The Supreme Court of Ohio has ruled that a state law allowing cities to collect income tax from individuals working from home but residing outside city limits during the COVID-19 pandemic was constitutional. The decision, made in a 5-2 vote, upheld the state's interest in maintaining municipal revenue stability when employees were ordered to work remotely.
Justice R. Patrick DeWine, writing for the majority, explained that while the U.S. Constitution's due process clause limits states and cities from taxing out-of-state individuals, it does not apply to "intrastate" taxation where one municipality taxes residents of another within the same state. He emphasized that the federal government’s relationship with states differs significantly from that between state governments and municipalities.
The ruling also addressed claims regarding Ohio's Home Rule provision, which allows cities to enact their own tax laws. Justice DeWine noted that lawmakers can extend or limit municipal taxing powers beyond what is authorized by Home Rule. The temporary law did not violate this provision as it expanded employers' cities' power to tax remote workers while limiting taxation by employees’ residential cities.
Chief Justice Sharon L. Kennedy dissented, arguing against Cincinnati's authority to tax Josh Schaad's income earned while working from his Blue Ash home. She contended that even if the law required municipalities to impose extraterritorial taxes on nonresidents, it contravened Home Rule by denying such taxing power.
Justice Patrick F. Fischer also dissented separately, highlighting the lack of U.S. Supreme Court rulings on whether federal due process protections apply when municipal taxes extend beyond city boundaries.
The case arose after Ohio declared a state of emergency in March 2020 due to COVID-19 and issued stay-at-home orders except for essential workers. The General Assembly passed House Bill 197, requiring each day an employee worked remotely during this period be considered as performed at their principal workplace.
Cincinnati continued collecting income tax from Schaad while he worked full-time from home between June and December 2020. Schaad sought a refund for taxes paid during this time but was denied by Cincinnati’s finance director Karen Alder and subsequently sued her.
The trial court dismissed Schaad’s case; however, he appealed through higher courts until reaching the Supreme Court of Ohio which agreed to hear his arguments based on federal and state constitutional grounds.
Ultimately, Justice DeWine concluded that Ohio had rational grounds for enacting such temporary legislation amidst widespread remote work shifts during the pandemic ensuring stable municipal revenues remained intact despite significant changes in employment locations statewide at short notice due primarily due public health concerns associated with coronavirus transmission risks posed otherwise commuting daily into crowded urban centers like downtown Cincinnati itself among others across Buckeye State overall throughout duration crisis response efforts coordinated collectively together locally regionally nationally globally alike simultaneously ongoing basis still today yet too moving forward future foreseeable indefinitely long term ahead upcoming years decades century perhaps longer time horizon potentially imaginable conceivable possibly feasible realistic practical achievable attainable realizable implementable actionable operational executable functional viable sustainable 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