State’s top court hears arguments on municipal tax collection case

The Ohio Supreme Court heard oral arguments May 13 from attorneys representing several Lorain County municipalities questioning the constitutional authority of the state Department of Taxation to centralize the collection of municipal net profit taxes, which they say violates home rule provisions.

Attorneys for the plaintiffs and the state shared oral arguments and now will wait for the justices to render a decision, which could take a few months.

The case questions whether the Ohio General Assembly overstepped its authority in the passage of House Bill 49 and House Bill 5 and takes action against the Ohio Tax commissioner.

The High Court heard two separate appeals in City of Athens et al. v. Joseph A. Testa.

One is from an Elyria group of plaintiffs representing 28 Northeast Ohio communities. A second group of plaintiffs known as the “Athens Plaintiffs” includes 163 communities in Ohio.

Local municipalities include Avon, Avon Lake, Elyria, North Ridgeville, Oberlin, Sheffield Lake, Vermilion and Westlake.

“These acts dictate how municipal corporations must exercise their home rule power of taxation,” said the Athens plaintiffs’ attorney Matthew Blickensderfer. “That the General Assembly has accomplished this by forcing to adopt a prescribed code does not matter.

“The General Assembly should not be permitted to do indirectly what it’s plainly prohibited from doing directly.”

Blickensderfer added the centralized collection took every aspect of the collection and administration of municipal income taxation.

He noted HB 49 takes taxation power from municipalities without any constitutional basis and argued for limitations on the General Assembly’s authority to do so.

The new regulations in HB 49 took effect Jan. 1, 2018, for businesses choosing to opt-in and file their net-profit municipal income taxes through the Ohio Business Gateway.

Tax collections are distributed to municipalities monthly with interest minus a 0.5 percent administration fee collected by the state.

Businesses choosing to opt-in commit for one year with an automatic renewal unless cancelled by the taxpayer, according to a fact sheet provided by the Ohio Department of Taxation.

“To take money out of the sphere of that home rule is an incursion by the state on that power, and we don’t believe there’s any constitutional authority that allows them to do that,” Blickensderfer said.

Arguing for the state, attorney Benjamin Flowers asked the court to uphold a decision rendered by the 10th District Court of Appeals, stating the laws in question are constitutional and designed to make Ohio more business friendly.

“The laws at issue here will save businesses between $800 million and $1.6 billion annually by eliminating inefficiencies in the pre-existing system for collecting municipal net profit taxes,” Flowers said. “The question in this case boils down to this: does the state constitution bar the state government from pursuing a statewide solution to a statewide problem caused by municipal taxation? And the answer is no.”

The dispute dates to a lawsuit filed in December 2017 in Lorain County Common Pleas Court which was transferred to Franklin County.

In 2019, the 10th District Court of Appeals upheld the Ohio legislature’s authority to centralize municipal tax collection, ruling HB 49 and HB 5 did not violate home rule provisions or the single subject rule in drafting legislation.