The Ohio Supreme Court agreed today with St. Clair Township that it was owed a share of property tax collected from land annexed by the neighboring city of Hamilton. But because the township does not know how much is owed, the Supreme Court refused to order Hamilton to pay.

In a per curiam opinion, the Supreme Court rejected St. Clair Township’s request for a writ of mandamus to compel the city to transfer the property tax payments. The Court noted the confusion caused by changes in state law regarding annexation. While the law may favor the township, which is located in Butler County, the high court ruled that the township must know with certainty how much it is owed to be entitled to direct payment.

“In this case, St. Clair has not established with certainty the amount of lost tax revenue owed, a point that St. Clair concedes. Indeed, St. Clair has not ventured a guess as to what the amount might be,” the opinion stated.

Chief Justice Maureen O’Connor and Justices Judith L. French, Patrick F. Fischer, R. Patrick DeWine, Michael P. Donnelly, and Melody J. Stewart joined the opinion. Justice Sharon L. Kennedy did not participate in the case.

The decision might not end the legal dispute between the local governments. The Court stated that the denial of the writ was not a decision on the merits of St. Clair’s argument, and does not bar the township from attempting another legal action to claim payment.

Attempt to ‘Straighten Up’ Boundaries Leads to Confusion
The Court wrote that Hamilton misinterprets the current version of the state law governing tax payments when land is annexed and that the city’s 2016 attempt to “straighten up” inaccuracies in the Butler County auditor’s records makes it susceptible to owing St. Clair tax payments.

Historically, Hamilton annexed land from four townships — Fairfield, Hanover, Ross, and St. Clair. After annexation, the Butler County auditor assigned the new annexed parcels to the city and did not note from which territory the new parcels came from. Once added to the city, property owners did not pay property tax to the townships.

In early 2016, an attorney for the township contacted the county auditor to inquire whether the township should be receiving an allocation of property tax paid to Hamilton for the territory annexed to the city. Hamilton had not annexed any St. Clair township property since at least 2002. The auditor’s office investigated the question and determined an adjustment to St. Clair’s township boundaries might resolve the issue.

Hamilton City Council was informed that over an “unspecified period of time” that Hamilton had annexed property from the four townships, which had the effect of automatically removing the property from the townships and assigning them to Hamilton for voting and tax purposes.

The report to council noted that St. Clair’s claim that it was entitled to property taxes based on the removal. To remove any duty to pay the township, Hamilton was advised to petition the county to create a new township, called Hamilton Township. Hamilton Township would exist on paper only and be created out of the previously annexed properties from the four surrounding townships. Because Hamilton Township would be exclusively in the city, it would have no township officials or responsibilities. The move was reported to “straighten up any inaccuracies of the Butler County Auditor in failing to properly attribute taxes associated with the annexed territory.”

The paper township was created and consisted of property annexed before 2002. In October 2016, the county commission approved it. St. Clair claimed the approval of the paper township triggered the requirement that Hamilton pay it a share of lost tax revenues under R.C. 709.19.

The city countered that the present version of the law doesn’t apply to land annexed in 2002 and earlier, and that St. Clair was not entitled to any payments. The township filed its writ with the Supreme Court directing the city to pay, and the Court was required to consider the request.

Revised Law Explained
Before March 2002, municipalities were required to pay townships for lost tax revenue when land was annexed. Under the version of R.C. 709.19 at the time, the requirement to pay was triggered when the land was annexed.

The Ohio General Assembly changed the timing of the duty to pay in 2002 through Senate Bill 5. The law triggered the payments when the land was annexed and was “excluded” from the township.

While S.B. 5 changed the Ohio Revised Code to reflect the timing change, it added a section of “uncodified law” law that indicated the new process only applied to annexations after the law took effect in March 2002. For all prior annexations, the trigger to make payments started with only the annexation.

In mid-2016, through House Bill 233, state lawmakers repealed the S.B. 5 version of the annexation code in order to facilitate a new law that allowed for the creation of downtown-redevelopment-and-innovation-districts. House Bill 233 replaced R.C. 709.19 with language that was identical to the sections that were repealed. But the Court wrote that the new bill did not “expressly re-enact the uncodified language,” which pertained to land annexed before 2002.

The effect of the new law meant that payments to townships are triggered when the land is excluded by the county commission regardless of when annexed.

The new version of the annexation law took effect in August 2016, and Hamilton’s creation of Hamilton Township was approved in October 2016. The Court stated that under the new version of the law, St. Clair’s previously annexed land was not excluded until county approved it. Because of the timing change, Hamilton has a legal duty to make payments for the land it officially excluded in 2016, the Court ruled.

Right to Payment Limited
The Court noted that for the township to be entitled to a writ from the Supreme Court, it must go beyond proving that Hamilton has a legal duty to pay. It also must prove a clear legal right to “receive” payment and that it has no other adequate legal avenue it can pursue to obtain payment.

The Court noted that neither the township nor the city had cited any previous Ohio Supreme Court cases in which a political subdivision was able to compel another to pay lost tax revenues. The Court looked at other types of cases to determine if St. Clair had a right to payment. It referenced cases in which public employees attempted to cover lost wages from their government employers.

In the public employment cases, the Court ruled the employee had to establish with “certainty” the amount owed before a writ was granted. Analogizing to those cases, the court ruled that St. Clair has to meet that same obligation.

Identifying Lost Property Difficult
The opinion explained that the city annexed property over a long period of time without any recording of the particular parcels. The Court noted a county auditor staff member stated it would require “the largest forensic title exam ever” to precisely locate the excluded territory.

St. Clair argued that the data supplied to create the paper Hamilton Township could be matched against the Butler County engineer’s mapping data. However, those maps did not match. In addition, the township could not state what tax rate applied to the territory at the time it was annexed, adding further complication to calculating how much tax revenue it was owed.

Because of the factual uncertainty, St. Clair is not entitled to a Supreme Court order, the Court concluded, but is not barred from pursuing other legal avenues to attempt to receive the tax payments.

2017-0563. State ex rel. St. Clair Twp. Bd. of Trustees v. Hamilton, Slip Opinion No. 2019-Ohio-717.

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