The conservative Buckeye Institute has filed a lawsuit over temporary income tax changes imposed by state lawmakers in March. The tax provisions were part of a sweeping coronavirus relief measure and meant to simplify businesses’ transition to working from home.
The lawsuit, filed in the Franklin County Court of Common Pleas, argues that state lawmakers violated the U.S. and Ohio constitution by, in effect, extending the taxing authority of municipalities around the state.
At the heart of the case is the question of how income taxes should be collected if people are working from home. The Buckeye Institute argues that allowing cities to continue collecting taxes from workers who are now working from home in other cities is an unconstitutional expansion of their taxing authority.
“We’re going to deem any work that you preformed, at home, to have been performed in your office, even if that costs you higher taxes,” explains Buckeye Institute president Robert Alt. “That, the constitution simply doesn’t allow. Let’s pretend is not a basis for taxation.”
Under Ohio law, municipalities can collect income taxes, but the pool of people they collect from is based on where work is done, rather than where workers live. If a worker lives in a suburb like Whitehall, Grove City or Westerville, but shows up to an office in Columbus, it’s the latter city that collects income taxes.
The Buckeye Institute's Greg Lawson, who lives in Westerville and is party to the lawsuit, explained the arrangement.
“You’d be utilizing potentially the services that city provides, police, fire probably the most important of course among them, maybe utilities and things like that too, of course,” Lawson said. “So, you are paying a tax to avail yourself of these services.”
In March, state lawmakers approved HB197 which, among other things, told businesses to continue withholding taxes as usual even if their workers were working from home. That provision extends for the length of the state's emergency declaration, plus 30 days.
Columbus City Attorney Zach Klein says his office has yet to be served with the complaint. In a written statement, Klein argued this is not the time to fight over income taxes.
"In the middle of an untamed and growing pandemic is not the time to upend decades of precedent to wage a philosophical battle about taxes." Klein writes. "Cities across the state stand to lose a massive amount of tax revenue, and there are real-world consequences affecting how we perform essential functions for millions of Ohioans, including taking care of the sick, feeding hungry children, paving our roads and keeping our community safe.”
While most assume rolling back the changes would shift income tax dollars away from Ohio’s largest cities, The Greater Ohio Policy Center warns many small and mid-size cities rely on commuters as well.
The organization focuses on legacy cities, those that used to be manufacturing hubs and have since seen significant population decline. In a recent report, the Greater Ohio Policy Center showed in small cities like Chillicothe, Mansfield and Marion, the workforce on average comprises 78% commuters. Mid-sized cities Akron, Dayton and Canton average 79% commuters, while Toledo's commuting rate is about 57%.
While the Greater Ohio Policy Center notes its data doesn’t get to how many people are actually working from home, “after six decades of depending on income taxes to fund operations, capital improvements, and bond retirement, abruptly changing the tax collection structure would be hugely disruptive, particularly at a time of uncertainty due to COVID.”
Alt acknowledges many people who are now treating the living room or a spare bedroom as their office are white-collar workers, but he contends the change impacts people up and down the income ladder. Although COVID-19 is a unique circumstance, Alt claims it will set a precedent.
“If you remove the government from its moorings on income taxation, if we can go ahead and just say that we can tax when you don’t have a sufficient fiscal relationship with the city, that puts everyone in danger,” Alt says.
The lawsuit specifically names Columbus City Auditor Megan Kilgore and Ohio Attorney General Dave Yost in their official capacities. The response to the case from the attorney general's office was brief, "We are reviewing the lawsuit."
