Ohio's temporary law, H.B. 197, deeming remote work performed during the pandemic to occur at an employee's principal place of business is an exercise of state sovereignty, Megan Kilgore, the city of Columbus' auditor, told the Franklin County Court of Common Pleas on Wednesday. The city was authorized by the law to continue taxing employees working remotely from outside the municipality, Kilgore said, slamming arguments by the Buckeye Institute, which challenged the law, that such taxation was illegal.
Kilgore also said in a separate brief that a request by the institute to deny her motion to dismiss the suit was filed too late and should be struck.
H.B. 197, enacted in March, was a sweeping bill passed in response to the spread of the novel coronavirus, which causes the respiratory illness COVID-19. The law's municipal income tax-sourcing provision will be in effect until 30 days after Ohio lifts the state of emergency that was issued in response to the pandemic.
The institute, which is based in Columbus, and its employees challenged the law in June after Kilgore didn't respond to letters from the employees seeking refunds of any withholding amounts that Columbus deemed to have been sourced to the city while they worked remotely during the pandemic.
Kilgore previously argued the due process clause didn't prohibit Ohio from crafting a law that regulated its intrastate tax policy; the institute replied that state and local laws, as well as precedent, have established restrictions on local income taxes. Municipalities may tax only income earned by residents who live there or income earned by nonresidents who work within their borders, the institute said.
In arguing that the due process clause barred Ohio from establishing its own intrastate tax policy in H.B. 197, the institute misapplied holdings from the state Supreme Court's 2015 decision in Hillenmeyer v. Cleveland Board of Revenue and 2020 decision in Willacy v. Cleveland Board of Income Tax Review , Kilgore said in her Wednesday brief.
The Hillenmeyer decision concerned the city of Cleveland's taxing of former Chicago Bears linebacker Hunter T. Hillenmeyer, an Illinois resident who worked for an Illinois corporation with no Cleveland office. The Hillenmeyer court referred to work performed inside and outside Cleveland in its analysis, but in the context of interstate taxation, Kilgore said. The institute was improperly trying to expand the Hillenmeyer court's holding to intrastate taxation, according to Kilgore.
"The court in Hillenmeyer recognized that the due process clause analysis is a state-level, not municipal-level, analysis," Kilgore said. "The Ohio Supreme Court could not, and clearly did not, expand the limitations of the due process clause, limitations set by the United State Supreme Court, to restrict the state of Ohio's authority to tax its own citizens."
In Willacy, the Ohio high court upheld Cleveland's tax on stock options that a former employee, Hazel Willacy, received while working there and cashed after retiring and moving to Florida. The institute asserted that the U.S. Supreme Court's 2018 Wayfair ruling does not apply to the current dispute over Columbus' tax and said the state high court's failure to discuss in Willacy whether due process requirements had been loosened by the Wayfair ruling was "telling." Kilgore said there was no reason for the Willacy court to address the due process clause because there was no due process violation in that case.
Kilgore also asserted that the institute's claim that the Ohio General Assembly can only limit municipal taxation and not expand it was incorrect, saying that state courts have interpreted the state constitution to allow the assembly "to regulate municipal taxation where necessary to police taxation amongst municipalities."
Robert Alt, the institute's president and chief executive officer, told Law360 that Kilgore had cherry-picked a line from the Hillenmeyer decision. Alt, who is also representing the institute in the case, also said the state Supreme Court has consistently enforced the principle that municipalities can tax nonresidents only for work performed inside its borders since its 1950 decision in Angell v. Toledo.
"The idea that there is a due process-free zone, when it comes to taxing in state nonresidents, there's simply no support for that in the law," Alt said.
Alt declined to comment on Kilgore's motion to strike the institute's opposing brief to Kilgore's motion to dismiss.
Additionally, Alt said Kilgore's position that the assembly can expand municipalities' authority to tax was "flatly contrary to law," adding that Kilgore could cite only a lower-court decision to support that argument.
Counsel for Kilgore declined to comment.
Two identical bills seeking to repeal the local tax-sourcing provisions of H.B. 197 were introduced in the state Legislature in August: H.B. 754 and S.B. 352. Neither bill has yet to receive a committee hearing.
The Buckeye Institute and its employees are represented by Jay Carson of Wegman Hessler and by the institute's own Robert Alt.
Columbus Auditor Megan Kilgore is represented by Diane Menashe, Daniel Anderson and Mark J. Richards of Ice Miller LLP.
The case is the Buckeye Institute et al. v. Megan Kilgore, Columbus City Auditor et al., case number 20CV-4301, in the Franklin County Court of Common Pleas.
--Additional reporting by Paul Williams. Editing by Vincent Sherry.
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