Executive Board member testifies for legislative remedy to audits

Written on Sep 28, 2017

OSCPA staff report

OSCPA Executive Board member Crystal Faulkner, CPA, CExP, MAFF, told an Ohio Senate committee this week that action is needed to address Department of Taxation audits of Professional Employer Organizations.

The issue arose late last year when the Ohio Department of Taxation audited small business owners using PEOs and determined they were ineligible for a small business tax deduction unless they had met certain criteria.

Faulkner, a partner at Mountjoy Chilton Medley in Cincinnati, said the move amounted to a retroactive tax.

Faulkner“It’s not fair to change the rules after the fact,” she said. “Significant numbers of small businesses all over Ohio were being audited causing them to pay thousands of dollars in back taxes.

“The cost to Ohio from 2013-2016 should already be included in the SBD/BID numbers since businesses utilizing PEOs were previously claiming the SBD/BID during the past four years,” she said. “If the laws change prospectively that is one thing. Businesses can plan and make decisions if they know the rules. It simply is not fair to change the way the ODT views this deduction after the fact.”

Faulkner testified in favor of Senate Bill 186 on behalf of OSCPA on Sept. 27 before the Senate Ways & Means Committee. Like a companion bill in the House – H.B. 334 – it would provide that wages and guaranteed payments paid by a Professional Employer Organization to the owner of a contracted pass-through entity may be considered business income for purposes of the Small Business Deduction and Business Income Deduction.

OSCPA had positive discussions with ODT and key legislators over the summer to address this retroactive change in tax treatment. Earlier this month ODT announced that, pending the outcome of the bills, it “has suspended audit activities related to individuals who received compensation from a PEO that they do not own, and who claimed a small business/business income deduction.”

Faulkner also pointed out that S.B. 186 takes the necessary step of applying to taxable years beginning on or after Jan. 1, 2013 (the first year the SBD/BID was effective).

Contact OSCPA Tax Policy Director Greg Saul, Esq., CAE, if you have questions on these bills or any tax issues.

Related: Legislators begin hearings over CPAs’ priority issues

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