In March 2020, state lawmakers passed an emergency measure with direction on local tax procedures for employees who suddenly were required to work remotely, rather than at their employer’s offices, during the COVID-19 pandemic. The law stated that the days an employee worked from a location other than the employee’s principal place of work would be considered as days spent at the principal place of work, for tax purposes.

A man who worked frequently in his Cincinnati employer’s office before the pandemic but lived outside of the city argues the law is unconstitutional. He maintains that a local government can tax nonresidents only when the work they perform is done within the municipality.

His appeal will be heard by the Supreme Court of Ohio at oral arguments next week.

Employee Works More Days Away From Cincinnati Office
Before the pandemic, Josh Schaad worked some days in his employer’s Cincinnati office and other days at home in Blue Ash or elsewhere when traveling for business. Employed in financial services, he was an essential worker under the Ohio stay-at-home order issued in March 2020. He initially did his job from both his residence in Blue Ash and the Cincinnati office until his employer directed him in June 2020 to work exclusively from home.

His employer withheld taxes from his 2020 pay for the City of Cincinnati. The city gave him a partial refund based on the number of days he worked outside of Cincinnati before the pandemic. But the city refused to refund the local taxes for the days he worked at home in Blue Ash because of the stay-at-home order.

Schaad sued Cincinnati, naming its finance director, Karen Alder. The Hamilton County Common Pleas Court dismissed the case in June 2021. Schaad appealed, and the First District Court of Appeals upheld the dismissal. The Supreme Court of Ohio agreed to hear the case.

City Can’t Tax Nonresident Who Does Work Elsewhere, Employee Contends
Schaad argues that the General Assembly’s emergency measure – Section 29 of House Bill 197 – contradicts a long line of decisions from the state Supreme Court. Those rulings conclude that a municipality can tax income based on work performed within its jurisdiction or income connected to the taxpayer’s activities in the municipality, he maintains. When he worked exclusively from home, though, he did no work in Cincinnati, and didn’t rely on the city for a place to work or for city services, he notes.

While the General Assembly has jurisdiction over Ohioans, only the municipality can impose its local income tax, and Cincinnati didn’t have the authority to tax him for work he performed in Blue Ash, Schaad maintains. He argues it is unconstitutional for the state to decide that work actually performed in one taxing jurisdiction was instead done in another location.

Support for Schaad’s positions were submitted to the Supreme Court in several amicus briefs . Five organizations including the Ohio Society of Certified Public Accountants jointly contend that Section 29 was enacted to assist employers. The law gave employers a reprieve from a 20-day rule, which requires employers to withhold local taxes for all municipalities in which their employees work for more than 20 days each year, they maintain. They assert that Section 29’s purpose was to protect employers from having to unexpectedly set up withholding for local taxes in the many municipalities where employees worked during the pandemic. The law also shielded the short-term cash flow of municipalities so that crucial services, such as police and fire, continued to be funded.

The groups assert that Section 29 didn’t determine what Schaad owed in taxes – once he showed that he worked outside of Cincinnati, the city had no defense against refunding him the Cincinnati taxes he paid for the days worked in Blue Ash.

The National Taxpayers Union Foundation argues that a reasonable relationship is necessary between the local tax and the value a taxpayer receives in return in that municipality. Given trends toward increased telecommuting, the foundation states that the local taxes permitted by Section 29 are unjustified and unconstitutional when the employee receives no benefit for the taxes paid.

The Independent Women’s Law Center, Ohio Chamber of Commerce, and City of Lebanon also each filed briefs supporting Schaad.

Provision Was Temporary and Based on Where Employee Usually Worked, City Argues
Cincinnati counters that Section 29 applied only to employees whose work location changed because of the state health orders. Employees could be taxed in 2020 only by the municipality where they principally worked before the pandemic, the city maintains.

It argues state legislators concluded that displaced employees working remotely during that time had sufficient connection to the cities where they had been working to allow the employees to be taxed by that municipality. This was a rational basis for the law, the city maintains. It adds that the General Assembly had jurisdiction to impose the law on Schaad and all Ohioans.

In an amicus brief backing the city, the Ohio Municipal League asserts that Section 29 maintained the status quo for municipal taxes by instituting a uniform plan during the unique circumstances of the pandemic. The group notes that it rarely agrees with the state legislature’s steps into the realm of municipal taxes. However, the league argues, the General Assembly had the power to enact a temporary limitation on municipality tax activities “in response to a once-in-a-century disruption to the world economy.”

Watch Oral Arguments Online
The Court will hear four cases on Feb. 28 and four more appeals, including Schaad v. City of Cincinnati, on March 1. Oral arguments begin each day at 9 a.m. The arguments will be streamed live online at supremecourt.ohio.gov and broadcast live on the Ohio Channel, where they are archived.

The Court’s Office of Public Information released detailed articles today about each case, available through each case name.

Tuesday, Feb. 28
Community Control Violations
A man found guilty of four misdemeanors was sentenced to 30 days in jail, out of a possible 180 days, for each offense. The trial court also imposed five years of community control. After the man served his jail time, the court stated that he could be subject to the maximum penalties for each offense if he didn’t comply with the conditions of community control. In City of Olmsted Township v. Ritchie, the state appellate courts disagree on how to interpret the relevant law. The city maintains that 150 days remain for each offense if the man violates his community control. The man argues, though, that he served his sentence. The court chose not to impose a longer sentence and can’t now go back to impose more jail time, he asserts.

Sales Tax Exemptions
In 2015, the Ohio tax commissioner issued assessments against a company that performs hydraulic fracturing at oil and natural gas well sites. The company believed its equipment was exempt from the state sales and use tax. As the company was contesting the tax assessment, Ohio lawmakers amended the tax code dealing with oil and gas drilling equipment. In Stingray Pressure Pumping v. McClain, the Court will consider whether the new law exempted the equipment or if the Board of Tax Appeals correctly determined the items remain taxable.

Insurance Coverage
A man living in a Brown County residential care facility for the “psychologically mentally ill” was attacked by another resident with a knife and suffered severe injuries. The injured resident sued the care center, which turned to its insurance company for coverage. The insurance company denied coverage, citing a policy exclusion for bodily injury arising out of “any actual, threatened, or alleged assault or battery.” The attacker was charged with several crimes, but was found not guilty by reason of insanity. An appeals court determined that a mentally ill person cannot form the intent to commit assault and ruled the policy covered the injuries. In Krewina v. United Specialty Insurance, the Court will consider if the policy exemption applies.

Wrongful Death Lawsuits
In Everhart v. Coshocton County Memorial Hospital, the widow of a man who died of lung cancer in 2006 sued doctors and a hospital. In her January 2008 wrongful death lawsuit, she alleged that they failed to diagnosis the cancer based on an X-ray taken at a 2003 visit to the emergency room. The doctors and hospital contend that the widow had to file the lawsuit within four years of the emergency room visit. The widow counters that a lawsuit filed after someone’s death doesn’t fall under the statute with the four-year deadline. The correct law for wrongful death suits states that the civil claims must be filed within two years after the person’s death, she argues.

Wednesday, March 1
Recanted Testimony
In 2013, a Cleveland man drove two friends home. One of the passengers later testified that his fellow passenger shot the driver, who died from the injuries. The alleged shooter was convicted, largely based on the eyewitness testimony of the other passenger. Six years later, the eyewitness sent the shooter’s family a letter stating that he lied on the witness stand and was pressured by police to state that he saw the shooting. The convicted man’s requests for a hearing to determine if he deserves a new trial were denied. In State v. Leelin Miller, the Court will determine if the new evidence entitles the man to a hearing regarding the credibility of the latest witness statement.

Child Support Calculations
A Wood County couple with three children began divorce proceedings in summer 2019. The company where the husband was employed restructured in February 2020, and the husband’s job was eliminated. During the subsequent divorce hearings, the mother requested child support. The father asked that the calculation be based on his current income, which was unemployment benefits. The court determined that he could earn an amount equal to the income and bonus he made at his prior job. In Ayers v. Ayers, the father maintains that “potential income” calculations for child support apply only if a parent’s unemployment is voluntary, but his was involuntary. The mother responds that the court determined otherwise and used factors in state law to calculate the appropriate child support.

Contract Interpretation
In 2015, a state inspector determined a natural gas driller was violating drilling rules. Under Ohio law, the well owner, not the driller, receives notification of drilling violations. The well owner negotiated a $50,000 settlement with the state for the violations. When the driller billed the well owner $190,000 for the job, the well owner deducted the fine plus legal costs, citing a provision in the contract that the driller had to indemnify the well owner for any fines. The driller sued the well owner, claiming that under common law, it didn’t have to reimburse the owner because it wasn’t notified of the fine. In Wildcat Drilling v. Discovery Oil and Gas, the Court will determine if the contract clearly nullified common law rules and the notification requirement.