employees whom the employer knows will work less than 20 days in the municipality If the employer can reasonably expect to be providing services at a jobsite in a municipality for more than 20 days during the year, the employer must withhold on all qualifying wages earned by employees working at that jobsite, even on those wages earned by employees whom the employer knows will work less than 20 days in the municipality 47

48. Withholding Uniformity: Paved with Good Intentions The new exceptions to Occasional Entrant Rule: The new exceptions to Occasional Entrant Rule: Employees working in their resident municipality if the employer has agreed as a courtesy to withhold resident withholdingEmployees working in their resident municipality if the employer has agreed as a courtesy to withhold resident withholding The above is RITA’s current position The above is RITA’s current position It can be argued that the code as written only requires the employee’s request to force the employer to withholding workplace tax to an employee’s resident municipality from day one It can be argued that the code as written only requires the employee’s request to force the employer to withholding workplace tax to an employee’s resident municipality from day one 48

49. Withholding Uniformity: Paved with Good Intentions The new exceptions to Occasional Entrant Rule: The new exceptions to Occasional Entrant Rule: Employees working in the same municipality in which the employees’ “Principal Place of Work” is locatedEmployees working in the same municipality in which the employees’ “Principal Place of Work” is located 49

50. Withholding Uniformity: Paved with Good Intentions The nuts and bolts of the Occasional Entrant Rule: The nuts and bolts of the Occasional Entrant Rule: What is an employee’s “principal place of work”?What is an employee’s “principal place of work”? The fixed location in Ohio to which the employee is required to report for duty on a regular and ordinary basis The fixed location in Ohio to which the employee is required to report for duty on a regular and ordinary basis If no fixed location applies, then its the Ohio “worksite location”, such as a construction site or temporary job site, to which the employee is required to report for duty on a regular and ordinary basis If no fixed location applies, then its the Ohio “worksite location”, such as a construction site or temporary job site, to which the employee is required to report for duty on a regular and ordinary basis 50

51. Withholding Uniformity: Paved with Good Intentions The nuts and bolts of the Occasional Entrant Rule: The nuts and bolts of the Occasional Entrant Rule: What is an employee’s “principal place of work”?What is an employee’s “principal place of work”? If no fixed location applies and no worksite location applies, then the principal place of work is the location in Ohio at which the employee spends the greatest number of days in a calendar year performing services for the employer If no fixed location applies and no worksite location applies, then the principal place of work is the location in Ohio at which the employee spends the greatest number of days in a calendar year performing services for the employer 51

52. Withholding Uniformity: Paved with Good Intentions The nuts and bolts of the Occasional Entrant Rule: The nuts and bolts of the Occasional Entrant Rule: What is an employee’s “principal place of work”?What is an employee’s “principal place of work”? All employees must have a “principal place of work” All employees must have a “principal place of work” If there is a tie, the employer must use allocate the employee’s qualifying wages between the tied principal places of work using a reasonable method If there is a tie, the employer must use allocate the employee’s qualifying wages between the tied principal places of work using a reasonable method 52

53. Withholding Uniformity: Paved with Good Intentions The Occasional Entrant Rule pop quiz: The Occasional Entrant Rule pop quiz: ABC Company is not a small employerABC Company is not a small employer ABC Company has no fixed location in OhioABC Company has no fixed location in Ohio ABC Company had no presumed worksites in Ohio, and thus had no reason to believe that any employee would work in any Ohio municipality more than 20 days during the yearABC Company had no presumed worksites in Ohio, and thus had no reason to believe that any employee would work in any Ohio municipality more than 20 days during the year ABC Company has no employees that are Ohio residentsABC Company has no employees that are Ohio residents 53

54. Withholding Uniformity: Paved with Good Intentions The Occasional Entrant Rule pop quiz (continued): The Occasional Entrant Rule pop quiz (continued): One employee of ABC Company worked in Ohio as follows:One employee of ABC Company worked in Ohio as follows: 5 days in Brecksville during the first quarter 5 days in Brecksville during the first quarter 7 days in Dayton during the second quarter 7 days in Dayton during the second quarter 13 days in Toledo during the third quarter 13 days in Toledo during the third quarter 19 days in Lima during the fourth quarter 19 days in Lima during the fourth quarter For what municipality must ABC Company withhold for the entire year?For what municipality must ABC Company withhold for the entire year? 54

55. Withholding Uniformity: Paved with Good Intentions The Occasional Entrant Rule pop quiz (continued): The Occasional Entrant Rule pop quiz (continued): For what municipality must ABC Company withhold for the entire year?For what municipality must ABC Company withhold for the entire year? Lima Lima Under the code as written, the employer cannot claim protection for failing to withhold Brecksville, Dayton and Toledo tax under the Occasional Entrant Rule ORC 718.011(C) Under the code as written, the employer cannot claim protection for failing to withhold Brecksville, Dayton and Toledo tax under the Occasional Entrant Rule ORC 718.011(C) 55

56. Withholding Uniformity: Paved with Good Intentions The Occasional Entrant Rule pop quiz (continued): The Occasional Entrant Rule pop quiz (continued): Because of the affront to equity that this fact pattern illustrates, RITA is leaning towards allowing employers to escape liability for under- withholding as long as the employer can demonstrate that the employer withheld each pay period to the employee’s principal place of work as determined at the end of each pay periodBecause of the affront to equity that this fact pattern illustrates, RITA is leaning towards allowing employers to escape liability for under- withholding as long as the employer can demonstrate that the employer withheld each pay period to the employee’s principal place of work as determined at the end of each pay period “Determined at the end of each pay period” means the entire year including that pay period“Determined at the end of each pay period” means the entire year including that pay period 56

57. Withholding Uniformity: Paved with Good Intentions The nuts and bolts of the Occasional Entrant Rule: The nuts and bolts of the Occasional Entrant Rule: For purposes of counting days for the Occasional Entrant Rule, an employee works in only one municipality each dayFor purposes of counting days for the Occasional Entrant Rule, an employee works in only one municipality each day The municipality in which the employee was deemed to have spent the most time working compared to other municipalities is the municipality in which the employee worked that day for purposes of counting up to 20 days The municipality in which the employee was deemed to have spent the most time working compared to other municipalities is the municipality in which the employee worked that day for purposes of counting up to 20 days 57

58. Withholding Uniformity: Paved with Good Intentions The nuts and bolts of the Occasional Entrant Rule: The nuts and bolts of the Occasional Entrant Rule: So, if Jane worked 40 minutes in Eastlake, 20 minutes in Willoughby, and 7 hours in Concord Township, for purposes of counting days for the Occasional Entrant Rule, Jane worked the entire day in EastlakeSo, if Jane worked 40 minutes in Eastlake, 20 minutes in Willoughby, and 7 hours in Concord Township, for purposes of counting days for the Occasional Entrant Rule, Jane worked the entire day in Eastlake 58

59. Withholding Uniformity: Paved with Good Intentions The nuts and bolts of the Occasional Entrant Rule: The nuts and bolts of the Occasional Entrant Rule: Time spent traveling to and from job sites and picking up goods or making deliveries is considered time spent working at the employee’s principal place of workTime spent traveling to and from job sites and picking up goods or making deliveries is considered time spent working at the employee’s principal place of work However, if the employee delivers and installs goods (i.e. “affixes to real property”), then the time spent installing the goods is time spent working in the municipality where delivery was madeHowever, if the employee delivers and installs goods (i.e. “affixes to real property”), then the time spent installing the goods is time spent working in the municipality where delivery was made 59

60. Withholding Uniformity: Paved with Good Intentions The Occasional Entrant Rule caution: The Occasional Entrant Rule caution: Employees covered by the Occasional Entrant Rule should only have one municipality’s tax withheld from their wages for any given dayEmployees covered by the Occasional Entrant Rule should only have one municipality’s tax withheld from their wages for any given day The municipality (not jurisdiction) in which the employee was deemed to have spent the day under the rules for counting days is the municipality whose tax is withheldThe municipality (not jurisdiction) in which the employee was deemed to have spent the day under the rules for counting days is the municipality whose tax is withheld Even then, RITA does not require withholding on wages earned in non-taxing jurisdictionsEven then, RITA does not require withholding on wages earned in non-taxing jurisdictions 60

61. Withholding Uniformity: Paved with Good Intentions The Occasional Entrant Rule caution example: The Occasional Entrant Rule caution example: If on the employee’s 21st day working in Twinsburg as days are counted under the Occasional Entrant Rule, the employee worked 3 hours in Twinsburg and 5 hours in a township, the employer withholds Twinsburg tax on all 8 hours of the employee’s qualifying wages If on the employee’s 21st day working in Twinsburg as days are counted under the Occasional Entrant Rule, the employee worked 3 hours in Twinsburg and 5 hours in a township, the employer withholds Twinsburg tax on all 8 hours of the employee’s qualifying wages The employer can elect not to withhold Twinsburg tax on the 5 hours worked in a township The employer can elect not to withhold Twinsburg tax on the 5 hours worked in a township 61

62. Withholding Uniformity: Paved with Good Intentions The Occasional Entrant Rule caution example: The Occasional Entrant Rule caution example: On the employee’s 21st day working in Twinsburg as days are counted under the Occasional Entrant Rule, the employee worked 2 hours in Eastlake where the employee has already worked 30 days under the Occasional Entrant Rule (6 hrs Twinsburg, 2 hrs Eastlake) On the employee’s 21st day working in Twinsburg as days are counted under the Occasional Entrant Rule, the employee worked 2 hours in Eastlake where the employee has already worked 30 days under the Occasional Entrant Rule (6 hrs Twinsburg, 2 hrs Eastlake) Since the employee was deemed to have worked in Twinsburg that day, the employer withholds Twinsburg tax on the wages earned in Twinsburg & Eastlake Since the employee was deemed to have worked in Twinsburg that day, the employer withholds Twinsburg tax on the wages earned in Twinsburg & Eastlake 62

63. Withholding Uniformity: Paved with Good Intentions Final words on the Occasional Entrant Rule: Final words on the Occasional Entrant Rule: An employer’s use of the Occasional Entrant Rule for withholding is voluntary (unlike the small employer withholding rule)An employer’s use of the Occasional Entrant Rule for withholding is voluntary (unlike the small employer withholding rule) Employers and municipalities now have statutory authority to enter into agreements allowing substitute methods of meeting an employer’s withholding requirements (even small employers’ withholding requirements)Employers and municipalities now have statutory authority to enter into agreements allowing substitute methods of meeting an employer’s withholding requirements (even small employers’ withholding requirements) 63

64. Withholding Uniformity: Paved with Good Intentions Final words on the Occasional Entrant Rule: Final words on the Occasional Entrant Rule: Without an agreement with the municipality that allows otherwise, the preponderance of a day withholding rules will apply even if the employer elects out of the Occasional Entrant RuleWithout an agreement with the municipality that allows otherwise, the preponderance of a day withholding rules will apply even if the employer elects out of the Occasional Entrant Rule The common situation of a small employer that leases its employees from a professional employer organization (ORC 4125) was not addressed in HB5. PEO’s are normally not small employers… err on the side of cautionThe common situation of a small employer that leases its employees from a professional employer organization (ORC 4125) was not addressed in HB5. PEO’s are normally not small employers… err on the side of caution 64

65. Withholding Uniformity: Paved with Good Intentions Final words on the Occasional Entrant Rule: Final words on the Occasional Entrant Rule: Uniform penalties and interest:Uniform penalties and interest: Interest at federal short-term rate (rounded to nearest whole number percent) + 5% Interest at federal short-term rate (rounded to nearest whole number percent) + 5% Penalty for unpaid or late withholding is 50% Penalty for unpaid or late withholding is 50% Failure to timely file penalty of $25 per month up to $150 Failure to timely file penalty of $25 per month up to $150 Post judgement collection costs and fees, including attorney’s fees Post judgement collection costs and fees, including attorney’s fees 65

66. Withholding Under House Bill 5 Questions If we are presenting another topic, please keep questions to a minimum. The presenters will be available for questions after the presentation. 66