The Akron Legal News

Proposal would help shield tax administrators from certain types of lawsuits

TIFFANY L. PARKS
Special to the Legal News
Published: May 4, 2015

A pair of Ohio lawmakers are sponsoring a bill that would require civil actions by taxpayers related to municipal income taxes be brought against the municipal corporation imposing the tax rather than the municipal corporation’s tax administrator.

“We feel that the current code impedes the duties of every tax administrator in the state of Ohio, by causing them to fear a lawsuit with every action that they take,” Rep. Robert Sprague, R-Findlay, told members of the House Ways and Means Committee.

The proposed legislation, House Bill 84, is jointly sponsored by Sprague and Rep. Martin Sweeney, D-Cleveland.

According to a bill summary, the measure would limit the scope of a uniform standard through which a municipal income taxpayer may bring a civil action against a municipal corporation for certain acts or omissions of the municipal corporation or the municipal corporation’s tax administrator or their employees.

“Essentially, the bill prohibits a taxpayer from employing the uniform standard to bring suit against a tax administrator by requiring the taxpayer to bring such an action solely against the municipal corporation,” the summary reads.

House Bill 5 of the 130th General Assembly prescribed a uniform standard of justiciability on actions for municipal income tax-related damages brought by taxpayers for an action or omission of a tax administrator or an employee of a tax administrator or a municipal corporation.

Under this new standard, an action for damages is permissible if both of the following apply: an applicable state law or an instruction of the tax administrator is frivolously disregarded by the tax administrator, an employee of the tax administrator or an employee of the municipal corporation and the action or omission challenged by the taxpayer occurred with respect to an audit or assessment and the review and collection proceedings connected with that audit or assessment.

The new standard would will go into effect Jan. 16, 2016.

Frivolous conduct is that which “obviously serves merely to harass or maliciously injure the taxpayer or that is not warranted under existing law and cannot be supported by a good faith argument for an extension, modification or reversal of existing law.”

Under continuing law, the proper forum for a taxpayer seeking damages in such an action is the court of common pleas of the county in which the municipal corporation is located.

Upon a finding of liability on the part of the defending party, the court may award the taxpayer compensatory damages as well as reasonable costs of litigation and attorneys’ fees.

A taxpayer is not permitted to seek damages from the defending party based on actions or omissions of the tax administrator or an employee of the tax administrator or municipal corporation that is manifestly outside the scope of employment or performed with malicious purpose, bad faith or in a wanton or reckless manner.

Current Ohio law authorizes a taxpayer to maintain a civil action for damages under this uniform standard against a tax administrator, a municipal corporation or both.

HB 84 would eliminate a taxpayer’s authority to bring such actions against a tax administrator, essentially requiring an aggrieved taxpayer to seek recovery solely against the municipal corporation.

“We appreciate the great work of the 130th General Assembly regarding HB 5, which has added value to our municipal tax policy. However, with this legislation we are asking that we revisit one very specific portion of (statute),” Sweeney said.

He also said that although he’s not an expert in taxation or law, he has a unique perspective of this particular topic having previously served on the city of Cleveland’s tax appeal board for eight years.

“Both individuals and corporations would almost always prefer not to pay taxes (but) when they feel that they have not been treated fairly and/or cheated, some individuals take it personally and corporations battle for their bottom line.”

Sweeney said he’s witnessed such situations become venomous.

“It all boils down to the interpretation of the tax administrator regarding the language of the city income tax ordinances,” he said.

Under the current process, a tax administrator’s decision can be appealed to the tax appeal board for that jurisdiction, then appealed to the county court of appeals and then the Supreme Court of Ohio.

Sweeney said the possibility exists for the high court to uphold a tax administrator being found guilty of professional negligence.

“I find that to be problematic,” he said.

Sprague agreed and pushed for lawmakers to respond favorably to HB 84.

“This important revision to the Ohio Revised Code will ensure that tax administrators are not liable for compensatory damages, legal costs and other penalties,” he said.

“The passage of this bill will lift legal burdens off of their shoulders and allow them to do their jobs.”

HB 84 is co-sponsored by Reps. John Becker, Louis Blessing III, Michael Henne, David Leland and Margaret Ann Ruhl.

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