Court News Ohio
Court News Ohio
Court News Ohio

Cities Attack State Takeover of Municipal Taxes as Violation of Home Rule Powers

Image of a calculator next to a pen on top of a paper

The state squares off against numerous municipalities in two appeals challenging the constitutionality of laws that placed the filing and collection of local taxes under state control.

Image of a calculator next to a pen on top of a paper

The state squares off against numerous municipalities in two appeals challenging the constitutionality of laws that placed the filing and collection of local taxes under state control.

Nearly 200 cities and villages across Ohio have sued the state over the General Assembly’s steps in recent years to centralize municipal tax filings and collection.

The municipalities argue the state has “engulfed” a basic local government function, infringing on the local power of self-government, or home rule, under the Ohio Constitution. The state maintains the constitution allows state government to restrict and limit local taxation, and that the new system better positions Ohio as an appealing place to conduct business.

The Ohio Supreme Court will hear two appeals against the state from separate sets of municipalities next week during oral arguments. The Ohio Chamber of Commerce and 14 other organizations representing business interests filed a joint amicus brief in each case supporting the legislature’s actions. The Ohio Municipal League, which represents 730 of Ohio’s 931 cities and villages, as well as a number of local government law professors from across the country filed amicus briefs on behalf of the municipalities.

Legislature Enacts Changes to Municipal Tax System
Two pieces of legislation – House Bill 5 in 2014 and House Bill 49 in 2017 – are the source of the dispute between the state and the municipalities. In H.B. 5, the General Assembly required municipalities to conform their municipal tax laws with state statutes in order to continue to collect income taxes.

H.B. 49 permits businesses that pay net-profit taxes to file their returns and pay their taxes through a centralized, state-run system instead of filing separate returns in each jurisdiction where businesses earn profits.

The Ohio Department of Taxation has explained that 667 of Ohio’s 931 cities and villages impose taxes on businesses based on the net profits that the businesses generate in those municipalities. In 2015, 400,000 businesses were required to pay the net-profit tax, and approximately 80,000 had to file these taxes in two or more municipalities.

Once the state processes the local tax filings, it distributes the money back to the municipalities.  The state charges municipalities a 0.5-percent fee on the tax revenues and deducts that fee before disbursing the money to them. If a municipality doesn’t provide certain information, such as its tax rate or financial information about the businesses, the state can withhold 50% of the tax revenues.

Cities and Villages Statewide Sue over New Laws
The two groups of municipalities filed lawsuits against the state and Ohio’s tax commissioner. The “Athens plaintiffs” filed their lawsuit in Franklin County Common Pleas Court in November 2017. The Athens plaintiffs comprise 163 cities, including Akron, Athens, Cincinnati, Cleveland, Columbus, and Dayton.

The “Elyria plaintiffs,” a group of 28 Ohio cities and villages in Lorain, Cuyahoga, Erie, Greene, Lake, Mahoning, and Summit counties, sued in Lorain County Common Pleas Court in December 2017.

The Elyria plaintiffs’ case was transferred to Franklin County. After a preliminary hearing in February 2018, the Franklin County court ruled on the challenges, concluding that the new tax laws don’t violate the Ohio Constitution’s Home Rule Amendment or single-subject rule for legislation.

The Athens and Elyria plaintiffs appealed separately to the Tenth District Court of Appeals, which issued one opinion, upholding the new laws and finding the legislature has absolute control of municipal taxation.

Both groups of municipalities appealed to the Ohio Supreme Court, which accepted the cases. Each case is referred to as Athens v. Testa (McClain), tax commissioner of Ohio on the Court docket and in the briefs.

State Has ‘Usurped’ Local Taxing Authority, Municipalities Argue
The cities and villages maintain that the Court has issued decisions making clear the authority granted to municipalities by the Ohio Constitution’s Home Rule Amendment includes the power to tax. With these changes, however, the state has “usurped” their power to impose and collect local taxes, the municipalities argue. In their view, the state has nullified, rather than limited, local power by forcing cities and villages to accept the municipal tax mandates the legislature implemented or else lose all ability to impose local taxes. It’s part of a multiyear effort, beginning in 2012, to fix state finances by slashing funding to local governments, they stress.

The municipalities also contend that the state’s mandatory fee for processing and collecting the taxes is an illegal tax on local governments – a tax that isn’t part of the state’s power to limit local taxation in the constitution.

Constitution Gives State Broad Power over Local Taxation, Attorney General Responds
The Ohio Attorney General’s Office maintains that the constitution gives the General Assembly broad powers over municipal taxation. The office notes that home rule was added in 1912 to the state’s constitution, but the amendment didn’t alter state control over local taxes. The attorney general argues that the state’s authority encompasses all aspects of municipal taxation. Decisions from the Court only directed that any limits be conveyed explicitly by the legislature – which H.B. 5 and H.B. 49 did, that attorney general states.

The attorney general adds that the fee is a needed “cost offset” because the state now is absorbing the cost that municipalities used to pay for collecting their taxes.

Oral Argument Details
The Supreme Court will consider four cases on May 12. The Court will hear four more appeals, including the municipal tax disputes, on May 13. Oral arguments begin at 9 a.m. All arguments are streamed live online at, and broadcast live and archived on The Ohio Channel. Because of the COVID-19 pandemic, the Court will hear these cases via teleconference.

In addition to these highlights, the Court’s Office of Public Information released preview articles today about each case, available through the case-name links.

Tuesday, May 12
After receiving complaints from consumers, the Public Utilities Commission of Ohio developed a test in 2017 to determine when “submetering” companies meet the definition of “public utility” and can be regulated by the commission. Submetering companies install meters and bill individual customers at residential apartment complexes for utility services. A Central Ohio woman filed a complaint against a Columbus submetering firm, and the commission dismissed the case without conducting a hearing. In In re Complaint of Wingo v. Nationwide Energy Partners, the woman argues the commission prematurely ended the case and she is entitled to further proceedings to prove the submetering company is acting as an unregulated public utility.

In Wooster Floral & Gifts v. Green Thumb Floral & Garden Center, competing florists in Wooster are fighting over a domain name. One florist’s prior owner didn’t renew the shop’s website name, and a local competitor purchased the domain name in early 2015. The competitor began redirecting those who typed in that domain name to its website. The florist’s new owner contends the competitor is engaging in a deceptive trade practice because the use of the shop’s trade name in the domain name likely causes confusion for consumers. The competing florist maintains the terms used in the website name are general and not associated with only the other floral shop.

A Cuyahoga County initiative to test rape kits that had gone untested for years resulted in an eight-count indictment of a Cleveland man in 2017 for alleged rapes and kidnappings that occurred in 2000 and 2008. A trial court agreed to dismiss the charges based on pre-indictment delay after the man argued that the loss of evidence, unavailability of business records, and faded memories would deny him a fair trial. Prosecutors argue in State v. Willingham that the man must prove the lost information would exonerate him and that he can’t merely speculate on how it would help his case.

During an annual review of an electric distribution company’s profits for 2017, the Public Utilities Commission of Ohio refused to include earnings from a “distribution modernization rider,” which the Ohio Supreme Court ruled illegal in 2019. In In re Ohio Edison Company, the Court will consider arguments that had the profits from the rider been included in the review, customers of the electric company would be entitled to $58.5 million in refunds.

Wednesday, May 13
Beginning in 2001, a father was ordered to pay child support in Greene County. The child was emancipated in 2017, but the father was directed to make monthly payments toward support he hadn’t paid in 2016 and 2017. He was arrested a few months later for failing to pay child support. In State v. Brown, the father argues he can’t be prosecuted because he no longer has a legal obligation to support the child. The county prosecutor states that the offenses occurred when the father was mandated to pay support, so the county can file charges. The case involves a conflict among state appellate courts.

In 2013, a couple got involved in a verbal altercation with a woman they thought was driving too fast in a shopping center parking lot. The woman told her friend, who was in another car, and a second altercation ensued with the man driving the car. The man struck the couple with his car, injuring one and killing the other. The family sued the parking lot owners for lax security. In  Davis v. Hollins, the shopping center owners maintain they cannot be held liable for the accident because it was not reasonably foreseeable that a lack of security would lead to a vehicular homicide.