Wednesday, August 17, 2016
New York Frozen Foods, Inc. and Affiliates v. Bedford Heights Income Tax Board of Review and City of Bedford Heights Income Tax Administrator, Case no. 2015-0575
Ohio Board of Tax Appeals
Greater Dayton Regional Transit Authority v. State Employment Relations Board et al., Case no. 2015-1205
Tenth District Court of Appeals (Franklin County)
Does Bedford Heights Owe Corporation Nearly $700,000 in Tax Refund?
New York Frozen Foods, Inc. and Affiliates v. Bedford Heights Income Tax Board of Review and City of Bedford Heights Income Tax Administrator, Case no. 2015-0575
Ohio Board of Tax Appeals
ISSUES:
- Did a municipality violate R.C. 718.06, which allows a consolidated income tax return to be filed by a group of affiliated corporations, when it refused to accept an amended consolidated return?
- Did a municipality improperly delegate its authority by incorporating a rule by the Regional Income Tax Agency into its city law that led the city to deny acceptance of a corporation’s amended consolidated tax return?
BACKGROUND:
New York Frozen Foods and Affiliates (NYFF), which produces frozen breads, sought a municipal income tax refund from the city of Bedford Heights for tax years 2005, 2006, and 2007 totaling about $698,000 plus interest. The refund claim was based on amended returns filed by NYFF on a consolidated basis. The corporation originally paid its net profits income tax and filed as separate companies, but in 2010 NYFF filed a consolidated amended return that generated a refund request.
Bedford Heights denied the refund, stating that consolidated returns may be filed only as original returns, and a group of affiliated companies can’t change its method of filing from single to consolidated when submitting an amended return. NYFF appealed to Bedford Heights Income Tax Board of Review, which in 2011 affirmed the denial of the return relying on the city’s adoption of a rule imposed by the Regional Income Tax Agency (RITA), a corporation that assists 246 Ohio municipalities in the administration and collection of local income taxes. NYFF appealed the Ohio Board of Tax Appeals (BTA), which in 2015 affirmed the city’s denial of the refund, similarly finding the city properly relied on the RITA rule that barred a corporation from changing its method of filing when submitting an amended return. NYFF appealed to the Ohio Supreme Court, which has mandatory jurisdiction over appeals from the BTA.
City Exceeded Its Authority, Company Argues
NYFF proposes the BTA unlawfully permitted the denial of its refund by allowing Bedford Heights to act improperly in three ways. First, the company contends that since 2003 R.C. 718.06 requires municipalities to accept consolidated returns and Bedford Heights had no authority to adopt local laws that limit or condition the acceptance of them. Next, NYFF suggests Bedford Heights’ adoption of a 2004 ordinance indicating it would accept future amendments of RITA rules without voting to adopt the changes is an unconstitutional delegation of authority. Finally, if the state permits the adoption of the 2009 RITA rule, NYFF charges that Bedford Heights unconstitutionally applied the change retroactively to the 2005-2007 filings.
NYFF acknowledges that filing a consolidated tax return among affiliated companies can lead to a lower municipal income tax obligation, and it is a reason some companies elect to do so. The company argues the General Assembly expressly limited the authority of local governments to set any conditions on the acceptance of consolidated returns. It argues R.C. 718.06 states that beginning in 2003, municipalities that impose income tax “shall accept for filing a consolidated income tax return from any affiliated group of corporations that chooses to file a consolidated federal income tax return for the same tax period.”
A Bedford Heights local ordinance stated that taxpayer may not change the “method of accounting” or “method of apportionment” after the due date of the original return, and the city ruled that NYFF did change its method of apportionment of its businesses when it filed an amended consolidated return. NYFF argues the city’s conditions aren’t permitted because they supersede R.C. 718.06 and aren’t valid.
NYFF further argued it didn’t change the methods of accounting or apportionment when it filed the amended return, but nonetheless the returns were rejected. At the time NYFF had submitted the returns in 2010, the city had adopted the 2009 RITA rule that also forbids a change in the “method of filing” amended returns. The BTA affirmed the city’s denial citing the RITA rule. NYFF asserts Bedford Heights’ ordinance regarding amended returns was last approved in 2004 with language stating it adopts the RITA rules and regulations in the most current edition and all subsequent additions, deletions and amendments. The company states Ohio case law indicates a government body can only adopt a rule from another government body as it exists at the time. In order to adopt subsequent changes, it must vote again to reauthorize the local law with the new amendments.
The Bedford Heights ordinance doesn’t expressly state the RITA rules apply retroactively, and the Ohio Constitution limits the use of retroactive laws, NYFF also asserts. Because the amendments were for returns for 2005-2007, the 2009 rule can’t be retroactively applied to the returns generating the refund, NYFF maintains.
City Asserts It’s Empowered to Set Limits on Amended Returns
Bedford Height argues that it and all home rule municipalities in Ohio have the right to add conditions to their income tax laws as long as they don’t conflict with general state laws, and that a state law must expressly limit an act to prevent a city from applying it.
“But when it comes to preemption of a municipality’s home rule power of taxation, silence is not golden. Preemption requires an express act,” the city’s brief states.
Bedford Heights argues there are practical considerations for not accepting a change in the form of income tax return filings after the original due date. Local governments plan and budget according to estimated tax revenues, and if a company like NYFF were able to obtain a refund of nearly $700,000 three years after the last tax year passed, it would make budgeting nearly impossible, the city maintains.
Bedford Heights also suggests that R.C. 718.06 was recently substantially changed by the General Assembly, but none of the revisions specified that amended returns should be treated equally to original returns, and it is well recognized in tax law that original and amended returns can be treated differently.
The city also maintains there was no unconstitutional delegation of its duty to RITA by accepting rules adopted and amended by RITA that were added to the city code. The code expressly states that if a RITA rule conflicts with the city code, the city law trumps it. It maintains the addition of the RITA rule to not accept an amended return when there was a change in the method of filing is only an enhancement of the code and not a conflict. Bedford Heights also asserts that hundreds of municipalities relying on RITA’s assistance with income tax collection rely on the same process to adopt and update rules, and there was nothing improper about the process.
Regarding the retroactive application of the rule against changing the method of filing, the city notes the RITA rule took effect in July 2009 and NYFF filed its amended returns in March 2010. The city argues the law didn’t go back and cancel an act that the company took, but rather expressly forbid the conduct after the date it was adopted. The city maintains that doesn’t make the law illegally retroactive under accepted interpretations of Ohio’s Constitution.
Friend-of-Court Brief
An amicus curiae brief supporting Bedford Heights’ position has been submitted by RITA. The organization notes that the 246 members of the council of governments who use RITA’s services routinely incorporate updates to rules and regulations RITA adopts to reflect changes in tax laws, and that the municipalities do not re-adopt their ordinances referencing RITA each time updates are made.
The Court has granted permission for RITA to share Bedford Heights’ time for oral arguments.
- Dan Trevas
Docket entries, memoranda, briefs (including amicus briefs), and other information about this case may be accessed through the case docket.
Contacts
Representing New York Frozen Foods Inc. and Affiliates: Stephen Hall, 614.236.1120
Representing Bedford Heights Income Tax Board of Review et al.: Anthony Stringer, 216.622.82004
Was Dayton Transit Authority’s Appeal in Franklin County of Labor Board Ruling Proper?
Greater Dayton Regional Transit Authority v. State Employment Relations Board et al., Case no. 2015-1205
Tenth District Court of Appeals (Franklin County)
ISSUE: Is the phrase “transacts business” in R.C. 4117.13(D), which governs appeals of decisions by the State Employee Relations Board, ambiguous?
BACKGROUND:
The Amalgamated Transit Union, AFL-CIO, Local 1385 represents more than 500 bus operators and maintenance employees who work for the Greater Dayton Regional Transit Authority (RTA). The RTA provides bus service in Montgomery County, where it is headquartered, and parts of Greene County.
In 2013, the union filed a case with the State Employee Relations Board (SERB), alleging that the RTA wasn’t processing employee labor grievances. SERB, which is the state agency that handles charges of unfair labor practices in public employment, found in favor of the union and employees in June 2014.
The RTA appealed the decision to the Franklin County Common Pleas Court. The union and SERB asked the court to dismiss the case, arguing the court didn’t have jurisdiction to consider it under R.C. 4117.13(D). The law allows appeals of SERB rulings to be filed in a county in which the RTA “transacts business.” The RTA maintained it “transacts business” in Franklin County through numerous contracts it has with organizations in the county and business relationships there.
The common pleas court dismissed the RTA’s case. The RTA filed an appeal with the Tenth District Court of Appeals, which agreed with the common pleas court. The RTA asked the Supreme Court to review the issues, and the Court accepted the case.
Transit Authority Argues Language Has Broad Meaning
The RTA contends in the brief to the Court that the common, everyday meaning of “transacts business” encompasses “the full spectrum of commercial activity.” In the transit authority’s view, the statute’s plain language reflects the state legislature’s intent to permit an appeal of a SERB order in any county common pleas court as long as the alleged unfair labor practice took place in that county or the “person,” the RTA in this case, resides or transacts business there. The General Assembly chose not to limit the meaning of “transacts business” in the statute in any way, the RTA notes.
The RTA explains that it had binding contracts for goods and services from January 2012 through July 2014 with 32 Franklin County businesses. The transit authority describes these contracts as essential to its operations. Its employees also made job-related trips to Franklin County and had regular contact with businesses in the county. These activities clearly amount to “transacting business” in Franklin County, the RTA asserts.
According to the RTA, the common pleas court incorrectly ruled that an entity transacts business in a county only if it has a permanent physical presence there. The Tenth District agreed with the lower court, referencing parallel language that appears in the National Labor Relations Act (NLRA) and four federal cases interpreting the phrase. However, the RTA maintains, the related federal case law isn’t consistent with Ohio law. The federal provision and some of the cited cases deal with venue, while the statute in this case instead establishes a court’s jurisdiction over these appeals, the RTA notes. In addition, the transit authority stresses that nothing in the Ohio law, nor in the NLRA, requires a permanent physical location or physical presence to establish that one transacts business there.
Law Doesn’t Include Incidental Business Transactions, State Board Counters
SERB responds that an organization “transacts business” in the place where it conducts the activities it’s in business to do, not where it engages in incidental commercial acts.
“Apple transacts business when it sells phones, but not when it attends trade shows,” SERB stated in its brief. “A law firm transacts business when it interviews clients in its office, but not when it orders legal pads. And a transportation company transacts business when it ferries passengers, but not when it repairs buses or attends government hearings. That meaning is plain from the text and all the usual aids to understanding the meaning of text.”
The board maintains that the venue/jurisdiction distinction between the federal and state laws is irrelevant. The phrase “transact business” doesn’t change meanings solely because the laws address different topics, SERB argues. Citing Washington, Illinois, Pennsylvania, and North Carolina case decisions from their supreme courts, SERB contends the “courts recognized a wide margin between doing any business and transacting a company’s ordinary business.” Adopting the RTA’s position would result in cases filed in “far-flung counties” where the parties would have to debate the number of contracts made in and level of communication with that location, SERB reasons. The resulting “forum shopping” by parties would only muddy jurisdictional determinations, the board stresses.
SERB also asserts that while the common pleas court relied on federal cases, it didn’t adopt a physical presence threshold for filing appeals of board orders in Ohio. Instead, SERB states, federal courts and the common pleas court in this case only concluded that incidental transactions don’t rise to the level of “transacting business.” The RTA’s decision to file its appeal in a county where it doesn’t transact business has created uncertainty, SERB concludes, asking the Supreme Court to confirm that the law limits the meaning of “transacts business” to the locations where the entity conducts its ordinary business.
Union Focuses on Physical Presence Dispute
The union notes that the Tenth District concluded the phrase “transacts business” isn’t without ambiguity and then analyzed lawmakers’ intent when enacting R.C. 4117.13(D). The union maintains that the Ohio Supreme Court has ruled it’s appropriate to look to the NLRA and relevant case decisions when interpreting this area of state law, which deals with collective bargaining rights in the public sector. The common pleas court did so, and properly determined that the meaning of “transacts business” requires a physical presence in the county where an appeal is filed, the union argues. Because the RTA offers no transit services in Franklin County and has no physical presence there, its appeal in Franklin County was improper, the union concludes.
Additional Briefs Support RTA
Amicus curiae briefs supporting the RTA’s position have been submitted by the Ohio Public Employer Labor Relations Association and the Ohio Public Transit Association.
- Kathleen Maloney
Docket entries, memoranda, briefs (including amicus briefs), and other information about this case may be accessed through the case docket.
Contacts
Representing the Greater Dayton Regional Transit Authority: Ronald Linville, 614.228.1541
Representing the State Employment Relations Board from the Ohio Attorney General’s Office: Eric Murphy, 614.466.8980
Representing the Amalgamated Transit Union, AFL-CIO, Local 1385: Joseph Pass, 412.281.3850
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