The Ohio Supreme Court will not review an appellate court decision upholding a statutory provision giving municipalities the power to tax remote at-home work as if it had been performed in the municipality.
In a 4–3 decision in The Buckeye Institute v. Kilgore, the Ohio Supreme Court declined to review the ruling of the Ohio Court of Appeals, Tenth Appellate District, which held that the trial court did not err in dismissing the Ohio-based think tank’s challenge to section 29 of H.B. 197, a bill signed shortly after the start of the COVID-19 pandemic that requires work performed by remote workers during the pandemic to be treated for municipal tax purposes as if it had been performed at the workplace inside the municipality.
“We’re disappointed that the court did not take this case," Jay Carson of Wegman Hessler, senior litigator for The Buckeye Institute, said of the March 29 decision. "This is an important issue to millions of Ohioans, and we’re hopeful that the court will take one of the other cases dealing with the issue to clarify the law in this area,” he told Tax Notes.
“It was close, with three of the seven justices wanting to hear the appeal. Perhaps they recognize that this issue isn't going away,” said Joseph Bishop-Henchman of the National Taxpayers Union Foundation, which filed an amicus brief urging the Ohio Supreme Court to hear the case. “With more people living and working in different states than ever before, states need clear rules where their income taxes apply and where they don't,” he said.
The Buckeye Institute sued Columbus City Auditor Megan Kilgore and Ohio Attorney General Dave Yost (R) after three employees of the institute started working from home following a stay-at-home order but had income taxes withheld in concordance with section 29 for payments to Columbus. In the suit, the institute claimed that the provision violated the employees’ due process rights by seeking “to tax income of nonresidents that was earned outside the city limits, where there is neither nexus nor fiscal relation between the city and the income being taxed.”
Judge Carl Aveni of the Franklin County Court of Common Pleas disagreed that the provision violated the due process rights of the employees and dismissed the suit upon Kilgore’s motion, saying the Ohio General Assembly acted within its authority by “legislatively limiting, coordinating and regulating municipal taxing authorities in their respective treatment of employees working remotely under the exigent circumstance of the COVID-19 pandemic.”
On appeal, Judge Lisa Sadler of the Ohio Court of Appeals, Tenth Appellate District, upheld the trial court's ruling, noting that the action of the legislature has a “strong presumption” of constitutionality. The provision was not “clearly incompatible” with the legislature’s authority “to limit the power of municipalities to levy taxes and to address the COVID-19 pandemic,” Sadler wrote.
But in a memorandum in support of jurisdiction filed in conjunction with its appeal to the Ohio Supreme Court, The Buckeye Institute argued that “the case presents a substantial constitutional question” since the appellate court's decision “conflicts with this Court’s long-standing Due Process analysis for municipal taxation that focused on where the taxpayer performed the work.” The think tank also argued that the court should hear the case because it involves a “question of public and great general interest,” noting that the decisions of the government and employers during the COVID-19 pandemic “forced millions of Ohioans to work from home.”
The case is one of several filed by The Buckeye Institute claiming that the provision in H.B. 197 violates federal and state due process requirements. In Denison v. Kilgore a settlement was reached in which the city of Columbus refunded taxes withheld under the provision, and litigation is still in the lower court in Morsy v. Dumas. The think tank has also asked the Ohio Supreme Court to review a separate case, Schaad v. Adler, in which an appellate court upheld a lower court ruling dismissing the lawsuit.
Thomas Zaino of Zaino Hall & Farrin LLC filed an amicus brief in January urging the Ohio Supreme Court to hear The Buckeye Institute v. Kilgore on behalf of several Republican lawmakers who were members of the General Assembly when section 29 was enacted, including current House Majority Floor Leader William Seitz and House Majority Whip Don Jones. Zaino said the high court's close decision on March 29 “indicates the court is sensitive to the problem.”
“I don’t blame the court for not accepting jurisdiction, because it wasn’t really the best case to address the issue,” Zaino told Tax Notes. “We just need to get the right case in front” of them, he added.
Representatives from the Ohio attorney general’s office and Columbus did not respond to a request for comment by press time.
The taxpayer in The Buckeye Institute v. Kilgore (Case No. 2022-0052) is represented by Jay Carson of Wegman Hessler and Robert Alt of The Buckeye Institute.