‘It’s just wrong:’ Hamilton County Auditor leads earnings tax lawsuit against Cincinnati

CINCINNATI (WXIX) - Hamilton County Auditor Dusty Rhodes is leading a new legal challenge against the city of Cincinnati to try to stop it from collecting earnings tax from non-city residents and to potentially secure a refund that could put millions back in their pocket.

Rhodes, the elected fiscal watchdog for the county, and taxpayers Brandy Fitch and Thomas Hahn filed suit Thursday in Hamilton County Common Pleas Court against the city, its finance director and income tax commissioner.

Earnings taxes fund a majority of budgets in Ohio’s largest cities, and Cincinnati is no exception. The taxes usually can only be collected from people working in the city limits.

The coronavirus pandemic changed all that. The General Assembly passed legislation allowing cities to collect that tax from non-city residents working remotely from home.

But Hamilton County’s auditor for the past three decades says that’s just wrong, pandemic or not.

“It sets a bad precedent,” he said.

He has long been opposed to earnings taxes for non-city residents and even joined what ultimately was an unsuccessful effort in the 1980s for a constitutional amendment against the practice.

“I am paying 80% of my tax to the place where I spent, at most, 25% of my week and that’s just wrong. I mean, these cities are living off people who have no voice in what they do and that’s a problem. It’s taxation without representation and it’s just a ‘gotcha’ game. If you come into work, they gotcha.”

Rhodes, of Delhi Township, was a township trustee for 20 years before he was elected county auditor. Townships do not collect earnings tax.

“I am well familiar with struggling to make a budget and provide services, but these cities have gotten, since they passed that law in 1946, they’ve gotten fat off the non-residents,” he said.

The lawsuit claims the city of Cincinnati has been violating its own municipal code, something that an attorney for Rhodes and the taxpayers say sets this lawsuit apart from an array of similar ones filed throughout the state against large metropolitan areas, including the Queen City.

”The city code expressly provides that the earnings tax is imposed against non-residents only when the work is physically performed in the city itself. The city has ignored its own law. We just want them to apply the law that they adopted,” said attorney Curt Hartman.

”We are simply trying to enforce the law as it exists with the result potentially being the refund of millions of dollars that have illegally been taken from citizens by the city of Cincinnati.”

The Buckeye Institute, an independent free-market public policy think tank, has sued the cities of Cleveland, Toledo, Columbus and Cincinnati over the past year.

The Cincinnati lawsuit, filed in February, was dismissed June 16 by Hamilton County Common Pleas Judge Chris Wagner, court records show. The Buckeye Institute filed an appeal Tuesday at the First District Court of Appeals in Cincinnati.

The Columbus lawsuit, filed in July 2020, was dismissed by a Franklin County judge and is now at the Tenth District Court of Appeals.

The other two lawsuits are still pending.

City leaders, including in Cincinnati, oppose giving earnings tax funds back to non-city residents who worked from home during the pandemic. That would cost them millions in lost revenue.

Cincinnati’s earnings tax rate is 1.8% of gross earnings by residents, non-residents who work in the city and corporations located in the city.

Cincinnati’s rate is lower than most other big cities in the state. Columbus and Cleveland is 2.5%, and Dayton’s is 2.25%.

And like cities nationally and in Ohio, Cincinnati experienced sharp declines in earnings tax revenues due to the COVID- 19 pandemic and had to take quick action to react to budget deficits while maintaining essential core services.

Meanwhile, the measure allowing cities to collect earnings taxes from non-city residents expires on July 18.

Once it ends, employers must withhold Ohio city income taxes from wages based on where their employees actually physically work, unless it’s extended.

Hartman said lawmakers “don’t supersede the city’s ordinances. Under home rule, the General Assembly has the power to limit the taxing power of a municipality. They expanded it, and the city never changed their own municipal code to go along with that.”

Lawmakers are now considering legislation allowing commuters to seek a rebate on income taxes paid.

We reached out for comment from Mayor John Cranley, his spokeswoman, the city manager and other city officials.

FOX19 NOW will update this story.

The lawsuit can be found here.

A motion for a preliminary injunction filed by Rhodes and the other plaintiffs can be found here.

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