Buckeye Inst. v. Kilgore

Decision Date30 November 2021
Docket Number21AP-193
Citation181 N.E.3d 1272
Parties The BUCKEYE INSTITUTE et al., Plaintiffs-Appellants, v. Megan KILGORE et al., Defendants-Appellees.
CourtOhio Court of Appeals

On brief: Wegman Hessler and Jay R. Carson, Cleveland, and Robert Alt, for appellants The Buckeye Institute, Greg R. Lawson, Rea S. Hederman, and Joe Nichols. Argued: Jay R. Carson.

On brief: Ice Miller LLP and Diane M. Menache and Daniel M. Anderson, Columbus, for appellee Megan Kilgore, Columbus City Auditor, and Allison D. Daniel and Julie M. Pfieffer, for appellee Attorney General, Dave Yost. Argued: Diane M. Menache.



{¶ 1} Plaintiffs-appellants, The Buckeye Institute, Greg R. Lawson, Rea S. Hederman, and Joe Nichols, appeal from a judgment of the Franklin County Court of Common Pleas dismissing appellants’ complaint for declaratory and injunctive relief concerning Section 29 of Ohio House Bill 197 ("H.B. 197"), an emergency, temporary tax measure enacted by the 133rd Ohio General Assembly in response to the COVID-19 pandemic. Because the General Assembly acted within its authority in enacting Section 29 of H.B. 197 and Section 29 is not "clearly incompatible" with due process clause tax limitations, the trial court did not err in dismissing appellants’ action seeking a declaration that Section 29 of H.B. 197 is unconstitutional and void. We affirm the judgment of the Franklin County Court of Common Pleas.


{¶ 2} On March 9, 2020, in response to the public health threat posed to Ohio residents by the COVID-19 virus, Ohio Governor Mike DeWine declared a state of emergency and authorized the Ohio Department of Health to issue "guidelines for private businesses regarding appropriate work and travel restrictions, if necessary[.]" (Compl. at ¶ 32, citing March 9, 2020 Executive Order 2020-01D at 3.) A little over a week later, the Director of Health issued an order that required, subject to certain exceptions, "all individuals currently living within the State of Ohio * * * to stay at home or at their place of residence[.]" (Compl. at ¶ 33, citing March 22, 2020 ODH Stay at Home Order at ¶ 1.) The Stay at Home Order allowed nonessential businesses to continue operating to the extent that the continued operation consisted "exclusively of employees or contractors performing activities at their own residences (i.e., working from home)." (Compl. at ¶ 34, citing Stay at Home Order at ¶ 2.)

{¶ 3} On March 27, 2020, the governor signed into law H.B. 197, an act enacted by the General Assembly aimed at addressing various aspects of the public health crisis. Relevant to this appeal, Section 29 of H.B. 197 provided:

[D]uring the period of the emergency declared by Executive Order 2020-01D, issued on March 9, 2020, and for thirty days after the conclusion of that period, any day on which an employee performs personal services at a location, including the employee's home, to which the employee is required to report for employment duties because of the declaration shall be deemed to be a day performing personal services at the employee's principal place of work.

(Compl. at ¶ 41, citing Section 29 of H.B. 197.)

{¶ 4} On July 2, 2020, appellants filed a complaint against appellees Columbus City Auditor Megan Kilgore and Ohio Attorney General Dave Yost challenging the validity of Section 29 of H.B. 197. Appellants explained that the Buckeye Institute's office is located in downtown Columbus, but the "bulk of work performed * * * is not tied to any physical location and can be conducted remotely[,]" and that it "uses a cloud-based computing system for all of its email and document sharing needs." (Compl. at ¶ 13.) To comply with the Stay at Home Order, appellants Hederman, Nichols, and Lawson began working from their Westerville, Powell, and Newark Township homes on March 18, 2020 (Id. at ¶ 35.); they conducted their work "through a personal computer with a home internet connection." (Id. at ¶ 15, 17, 19.) Hederman and Nichols returned to work at the Columbus office on June 7, 2020 while appellant Lawson "continues to work from home, and anticipates that he will do so for the foreseeable future." (Id. at ¶ 37-38.)

{¶ 5} Consistent with Section 29 of H.B. 197, the Buckeye Institute "continued its withholding from [Hederman, Nichols, and Lawson's] paychecks for payment of municipal income taxes to the City of Columbus" during the period when those employees worked exclusively from their homes. (Id. at ¶ 42.) Because the municipal income taxes in the cities or townships they reside in are lower than the 2 1/2% income tax rate imposed by the City of Columbus, appellants assert in their complaint that they were "subject[ed] * * * to higher municipal income taxes" and that "municipalities in which they actually performed the work" were "deprived of tax revenues." (Id. at ¶ 7.)

{¶ 6} As to why Section 29 should be deemed invalid, appellants asserted two theories: (1) the City's "taxing of nonresidents on income earned outside of the City of Columbus"—its "exercise in extraterritorial jurisdiction"—is unconstitutional under the due process clause of the U.S. Constitution; and (2) "[t]he Ohio Constitution does not authorize the General Assembly to expand the taxing power of municipalities beyond established limits." (Id. at ¶ 5, 50, 53.) Therefore, appellants sought, pursuant to R.C. 2721.03, a declaration that "Sec. 29 of [H.B.] 197, and all actions taken by the City of Columbus in reliance upon it to be unconstitutional and therefore void." (Id. , Count One at ¶ 55 and Prayer for Relief at 15.) The appellants also asked the trial court to "enjoin[ ] the collection of municipal income taxes from nonresidents on income earned outside of the City of Columbus and a refund of all withholding or payments already collected on such income." (Id. , Count Two at ¶ 57-62 and Prayer for Relief at 15.)

{¶ 7} Appellees moved to dismiss appellants’ claims with prejudice for failure to state a claim upon which relief can be granted pursuant to Civ. R. 12(B)(6). The City argued that the General Assembly had the power to "manage the interplay among different municipalities imposing tax" and had done so prior to H.B. 197, that the federal due process clause does not limit the ability of a state to determine intrastate tax policy over its residents, and that federal due process does not require physical presence to be satisfied so long as a "minimal connection" exists. (Appellant Kilgore's Mot. to Dismiss at 5, 11.)

{¶ 8} Appellants opposed the motions to dismiss arguing that under Hillenmeyer v. Cleveland Bd. of Rev. , 144 Ohio St.3d 165, 2015-Ohio-1623, 41 N.E.3d 1164 and Willacy v. Cleveland Bd. of Income Tax Rev. , 159 Ohio St.3d 383, 2020-Ohio-314, 151 N.E.3d 561, the due process clause prohibits "extraterritorial" municipal taxation—in other words municipalities are prohibited from taxing "the income of nonresidents for work performed outside of the [municipality]" (Sept. 9, 2020 Brief in Opp. to [Appellant Kilgore's] Mot. to Dismiss at 1, 7; Sept. 30, 2020 Memo. in Opp. to [Appellant Yost] Mot. to Dismiss at 4.)

{¶ 9} The trial court granted appelleesmotion to dismiss. In its discussion of the case, the trial court first noted that the Ohio General Assembly "has temporally and geographically regulated municipal taxes as part of a statewide coordinated framework even before the exigent circumstances of the COVID-19 pandemic" and cited to the "20-day rule" codified in R.C. 718.011 as an example. (Trial Court Decision at 5.) The trial court then discussed the "presumption of constitutionally" and "legislative regularity" enjoyed by the General Assembly in enacting legislation and its "broad powers of intrastate taxation." (Id. at 6.)

{¶ 10} "Against this backdrop," the trial court found appellants’ cited casesHillenmeyer and Willacy —inapposite to the case presented. (Id. at 7.) Specifically, the trial court found "[n]either Hillenmeyer nor Willacy address the Ohio General Assembly's longstanding power to tax Ohio residents wholly within Ohio's borders, or to set appropriate coordinating limitations between Ohio municipalities for an efficient, organized and coordinated intrastate taxing schema." (Id. at 8.) Instead, the trial court emphasized that:

[h]ere, the municipal tax is an annual tax based on the principle place of employment as declared at the beginning of the year. Regardless of where Plaintiffs perform their work, the income they receive comes from the fact that the work they perform benefits their employer who is located in Columbus. The Court finds the General Assembly enjoys the authority to establish municipal income allocation rules among Ohio taxing authorities in order to efficiently and uniformly coordinate intrastate taxation of Ohio residents. As a general principle, Ohio courts have interpreted the Ohio Constitution to allow the General Assembly to regulate municipal taxation where necessary to police taxation among municipalities. Cincinnati Imaging Venture v. City of Cincinnati , 116 Ohio App.3d 1, 2, 686 N.E.2d 528 (1st Dist. 1996). The Home Rule Amendment to the Ohio Constitution provides the power to impose municipal taxes, expressly subject to the limits and the control of the General Assembly. See Oh. Const. Art. XVIII, § 13 ; Cincinnati Imaging Venture , supra.

(Trial Court Decision at 8.)

The trial court was unpersuaded by appellants’ position that Section 29 impermissibly expands municipal taxing authority, but instead found "Section 29 * * * is an express limitation on municipal latitude in taxation; providing uniform rules regulating the circumstances in which municipalities can and cannot tax" in line with the recent Supreme Court of Ohio reasoning in Athens v. McClain , 163 Ohio St.3d 61, 2020-Ohio-5146, 168 N.E.3d 411. (Trial Court Decision at 9.) Therefore, the trial court concluded that the General Assembly acted within its authority by enacting Section 29 of...

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