On Dec. 22, Gov. John Kasich signed legislation that clarified the 2013 small business tax statute, assuring that Sub S Corps adopting the PEO model will enjoy the same tax savings as all other Ohio small businesses. GMS took a leadership position in the industry that led to this legislative victory.
In 2013, Ohio business owners became eligible for small business deductions, reducing tax rates down to three percent. It wasn't until August 2016 that a client's tax practitioner noticed the issue on the Ohio Department of Taxation website containing instructions for the small business income deduction. FAQ No. 28 said that Sub S owner's wages paid by a PEO is not subject to the deduction.
The client contacted their Client Services Manager, who in turn contacted GMS's Chief Financial Officer, Mark Watkins. Watkins realized that this was a major issue for all PEO clients who are Sub S Corps in the state.
Passing a Bill to Support Ohio Sub S Corps
GMS took the lead in getting the issue rectified, notifying The National Association of Professional Employer Organizations (NAPEO) of the industry problem in Ohio and soliciting their help. GMS underwrote the use of their CPA firm, Corrigan & Krause, to advise the trade association on the problem. GMS met with the Department of Taxation (DOT) along with the CPA firm, NAPEO, and their lobbyist in order to sway the DOT to change their stance.
NAPEO sponsored legislation in December 2016 and June 2017 which would have rectified the issue, but each attempt failed to go forward. Ohio began auditing businesses who had partnered with a Professional Employer Organization, and in May 2017, started sending tax assessments for up to three years. These bills tallied up to $20,000 for some GMS clients and upwards of 8 million statewide.
Undaunted by these setbacks, NAPEO gained the support of key legislators in the House and Senate to support a new bill to rectify the inequality of tax treatment. Watkins, along with other industry proponents, gave testimony in front of the Ways & Means committees of both the Ohio House and Senate advocating passage of the new legislation. With these efforts, the bill gained bipartisan support which eventually led to its passage.
A Victory for the PEO Industry and Sub S Corp Clients
With over 60 PEOs operating in the state, this was a substantial victory for PEO clients and the whole industry. GMS is pleased to have played a significant role in this victory, aided by timely feedback from clients.
Any Sub S Corp clients of GMS who received a tax assessment on this issue from the Ohio Department of Taxation can safely ignore it. Any clients of GMS who paid these tax assessments can expect a refund.
If you want to learn more about what a PEO is and how it can help your business become simpler, safer, and stronger, contact us today to talk to one of our experts about the wide range of HR services that we can manage for your organization.