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A civil case that claims illegal double taxation, argued by lawyers from Community Legal Aid before the Ohio Supreme Court, was dismissed by the high court on Wednesday.
Among the defendants in the case were Ohio Tax Commissioner Jeff McClain and state Treasurer Robert Sprague. The court this week voted 9-0 to dismiss the case upon a motion made by Sprague.
The action was filed in August 2021 by Legal Aid, a nonprofit that does pro bono work on behalf of two northern Ohio residents who claimed they were double-taxed by the state.
James Palm of Akron and Sara Pearson of Ravenna both took their cases to court after failing to turn in W2 forms with their tax filing forms.
When Ohioans do not file a W2, the state system automatically enters a 0 on the line tax paid, Legal Aid attorneys say, even though some state tax may have been withheld in paychecks.
According to the lawsuit, Palm did not file tax returns for the years 2016 through 2018. In 2020, Palm tried to become compliant, but he no longer possesses the W-2 information furnished by his employers. In 2017, Palm worked for a company that withheld his wages to pay state tax, but that company went out of business.
Palm still tried to become filing compliant and through some help, he obtained wage and income statements from the IRS for tax years 2016-18. However, those statements did not list the amounts withheld by his employer for Ohio taxes. Palm then tried to contact the Ohio Department of Taxation to determine the withholding amounts but was told the office does not keep such information, the lawsuit states. He was instructed by the department of taxation to report zero dollars had been withheld by his employer.
Instead, Palm filed tax returns for those three years and listed "unknown" for the amount withheld by his employer. However, the taxation department processed Palm's returns and gave him zero credit for each year the amount he paid to the state.
The state sent Palm tax bills of $49.12 for 2016 and $349.18 for 2018.
The lawsuit also stated Pearson did not file tax returns for the years 2017, 2018 and 2019 in a timely fashion because of domestic problems and she was not able to obtain W-2 documents. It later was learned the woman's former spouse had burned all of her belongings, including W-2 data for 2017 and 2018.
Also, tax information for 2019 was diverted to another mailing address and she was unable to retrieve the W-2 for that year, the suit states.
Again, Pearson believed her employers during these years had withheld her state taxes from her paychecks. In 2020, she tried to become filing compliant and also stated "unknown" as her filing liability for tax years 2017-19. In processing the returns, the suit states Ohio tax officials failed to credit her with paying the tax. Because there was no tax bill, Pearson believes she is owed a refund.
LEGAL AID's RESPONSE
In response to Wednesday's dismissal by the high court, Steven McGarrity, executive director of Community Legal Aid, said he was disappointed by the action.
"Our clients were looking forward to their day in court. We don't see (this) decision as a win, obviously, but it's also not entirely a loss," McGarrity said.
McGarrity said the lawsuit made the public aware that tens of thousands of low-income Ohioans are at risk of being taxed twice by the state.
McGarrity said that if anyone has questions about their state taxes, they should call the Ohio Department of Taxation at 1-800-282-1780.
"We're also glad that, shortly after we filed our lawsuit, the state of Ohio changed its practices to resolve some of the issues we brought forth," McGarrity said. "We're still hopeful that they will decide to formally amend their policies to reflect more fair and equitable tax collection procedures."
In the meantime, Community Legal Aid remain committed to protecting the rights of low-income taxpayers, McGarrity said. Anyone with concerns about their taxes can call Legal Aid at 800-998-9454.
Legal Aid offers its services to people living in eight northern Ohio counties including Mahoning, Trumbull and Columbiana counties.