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Beginning on September 29, 2017, taxpayers will no longer have the right to file an appeal from the Ohio Board of Tax Appeals (“BTA”) directly to the Ohio Supreme Court (“Supreme Court”). Taxpayers will be required to file with one of the twelve Ohio Courts of Appeals in which venue lies. This change is the result of provisions in Ohio’s biennial budget bill, Am. Sub. H.B. No. 49 (the “Bill”), that eliminated the longstanding right of taxpayers and taxing authorities to obtain a direct review by the Supreme Court of decisions rendered by the BTA. Prior to this change, taxpayers and taxing authorities could appeal a decision of the BTA either directly to the Supreme Court or to a court of appeals. If the appeal was filed directly with the Supreme Court, the Supreme Court was required to hear the appeal.
Taxpayers have expressed many concerns over the change in the appeal process including:
Reducing the Uniformity of State Tax Law: The new appeal procedure will also adversely impact uniform application of tax laws within Ohio. For example, even though a court of appeals rules in favor of one taxpayer within its jurisdiction, the Ohio Department of Taxation ("ODT") will not be bound to treat taxpayers in all other courts of appeals jurisdictions in the same way. As a result, a taxpayer with plants in two different Ohio jurisdictions could have its state and local taxes related to those plants applied differently. Further, if the plants are instead owned by two different business competitors in different Ohio jurisdictions, those competitors could be taxed differently. Also, ODT could apply tax rules differently to individuals, depending on where the individuals reside. After achieving victory in one court of appeals, additional litigation by other taxpayers will be required in order to obtain a uniform, statewide application of tax law.
Increasing the Lack of Municipal Tax Uniformity: In spite of recent efforts by the General Assembly to enact more uniform municipal income tax laws, the elimination of the right to a direct appeal to the Supreme Court could result in less uniformity. As a result, in spite of all the efforts made in H.B. 5 to impose greater statewide uniformity on the municipal income tax system, over time the new municipal tax system may not be uniformly applied across Ohio unless the Supreme Court agrees to weigh in on all municipal tax appeals.
Enhancing a Lack of Jurisdictional Clarity: For individuals, determining the court of appeals’ district in which the taxpayer “resides” is easy. However, for businesses with multiple locations throughout Ohio and for certain types of business entities, that determination is much more difficult and may be problematic for some taxpayers, adding additional complexity to filing taxpayer appeals.
As taxpayers consider whether to appeal an adverse decision of the BTA, they must be cognizant of the new appeal procedures to ensure that they correctly preserve their appeal rights.
Why was the Right of a Direct Appeal Eliminated?
The right to a direct review of BTA decisions by the Supreme Court has been a part of Ohio’s tax policy since 1939, which was shortly after the first statewide sales and use tax law was enacted. Presumably, the policy makers in 1939 understood the importance of having one statewide interpretation of Ohio state and local tax laws. Because no public hearings were held during the legislative process on the elimination of this longstanding taxpayer right, it is not clear why the right for a taxpayer to make a direct appeal to the Supreme Court was eliminated. The provision eliminating this right was quietly inserted by the Senate as part of its omnibus amendment to the budget bill and, on the next day, the budget bill was approved by the Senate. While many business groups expressed their concern about the provision to members of the General Assembly during the Conference Committee process, the provision was still retained by the Conference Committee and it was not vetoed by Governor Kasich.
New Appeal Procedure from Decisions of the BTA
As stated above, under the new appeal procedure, taxpayers and taxing authorities must now appeal BTA decisions to one of the twelve Ohio Courts of Appeals. For corporations, determining the proper court of appeals in which to file can be difficult. R.C. 5717.04 provides that a corporate taxpayer should file with the court of appeals where the property subject to the tax is located, or the county in which the agent for service of process is located, or the county where the principal place of business is located. In all other instances, the appeal should be filed with the Court of Appeals for Franklin County. Notably, the statute refers to “corporations,” but not other forms of business entities such as LLCs or partnerships. Additionally, corporations and other forms of business may have more than one principal place of business. A Commercial Activity Tax combined or consolidated group may include members with different principal places of business. Taxpayers and practitioners should carefully consider in which court of appeals the appeal must be filed, based on the facts and circumstances of the case. The procedure to appeal a BTA decision to a court of appeals has not changed, but taxpayers should review the respective court of appeals’ rules of practice to understand the procedural requirements.
After filing a notice of appeal with the appropriate court of appeals, if the appeal involves a substantial constitutional question or a question of great general or public interest, a party may petition the Supreme Court and request the appeal be transferred to the Supreme Court. However, whether the Supreme Court approves the petition is solely within the Supreme Court’s discretion and the Supreme Court is not required to accept such appeal. This process to file a petition with the Supreme Court is discussed in detail in the next section of this SALT Buzz.
If the taxpayer or taxing authority loses at the court of appeals, the loser may file a discretionary appeal with the Supreme Court to review the decision of the court of appeals. The procedure to appeal a court of appeals decision to the Supreme Court has not changed. The Supreme Court is under no obligation to review the decision of the court of appeals. In the event that the Supreme Court declines to accept an appeal from the court of appeals, the court of appeals decision is binding in that district. However, ODT or the Municipalities are not required to follow that decision for taxpayers that are located in other districts. Presumably, if two different courts of appeals reach different conclusions on a particular question of law, the Supreme Court should accept the appeal to clarify the law for the entire state of Ohio.
Amendments to the Rules of Practice of the Supreme Court of Ohio
The Supreme Court adopted changes to the “Rules of Practice of the Supreme Court of Ohio” to set forth the procedure required to petition the Supreme Court to transfer an appeal filed with a court of appeals because it involves a substantial constitutional issue or is a case of great general or public interest. The rule changes can be viewed here.
A petition to transfer an appeal from a decision of the BTA that is pending before a court of appeals (the “Petition”) is required to be filed within thirty days of the filing of the last notice of appeal with the court of appeals. S.Ct.Prac.R. 10.01(A)(1). The Petition should include a copy of the notice of appeal to the court of appeals and a date-stamped copy of the decision of the BTA. S.Ct.Prac.R. 10.01(A)(2). The Petition cannot exceed more than fifteen pages (exclusive of the table of contents and certificate of service) and shall contain: (a) a table of contents, (b) a thorough explanation of why a substantial constitutional question is involved or why the case is of great general or public interest, (c) a statement of the case and facts, (d) a brief argument in support of the legal propositions, and (e) an assertion that the notice of appeal from the BTA was filed with the correct court of appeals. S.Ct.Prac.R. 10.01(B).
The response to a Petition (the “Response”) is due within thirty days from the filing of the Petition. S.Ct.Prac.R. 10.01(C)(1). The Response is limited to fifteen pages (exclusive of the table of contents and certificate of service). S.Ct.Prac.R. 10.01(C)(2). The Response should address the question as to whether there is a constitutional issue or issue of great general or public interest and respond to each legal proposition in the Petition. S.Ct.Prac.R. 10.01(C)(3).
The original filing of the Petition and Response to the Supreme Court should be accompanied by eight copies. S.Ct.Prac.R. 3.10(B). There will be no supplemental or reply memorandums permitted nor will extensions of time to file a Petition or a Response be permitted. S.Ct.Prac.R. 10.01(D).
The filing of a Petition will stay all proceedings before the court of appeals. S.Ct.Prac.R. 10.01(E)(2). The Ohio Supreme Court will approve or deny the Petition after the time to file the Response. S.Ct.Prac.R. 10.01(E)(3). No motion for reconsideration of the Supreme Court’s decision on a petition to transfer is permitted. S.Ct.Prac.R. 10.01(E)(4).
Taxpayers and practitioners are encouraged to carefully review the changes to the Rules of Practice of the Supreme Court of Ohio prior to filing a Petition or a Response.
Taxpayers that want to appeal recently issued BTA decisions must act quickly to be able to ensure a direct appeal to the Supreme Court. Time is running out.
If you have any questions about this process, please contact one of our attorneys.