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Telework Tax Powers – Huge Win for City of Columbus and Cities Throughout Ohio

The City of Columbus has probably not faced such a significant threat to its budget and funding in recent memory.

Employees in cities across the country pay income taxes based on where they both work and live. When the global pandemic hit and many employees began working from home, cities’ authority to tax employees came into question. Consider this example: an employee normally works in Columbus, OH but lives in Upper Arlington, OH. That employee has been working remotely from a home office in Upper Arlington since the pandemic started. Which city is authorized to collect taxes from that employee?

Ohio’s temporary law, H.B. 197, deemed remote work performed during the pandemic to occur at an employee’s principal place of business. In other words, even though the employee in the above example was working from Upper Arlington, the city of Columbus, where the principal place of business is located, is authorized by state law to tax this employee. Passed in March 2020, H.B. 197 is in effect until 30 days after Ohio lifts the state of emergency issues in response to the pandemic.

A lawsuit brought against the City of Columbus by the Buckeye Institute challenged the authority of Columbus to collect and keep income tax revenue from individuals who, before COVID-19, worked in the city limits, but due to work from home orders, are working at their residences outside the city limits.

Columbus engaged a team from Ice Miller led by Diane Menashe to defeat these claims which, if successful, could bore a huge hole in the city’s budget. The Ice Miller team persuaded Franklin County Common Pleas Judge Carl Aveni to dismiss the suit. Judge Aveni granted the Ice Miller motion to dismiss the case, finding that the General Assembly did not infringe upon due process rights when regulating taxes within the state. Judge Aveni noted that Ohio courts have interpreted the state constitution to authorize the Legislature's regulation of municipal taxation, including coordinating limitations between municipalities.

“As Mayor of Columbus for many years, I don’t remember a lawsuit that put at greater risk the funding for fire, police and other public services our citizens need,” said Michael B. Coleman, Partner-in-Charge of Ice Miller LLP’s Government Law Group and former Mayor of Columbus, Ohio. “What an important win.”

The suit is one of a series of similar challenges to the law in Ohio and other states with similar taxation laws. This success in Columbus is important for cities whose budgets would be impacted by the inability to tax these employees (or retroactive refund claims should H.B. 197 be deemed unconstitutional).

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.
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