MacDonald v. Shaker Hts. Bd. of Income Tax Rev. (Slip Opinion)MacDonald v. Shaker Hts. Bd. of Income Tax Rev. (Slip Opinion)
William T. Whitaker Co., L.P.A., William T. Whitaker, and Andrea L. Whitaker, for cross-appellee.
{¶ 1} Before retiring as of December 31, 2006, William E. MacDonald III was an executive of the former National City Corporation in Cleveland. National City offered a “supplemental executive retirement plan” or “SERP” for its executives. Although for some tax purposes the SERP constituted an “unqualified deferred compensation plan,” MacDonald did not make contributions during his employment to fund the plan. As he neared retirement, MacDonald selected an option under that plan consisting not of a lump-sum payout but rather an annuity that would make periodic payments designed to replace a percentage of his income once he was no longer working.
{¶ 2} Because of MacDonald‘s retirement and his SERP election, in preparing MacDonald‘s W-2 tax document, National City included an amount in box 5 (the “Medicare wages” box) that reflected the present value of his future annuity payments, which was $9,107,014. But National City deliberately omitted this amount from box 18 of the W-2, which is the “local wages” box pertaining to municipal income tax, and accordingly the MacDonalds did not pay Shaker Heights income tax on that amount.
{¶ 3} The substantive issue presented and decided below—by the city tax administrator, by the municipal tax board, by the Board of Tax Appeals (“BTA“), and by the Tenth District Court of Appeals, in that order—is whether, for tax year 2006, the present value of MacDonald‘s future annuity payments qualifies as taxable wages or as a “pension” under a Shaker Heights ordinance that exempts pensions from the municipal income tax. The city—both the tax administrator and the municipal tax board—held that the amount at issue was subject to municipal income tax. The BTA reversed, and the Tenth District affirmed the BTA.
{¶ 4} On appeal to this court, the city sought to raise two issues: the substantive issue, whether the tax was properly levied on the benefits at issue, and a procedural issue, whether the BTA violated a duty of deference to the
{¶ 5} Accordingly, the substantive tax issue is not before this court, and we consider only the standard of review that the BTA should employ when it confronts an appeal pursuant to
{¶ 6} The city argues that when the General Assembly enacted
COURSE OF PROCEEDINGS BELOW
The tax assessment against the MacDonalds
{¶ 7} This case originated with the filing of the MacDonalds’ 2006 municipal income tax return. As discussed, MacDonald retired from his executive position at National City as of December 31, 2006. He selected, as indicated, a SERP annuity option, and as a result, its present value of $9,107,013 was reported on the W-2 form, but not as wages for municipal income tax purposes. RITA issued a tax assessment, which the MacDonalds contested. Their initial appeal was unsuccessful; the municipal tax appeal board upheld the assessment.
The BTA proceedings and decision
{¶ 8} The MacDonalds appealed to the BTA, which held a hearing on September 9, 2010. On December 28, 2012, the BTA issued its decision, which held that the amount at issue was exempt from taxation under the pension exclusion in the Shaker Heights tax ordinance. MacDonald v. Shaker Hts. Bd. of Income Tax Rev., BTA No. 2008-K-1883, 2012 WL 6846165 (Dec. 28, 2012).
{¶ 9} The BTA did address the issue of its standard of review in passing. The board cited Tetlak v. Bratenahl, 92 Ohio St.3d 46, 748 N.E.2d 51 (2001), for the proposition that the municipal tax board‘s findings should be presumed valid. It
{¶ 10} Because the BTA had ruled in favor of the MacDonalds, it was now the city‘s turn to appeal, and it elected to appeal to the Tenth District Court of Appeals. See
{¶ 11} The city appealed to this court, seeking review on both points. We accepted jurisdiction over the procedural issue only.
R.C. 5717.011 REFLECTS THE GENERAL ASSEMBLY‘S INTENT TO MAKE DE NOVO BTA REVIEW AVAILABLE IN MUNICIPAL INCOME TAX CASES
Before 2003, municipal income tax cases were appealable under R.C. Chapter 2506 to the common pleas courts, but not to the BTA
{¶ 12}
{¶ 13} Appeals taken under
[T]he [common pleas] court may find that the order, adjudication, or decision is unconstitutional, illegal, arbitrary, capricious, unreasonable, or
unsupported by the preponderance of substantial, reliable, and probative evidence on the whole record. Consistent with its findings, the court may affirm, reverse, vacate, or modify the order, adjudication, or decision, or remand the cause to the officer or body appealed from with instructions to enter an order, adjudication, or decision consistent with the findings or opinion of the court.
{¶ 14} The oft-quoted formulation of the standard of review under
[I]t is quite evident that the Court of Common Pleas must weigh the evidence in the record, and whatever additional evidence may be admitted pursuant to
R.C. 2506.03 , to determine whether there exists a preponderance of reliable, probative and substantial evidence to support the agency decision. We caution, however, to add that this does not mean that the court may blatantly substitute its judgment for that of the agency, especially in areas of administrative expertise.
Dudukovich v. Lorain Metro. Hous. Auth., 58 Ohio St.2d 202, 207, 389 N.E.2d 1113 (1979).
Even under R.C. Chapter 2506, an administrative agency‘s construction of local tax ordinances is reviewed de novo by the courts
{¶ 15} One aspect of
{¶ 16} It follows that the city‘s main argument here is unavailing to the extent that the BTA‘s decision addressed a question of law. Here the BTA construed and applied the Shaker Heights ordinance and determined that the amount reported in box 5 of MacDonald‘s W-2 form that related to the SERP constituted a “pension” under that ordinance. The BTA acted within the proper sphere of its authority to review the determination of the municipal tax board in light of its own interpretation of the local law.
R.C. 5717.011 tracks other BTA appeal statutes, and like them, it confers authority on the BTA to conduct de novo review as to both law and facts
{¶ 17} At oral argument, the city‘s counsel characterized the BTA‘s decision as a “factual determination” that the lump sum at issue constituted a “pension” under the local ordinance. As discussed, the BTA resolved the issue before it based on legal grounds, by construing and applying the city‘s ordinance to essentially undisputed facts.
{¶ 18} But even if the BTA‘s decision is seen as a factual finding, it would still have been appropriate for the BTA to conduct a de novo review of the determination of the municipal tax board. This conclusion arises from a reading of two sources of legal authority: the statutes and the case law.
{¶ 19} The statute providing for appeals to the BTA from the boards of revision,
The [BTA] may order the appeal to be heard upon the record and the evidence certified to it by the tax administrator, but upon the application of any interested party the [BTA] shall order the hearing of additional evidence, and the [BTA] may make such investigation concerning the appeal as it considers proper.
{¶ 20}
The orders of the [BTA] may affirm, reverse, vacate, modify, or remand the tax assessments, valuations, determinations, findings, computations, or orders complained of in the appeals determined by the board, and the board‘s decision shall become final and conclusive for the current year unless reversed, vacated, or modified [on appeal].
{¶ 21} We have had occasion to fill in the blanks with case law. Unlike the rulings on questions of law discussed previously, we have held that factual issues in the tax area are confided to the administrative tribunals that are charged by statute to hear and decide tax cases. See Health Care REIT, Inc. v. Cuyahoga Cty. Bd. of Revision, 140 Ohio St.3d 30, 2014-Ohio-2574, 14 N.E.3d 1009, ¶ 19, quoting Cuyahoga Cty. Bd. of Revision v. Fodor, 15 Ohio St.2d 52, 239 N.E.2d 25 (1968), syllabus (” ‘The fair market value of [real] property for tax purposes is a question of fact, the determination of which is primarily within the province of the taxing authorities’ “); accord Aluminum Co. of Am. v. Kosydar, 54 Ohio St.2d 477, 483, 377 N.E.2d 785 (1978). Moreover, the BTA itself constitutes one of those “taxing authorities,” with an independent duty to weigh evidence and make findings to which this court will defer. Strongsville Bd. of Edn. v. Cuyahoga Cty. Bd. of Revision, 112 Ohio St.3d 309, 2007-Ohio-6, 859 N.E.2d 540, ¶ 22 (the value of property for tax purposes is a question of fact that is primarily within the province of the taxing authorities, and this court will ordinarily defer to the BTA on that issue); Sapina v. Cuyahoga Cty. Bd. of Revision, 136 Ohio St.3d 188, 2013-Ohio-3028, 992 N.E.2d 1117, ¶ 15; Vandalia-Butler City Schools Bd. of Edn. v. Montgomery Cty. Bd. of Revision, 130 Ohio St.3d 291, 2011-Ohio-5078, 958 N.E.2d 131, ¶ 13 (noting the duty of the BTA to independently weigh evidence and reach its own independent judgment concerning property value). In the same way, the BTA‘s review of tax-commissioner determinations, factual as well as legal, is de novo in character. Key Servs. Corp. v. Zaino, 95 Ohio St.3d 11, 16, 764 N.E.2d 1015 (2002), citing Higbee Co. v. Evatt, 140 Ohio St. 325, 332, 43 N.E.2d 273 (1942) (“The BTA hearing is de novo“). Also, “[t]he BTA may investigate to ascertain further facts and make its own findings independent of those of the Tax Commissioner.” Id., citing Nestle Co., Inc. v. Porterfield, 28 Ohio St.2d 190, 193, 277 N.E.2d 222 (1971).
{¶ 22}
{¶ 23} Under all these circumstances, we conclude that in creating a right to appeal to the BTA from municipal tax boards, and in not specifying any limitation on the BTA authority on appeal, the General Assembly intended to confer on the BTA the authority to conduct de novo review in the context of appeals under
CONCLUSION
{¶ 24} For the foregoing reasons, we affirm the judgment of the Tenth District Court of Appeals.
Judgment affirmed.
O‘CONNOR, C.J., and PFEIFER, O‘DONNELL, LANZINGER, KENNEDY, and FRENCH, JJ., concur.
William M. Ondrey Gruber, Director of Law, for appellant Shaker Heights and Matthew J. Rubino, Tax Administrator.
Amy L. Arrighi, for appellant Regional Income Tax Agency.
Zaino, Hall & Farrin, Richard C. Farrin, and Stephen K. Hall, urging affirmance for amici curiae Ohio Chamber of Commerce and Ohio Society of Certified Public Accountants.
Barbara A. Langhenry, Director of Law, and Linda L. Bickerstaff, Assistant Director of Law, urging reversal for amicus curiae city of Cleveland.