AKRON, Ohio — A lawsuit filed in the Supreme Court of Ohio claims the Ohio Department of Taxation is improperly withholding taxes from taxpayers across the state.
The lawsuit, filed by Community Legal Aid, names Ohio Tax Commissioner Jeff McClain and Ohio Treasurer Robert Sprague as respondents (defendants), and alleges some taxpayers have been illegally double taxed, "allowing the state of Ohio to profit unjustly at the expense of individual taxpayers."
View an official filed copy of the complaint here
"It's a systemic problem that's not being addressed," said Community Legal Aid Attorney Dana Goldstein who filed the action, known as a Writ of Mandamus, on Thursday. "It's a problem that creates a double collection of taxes and it primarily falls on the shoulders of those least able to pay the tax."
Goldstein said the situation arises when a taxpayer is unable to provide W-2 information on their state tax return because an employer fails to generate or provide a W-2, or the document is lost or destroyed.
When an employee taxpayer is unable to provide the W-2 information, the state of Ohio has the employee enter "0" as the amount of state income taxes withheld by the employer, even though the employer withheld taxes from the employee and remitted those funds directly to the state, Goldstein explained.
Goldstein claims Ohio then processes the return as if the employee had paid no state income tax and doesn't give the taxpayer credit for funds received from the employer on the employee's behalf, and therefore an employee is taxed a second time.
While Community Legal Aid doesn't know how many taxpayers could have been impacted by this issue, the non-profit estimates tens of thousands of people could be owed millions of dollars.
"I definitely believe it's millions," said Rachel Nadar, advocacy director for Community Legal Aid. "You're still looking at thousands of taxpayers. You look at the amount-- even if it's only $300 or $400 — if you do the math, you're in the millions."
Two Northeast Ohio residents are listed as relators (plaintiffs) in the lawsuit, including James Palm, 37, of Akron.
Palm said he worked at a Family Dollar store in Akron, but it became a Dollar Express and closed in 2017, which put him out of a job.
Palm struggled, became homeless and didn't file his taxes for a few years.
"Moving from friend's house to friend's house, family's house to friend's house and my W-2's got misplaced. I just lost them," Palm said. "I didn't file taxes because being homeless and going from gig to gig, house to house, it just didn't seem like that big of a necessity to me."
In 2020, Palm took steps to become tax compliant for the years 2016 to 2018, but he was unable to contact his former employer for W-2 information since the store was no longer in business.
Palm said he contacted the Ohio Department of Taxation to determine the amount of state taxes his former employer withheld from his wages and paid to Ohio, but he was told the state does not keep such withholding and payment information.
His returns were processed, and according to the lawsuit, the state requested duplicate payments of $49.12 for 2016 and $349.18 for 2018.
"I felt like I was getting bullied because I was poor. I'm definitely not going to settle for the decision that the state of Ohio is giving me," Palm said.
The lawsuit states that Palm's personal income tax accounts for the years 2016 to 2018 should be credited.
Beyond that, Goldstein argues McClain and Sprague should make changes to prevent residents from possibly being double taxed.
"What we're hoping will come out of this is that the commissioner will adopt policies and procedures to properly credit taxpayers' accounts for amounts of state tax withholding that has been paid by the employer," Goldstein said. "I think that they need some incentive to do the right thing."
Any low-income taxpayers who have questions or believe they have been double taxed are asked to call Community Legal Aid in Akron at 330-535-4191 or The Legal Aid Society of Cleveland at 330-817-3777.
A representative for the Ohio Department of Taxation on Thursday stated that their office does not comment on pending litigation. The press secretary for the Ohio Treasurer said they are in the process of reviewing the complaint and have no further comment at this time.