2019 Ohio 277
Ohio Ct. App.2019Background
- Ohio enacted H.B. 5 (2014) and H.B. 49 (2017) to standardize municipal income-tax administration and to allow businesses to opt into a State-run centralized collection/administration system for municipal net-profit taxes (R.C. 718.80–718.95).
- Under H.B. 49 the Tax Commissioner administers filings, audits, assessments, and refunds for taxpayers who opt in; the State certifies and distributes revenue to municipalities but retains 0.5% of net-profit-tax receipts as a collection/administration fee.
- Municipalities must certify tax rates and report taxpayer-specific information to the Tax Commissioner; failure to timely report may trigger a 50% withholding of municipal distributions.
- Coalitions of municipalities (Athens plaintiffs and Elyria plaintiffs) sued the State in Franklin County seeking declaratory and injunctive relief, challenging the statutes as violating the Ohio Constitution (Home Rule Amendment, One-Subject Rule), impairing contracts, effecting takings/conversion, and other provisions.
- The trial court ruled for the State, holding the challenged provisions constitutional; plaintiffs appealed. The appeals court affirmed the trial court judgment.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| One-Subject Rule (H.B. 49 inclusion of R.C. 718.80–.95 in budget bill) | Athens: provisions unrelated to single budget subject; violate art. II §15(D) | State: budget bills may contain related revenue/expenditure provisions; municipal tax administration affects appropriations and revenues | No violation: provisions relate to appropriations/revenue and are germane to budget bill; not a manifestly gross/fraudulent violation |
| Home Rule Amendment (Article XVIII, §3) — State administration of municipal tax collection | Plaintiffs: Home Rule reserves municipalities' power to collect/administer taxes; R.C. 718.80–.95 unlawfully usurp local self-government | State: Article XVIII §13 and Article XIII §6 authorize GA to limit municipal taxing power, including imposition, collection, and administration | No violation: §13 authorizes General Assembly to limit levy, including collection/administration; statutes valid limits on municipal taxing power |
| Withholding/fee provisions (50% penalty for missing data; State retains 0.5% fee) — conversion/taking/due-course claims | Plaintiffs: the provisions confiscate municipal funds, convert property, and effect an uncompensated taking or deprivation without remedy | State: provisions are part of a constitutional statutory scheme to implement centralized collection; retention and withholdings facilitate administration and are authorized by §13 | Held constitutional: both withholding and 0.5% retention are integral to the scheme and do not constitute unconstitutional conversion/taking; due-course challenge fails for lack of standing except municipalities have dispute mechanism via suit |
| Contracts/Impairment (Art II §28) | Athens: statutes impair municipal contracts with third-party tax administrators (e.g., RITA) | State: plaintiffs failed to produce contracts or show substantial impairment | No violation shown: plaintiffs did not present contracts or terms; cannot prove substantial impairment |
Key Cases Cited
- Arbino v. Johnson & Johnson, 116 Ohio St.3d 468 (2007) (distinguishes facial vs. as-applied constitutional challenges)
- State ex rel. Dix v. Celeste, 11 Ohio St.3d 141 (1984) (One-Subject Rule: invalidates only manifestly gross and fraudulent violations)
- State ex rel. Ohio Civ. Serv. Emps. Assn. v. State, 104 Ohio St.3d 122 (2004) (liberal construction of "subject" for One-Subject Rule; bills may encompass related topics)
- New York Frozen Foods, Inc. v. Bedford Heights Income Tax Bd. of Rev., 150 Ohio St.3d 386 (2016) (Home Rule and municipal taxing authority)
- Cincinnati Bell Tel. Co. v. Cincinnati, 81 Ohio St.3d 599 (1998) (interpreting limits on municipal taxation and CA legislative authority)
- In re Nowak, 104 Ohio St.3d 466 (2004) (One-Subject Rule standard clarified)
- Cincinnati Imaging Venture v. Cincinnati, 116 Ohio App.3d 1 (1996) (interpreting Article XVIII §13 to permit GA limits on imposition, collection, and administration of municipal taxes)
- Clapper v. Amnesty Int’l USA, 568 U.S. 398 (2013) (standing requires certainly impending injury; mere speculation insufficient)