In a brief filed Wednesday, the Buckeye Institute said the Franklin County Court of Common Pleas wrongly rejected its claims that Ohio's temporary law, H.B. 197, deeming remote work performed during the pandemic to occur at an employee's principal place of business, violated the state and U.S. constitutions.
The institute said the trial court's ruling disregarded state Supreme Court precedent. The organization urged the appeals court to reverse the decision, arguing that Columbus' authority for taxing nonresident income under the Ohio Constitution was limited by federal due process rights to taxing nonresident wages realized within the city.
"There is no way to square ... H.B. 197 and the city's conduct under it with the Ohio Supreme Court's long line of decisions applying the U.S. Constitution's due process clause to municipal taxation," the institute said.
The trial court last month granted a request by Columbus Auditor Megan Kilgore and state Attorney General Dave Yost to dismiss the Buckeye Institute's suit, finding that the General Assembly did not infringe upon due process rights when regulating taxes within the state.
The court noted that Ohio courts have interpreted the state constitution to authorize the Legislature's regulation of municipal taxation, including coordinating limitations between municipalities.
H.B. 197, enacted in March 2020, was a sweeping bill passed in response to the spread of the coronavirus that 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.
In its brief to the appeals court, the institute repeated its claims that state and local laws, as well as precedent, have established restrictions on local income taxes. Municipalities may tax only income earned by residents or income earned by nonresidents who work within their borders, the institute said.
The court wrongly ruled that H.B. 197 did not impermissibly expand municipal taxing powers based on the state legislature's authority to limit municipal tax powers, the institute said, because the state's authority was limited to regulating state, not municipal, taxes within the state.
"The state cannot expand the authority of a municipality to tax, and even assuming arguendo that it could, it may not expand municipal taxing authority beyond the bounds permitted by due process," the institute said.
The organization also argued that the court's ruling ran afoul of the holdings from the state Supreme Court's 2015 decision in Hillenmeyer v. Cleveland Board of Review and the 2020 decision in Willacy v. Cleveland Board of Income Tax Review . The court wrongly dismissed those cases as limited to interstate taxation, the institute said, when the tax law at issue included nonresidents living within the state and the justices did not limit their rulings to out-of-state residents.
"The trial court's reductive reading of Hillenmeyer, Willacy and the cases that went before finds no support in their texts or in common sense," the institute said.
The court also mischaracterized the expansion of municipal taxing powers as a "limitation" and misstated an employer withholding rule as authorizing municipalities to impose taxes outside their boundaries, the institute noted.
The suit is only one of a series of similar challenges to the law. In February, the institute also took action against Cincinnati, followed in March by a suit against the cities of Oregon and Toledo and finally a complaint lodged against Cleveland in April. Institute representatives have previously told Law360 the case would likely be reviewed by the state Supreme Court.
The brief was submitted the same day the state House of Representatives passed a bill to bar cities from imposing income taxes on remote workers for 2021.
Jay Carson, a senior litigator at the institute, told Law360 in an email that due process is fundamental to any tax power and that the state couldn't legislate around it. The state Supreme Court decisions make clear due process limits municipal tax on nonresidents to work performed in the city, he added.
"The Ohio Constitution allows the General Assembly to 'limit' municipal taxations, but does not have any provision that would allow the GA to expand a city's jurisdiction to tax, which is a home rule power of the municipality and thus limited to the municipality's boundaries," Carson said.
Counsel for Kilgore declined to comment.
Yost's office did not immediately respond to requests for comment on Thursday.
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.
Attorney General Dave Yost is represented by Julie Pfeiffer, Allison Daniel and Zachary Holscher of the Ohio Attorney General's Office.
The case is the Buckeye Institute et al. v. Megan Kilgore et al., case number 21-AP-000193, in the Ohio Court of Appeals, Tenth Appellate District.
--Additional reporting by Paul Williams and Daniel Tay. Editing by Vincent Sherry.
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