Do cities owe commuters tax refunds for 2020 shutdowns? Ohio Supreme Court hears case

Millions of Ohioans could be eligible for an income tax refund for 2020 if the state Supreme Court decides that cities didn't have the right to collect commuter taxes during the shutdowns.

"This is a pretty significant issue regarding due process," said Jay Carson, the plaintiff's attorney in the Schaad v. Alder case. "The Legislature can't just deem you to be working anywhere."

But that's essentially what happened. State lawmakers let local governments collect municipal income taxes from nonresidents during the COVID-19 pandemic shutdowns. Commuters who lived in one city and worked in another paid taxes as if they still went to the office.

Cities and state lawmakers said it was necessary to ensure local budgets didn't crater when everyone suddenly started working from home. And they believe the Legislature had the authority to do so.

More:If Ohio workers don't return to city offices, what will happen to the municipal income tax?

Carson and plaintiff Josh Schaad, a Blue Ash man who tried and failed to get a tax refund from Cincinnati, do not.

"Just because something may cause budgeting difficulties, or a fiscal problem, doesn’t mean you get to suspend the Constitution," Carson said. "Even during a pandemic, the constitution still applies."

On Wednesday, the two made their case to the Ohio Supreme Court.

Need or greed?

Schaad's case was one of five filed around the state by Carson and other attorneys on behalf of the conservative Buckeye Institute.

Each one was a little different, but they all were an attempt to get Ohio's highest court to decide whether state lawmakers overstepped their bounds when they passed House Bill 197.

The pandemic legislation did many different things, but the section at the center of this lawsuit said all work performed elsewhere during the health emergency would be taxed as if it had been done at the employee's principal place of work.

"Personally, I was always taught, ‘there’s no such thing as a free lunch,'" Schaad said. But he thinks that's exactly what Cincinnati got.

During 2020, he didn't work or live in Cincinnati. He didn't use its public services. He didn't vote for its city officials, and yet he paid city taxes.

"I’m blessed to be in a financial condition to not have to fret about the refund money I was wrongfully denied," Schaad said. "Many single mothers were not so lucky and had to pay these unconstitutional taxes on the backs of their families."

Cities had similar budgeting concerns, though.

Municipal income taxes can be a significant source of revenue in places like Lima, which collected about $20 million of its approximately $28 million general revenue fund from the municipal income tax in 2020.

Sixty percent of those dollars came from nonresidents. If Lima had refunded everyone working from home during the pandemic, it could have crippled the city.

"This case really challenges what the Legislature did during a unique moment in time. A period of time in which every nonessential worker was required by state order to work in a different location," Ohio Mayors Alliance Director Keary McCarthy said. "It created a massive amount of disruption all at once for individuals, for companies, and for local governments."

State lawmakers wanted to create stability, in his opinion, for police officers, firefighters and every local agency that relied upon those dollars.

"I believe the Buckeye Institute is trying to rewrite history here in a way that would be detrimental for our cities," McCarthy said.

Lower court rulings

Schaad lost his case in both the local and appellate courts. A Franklin County judge also dismissed a similar lawsuit called Buckeye v. Kilgore in April 2021.

"Simply put, the Ohio General Assembly has long regulated municipal taxing authority, both temporarily and geographically, even before the exigent circumstances of the COVID-19 pandemic," Franklin County Court Judge Carl Aveni wrote.

Even in the Cleveland case, where Pennsylvania resident Dr. Manal Morsy won a refund, the judge noted those other opinions.

"While the Ohio General Assembly has jurisdiction over Ohio residents and authority to deal with exigencies of the pandemic, it cannot create jurisdiction to levy a tax on the income of persons who are not residents of Ohio, and that was earned for work performed outside of the State of Ohio," according to Cuyahoga County Court Judge Gary Yost's ruling.

Carson hoped the Supreme Court would disagree.

"There are only two instances where a municipality can tax someone: They live there or work there," Carson said. "The General Assembly can't deem you working in one place when you're not no more than they can deem a cop read someone their Miranda rights when they have not."

On Wednesday, Republican Justices Pat Fischer and Pat DeWine both questioned the state's attorney on how far cities could go when taxing nonresidents.

"Could Cincinnati pass a law to tax Youngstown residents," DeWine said.

The state's position was that such a law would need a rational basis for existing. DeWine then asked whether a belief that Youngstown residents frequently visit Cincinnati would meet that definition.

Potentially complicated refunds

If Ohio's Supreme Court overturns the lower courts' rulings in Schaad's case, don't expect a check in the mail, Carson said.

Ohioans have traditionally had to file for municipal income tax refunds, and they would likely have to submit paperwork to claim this one too.

"The court would, I think, address a remedy. We have not asked for one," Carson said.

And that could get complicated.

If your office never reopened after the March 2020 shutdown, that would be a simple case. If you traveled to your office intermittently that year, it might be more difficult to remember or prove where you worked on any given day.

"It could cost our cities a significant amount of resources," McCarthy said. "This would create an unbudgeted liability for cities large and small."

Anna Staver is a reporter for the USA TODAY Network Ohio Bureau, which serves the Columbus Dispatch, Cincinnati Enquirer, Akron Beacon Journal and 18 other affiliated news organizations across Ohio.

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This article originally appeared on Cincinnati Enquirer: Ohio Supreme Court hears case about tax refunds from 2020 shutdowns