CLEVELAND — A Cuyahoga County judge has ruled the city of Cleveland must refund a Pennsylvania woman for 2020 income tax money it collected while she worked remotely during the COVID-19 pandemic.
Following a statewide emergency order in March 2020, Dr. Manal Morsy adjusted her weekly commute to Cleveland from a suburb near Philadelphia, and began working from home in Pennsylvania. She did not return to Ohio through the remainder of the year.
“She was having to pay Cleveland taxes and pay municipal taxes to her city outside of Philadelphia at the same time,” said Jay Carson, Morsy’s attorney and a senior litigator for the Buckeye Institute’s Legal Center.
The tax bases in hundreds of Ohio cities, including Cleveland, are made up of both residents and people who commute to work in the city. In 2020, an emergency provision allowed Ohio municipalities to continue collecting income tax from would-be commuters while they worked from home during the pandemic.
The Buckeye Institute took on several cases challenging the move as unconstitutional.
“The important thing is where the non-resident is when they’re performing those services,” Carson said. “So our position is, traditionally, the law for 70 years in Ohio has been that a municipality can’t tax a non-resident, except for work done within the city.”
Monday, a Cuyahoga County judge stopped short of ruling the provision unconstitutional, but did order the city of Cleveland to refund all withholdings and payments to Morsy.
“Section 29 of H.B. 197 of the 133rd Ohio General Assembly is constitutional on its face, but cannot be applied to assess income tax against a nonresident of the State of Ohio for wages earned on work performed outside of the State of Ohio,” Judge Gary L. Yost wrote in the ruling.
Cleveland and other municipalities rely on revenue from municipal income taxes. In 2021, Cleveland reported collecting $429.1 million from municipal income tax. The majority of the figure was generated by people who live outside of the city.
News 5 previously spoke to Cleveland leaders about how the work-from-home model could affect the city’s revenue stream.
In January 2021, City Councilman Kerry McCormick said, “Our downtown core suffers. You better believe it’s not only going to negatively impact the city, but it will of course harm our suburbs within the region.”
According to an October 2021 report from the Ohio Mayors Alliance, 1 in 3 Ohioans may continue working from home for at least part of the week for the foreseeable future.
RELATED: New study suggests 30% of Ohioans to continue work-from-home going forward
The report estimated a city like Strongsville could see a loss in income tax revenue anywhere from $1 - 2.2 million, while Akron could see anywhere from $7.8 - 20 million in lost income tax revenue.
The Buckeye Institute is representing plaintiffs in several other cases challenging Ohio’s municipal income tax structure, including one case pending in the Ohio Supreme Court.
“If the Ohio Supreme Court rules the way we hope it does, that will be pretty much a big sea change,” Carson said, adding it could require the Ohio General Assembly to re-examine the state’s municipal income tax system.
He expects the Ohio Supreme Court to rule on the case in early 2023.
The City of Cleveland’s law department told News 5 it’s now considering what’s next in the Morsy case.
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