A Cuyahoga County court this week ruled in favor of a Pennsylvania resident employed in Cleveland who argued she did not need to pay taxes to that city for work she did from home during the COVID-19 pandemic.
The plaintiff, Dr. Manal Morsy, executive vice president at the Athersys biotechnology company who lives in the southeastern Pennsylvania town of Blue Bell, would commute to Cleveland and stay through her workweeks before COVID hit in 2020. Whenever she worked outside of Cleveland previously, she would receive income tax refunds from the municipality. Pursuant to a state law passed in March 2020 which stated that work from home during the public emergency would be deemed to take place “at the employee’s principal place of work,” the city would collect the municipal income tax from her employer without refunding it.
Morsy requested that Cleveland pay her the money her employer withheld, but the city refused. She took her case to the Cuyahoga County Court of Common Pleas, arguing that the U.S. Constitution cannot permit the new state law, known as House Bill 197, to force her to pay Cleveland taxes on work she did in Pennsylvania.
Her lawyers reasoned that the Constitution’s dormant commerce clause, a part of Article I, Section 8 which bars states from legislating to “unduly burden interstate commerce,” delegitimized the city’s action. Judge Gary Yost agreed.
“An employee enjoys the protections, opportunities and benefits provided by the taxing authority when they are physically present in the municipality,” Yost wrote in his case opinion. “The ability of an employee to communicate virtually with her office and to perform her job duties from home does not create the fiscal relation required by the case law. The City of Cleveland and the State of Ohio have not established a basis for jurisdiction to tax a nonresident of Ohio on income generated by work performed at her home in Pennsylvania.”
The Columbus-based Buckeye Institute represented Morsy in her successful effort to reclaim over $12,000 in tax payments.
“The Buckeye Institute argued that Dr. Morsy — who doesn’t even live in Ohio — could not be forced to pay municipal income tax on her earnings from working at home in Pennsylvania during the pandemic,” Robert Alt, the institute’s president and one of Morsy’s attorneys, said in a statement. “In ordering a refund to Dr. Morsy, the court reaffirmed the fundamental right of due process and reminded local governments that they cannot tax nonresidents for work that was performed outside of the state of Ohio.”
Buckeye is pursuing four similar cases challenging the state’s new municipal tax rule in the wake of the pandemic. One such case saw the institute prevail on behalf of Westerville resident Eric Denison, who was refunded taxes he paid to the city of Columbus. In another lawsuit, Joel and Summer Curcio of Maumee as well as Chris Ackerman of Walbridge contend the cities of Oregon and Toledo must refund them tax money collected under the new state law.
A fourth lawsuit on behalf of Blue Ash resident Josh Schaad against the city of Cincinnati is pending before the state Supreme Court.
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