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ORIGINAL
IN THE SUPREME COURT OF OHIO
State of Ohio
Appellee, . On Appeal from the Williams County Courtof Appeals, Sixth Appellate District
V.
Larry D. Smith . Court of AppealsLarry G. Manley Case No. 08WM000016Kent R. SmithSandra L. Nunn
Appellants.
MEMORANDUM IN SUPPORT OF JURISDICTION
Timothy C. Holtsberry, Esq. (#0081412) (COUNSEL OF RECORD)of TIM HOLTSBERRY CO., LLC415 West 2°d St., Suite BP.O. Box 7008Defiance, Ohio 43512Telephone: (419) 782-0488Fax: (419) [email protected]
COUNCIL FOR APPELLANTS, LARRY D. SMITH, LARRY G. MANLEY, KENT R.SMITH, AND SANDRA L. NL TNN
Rhonda Fisher, Esq. (#0055495) (COUNSEL OF RECORD)Bryan Municipal ProsecutorP.O. Box 70761399 East High StreetBryan, Ohio 43506Telephone: (419) 636-2596Fax: (419) [email protected]
COUNCIL FOR APPELLEE, STATE OF OHIOJUN 2 B 2009
CLERK OF COURTSUPREME COUR7 OF OHIO
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TABLE OF CONTENTS
Paee
EXPLANATION OF WHY THIS CASE IS A CASE OF PUBLIC OR GREATGENERAL INTEREST AND INVOLVES A SUBSTANTIALCONSTITUTIONAL QUESTION ................................................................................................. 3
STATEMENT OF THE CASE AND FACTS ................................................................................ 5
ARGUMENT IN SUPPORT OF PROPOSITIONS OF LAW ....................................................... 8
CONCLUSION .............................................................................................................................16
CERTIFICATE OF SERVICE ..................................................................................................... 17
APPENDIX Paee
Decision and Judgment of the Williams County Court of Appeals(May 15, 2009) .................................................................................................................... 1
2
EXPLANATION OF WHY THIS CASE IS A CASE OF PUBLIC OR GREAT GENERAL
INTEREST AND INVOLVES A SUBSTANTIAL CONSTITUTIONAL QUESTION
This case represents an attempt of a municipality to expand its taxation powers, beyond
which, is constitutionally allowed. Article XVII, section 13 of the Constitution of the State of
Ohio states that "laws may be passed to limit the power of municipalities to levy taxes" The
state legislature has passed such a limitation in regards to a municipal income tax in Chapter 718
of the Ohio Revised Code. In that chapter the state has granted municipalities the authority to tax
employee wages and business profits of those individuals living in the municipality or non
residents who are employed or doing business in the municipality.
In this case, the imposition of tax, on the payment to the Defendants provided by the
agreement between the union officials and a former employer, is not income that was expressly
included in Chapter 718 of the Revised Code and unconstitutionally expands the municipality's
power to tax income beyond that which is statutorily allowed. The basis for this payment was, in
essence, a settlement agreement between two parties and not for any work or services provided
(all claims and grievances were extinguished in exchange for the payment of the transition
benefits payable one year from the date of transition).
The slippery slope in this case is Chapter 718 of the Revised Code created a municipal
income tax on wages and profits only, if allowed to stand the current decision would allow for
the taxation of settlement agreements in every municipality that has a court which handles a case
which may involve a settlement agreement, especially those settlements that have an element of
specific performance.
One other issue troubling in this case is that the Sixth District somehow found that the
payment was for work performed in the City of Bryan, in spite of all of the evidence, all case law
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provided, and contrary to a finding by the trial court that the transaction at question was a taxable
forbearance. Presumably with the finding that the payment was taxable for municipal income
tax purposes the Sixth District relied on Revised Code §718.02 Income Subject to Tax -"(A)(2)
Wages, salaries, and other compensation paid during the taxable period to persons employed in
the business or profession for services performed in such municipal corporation,". The Sixth
District discounted the reasoning of the Ninth District in Czubaj v. City of Tailmadge 2003-
Ohio-5466 regarding the non-taxability of forbearances by a municipality. The Sixth District also
failed to look further at the Revised Code to determine whether the payment was a "qualifying
wage" as required by Revised Code §718.01(H)(10). That section states that "(H) A municipal
corporation shall not tax any of the following: *** (10) Employee compensation that is not
"qualifying wages" as defined in section 718.03 of the Revised Code." Revised Code 718.03
states that "qualifying wages" means wages, as defined in section 3121(a) of the Internal
Revenue Code. The definition in the Internal Revenue Code states the term "wages" means all
remuneration for employment. The word employment is defined in that section to mean any
service, of whatever nature, performed by an employee for the person employing him.
The Defendants performed no service for Ingersoll-Rand in order to receive their
payments. The payment was based on a forbearance. To be paid the Defendants had to refrain
from filing any grievances or claims against Ingersoll-Rand and they had to refrain from
terminating their jobs with their new employer for a period of one year.
In sum, the City of Bryan has unconstitutionally expanded its power of taxation to non-
employee compensation, which is impermissible under the current statutory requirements. Such
an unauthorized expansion of power is a substantial constitutional question of great general
interest.
4
STATEMENT OF THE CASE AND FACTS
This case is a criminal case out the Bryan Municipal Court for the non-payment of city
income tax in violation of City of Bryan Codified Ordinance Section 181.99(a)(3) and failure to
file an income tax return in violation of City of Bryan Codified Ordinance Section 181.99(a)(1).
In February 2008, Defendants Kent Smith, Larry Manley, and Sandra Nunn were charged
through a complaint by the City of Bryan with failure to pay income tax in violation of the City
of Bryan Codified Ordinance Section 181.99(a)(3). At that same time Defendant Larry Smith
was charged through a complaint by the City of Bryan with failure to file an income tax return in
violation of City of Bryan Codified Ordinance Section 181.99(a)(1).
On April 8, 2008, Defendant Larry Smith filed a Motion to Dismiss and discovery
requests including a request for a Bill of Particulars. On April 16, 2008, a motion to amend the
complaint was filed by the City of Bryan to charge Larry Smith with failure to pay income tax in
violation of City of Bryan Codified Ordinance Section 181.99(a)(3) instead of failure to file an
income tax return in violation of City of Bryan Codified Ordinance Section 181.99(a)(1). There
was no indication in the record that the motion was granted. Defendant Larry Smith filed a
Motion to Dismiss the new charge, which included jurisdictional objections, on April 30, 2008.
On May 6, 2008 the Trial Court denied Larry Smith's Motion to Dismiss. On May 9,
2008, the City of Bryan provided a Bill of Particulars to Larry Smith.
On April 9, 2008, Defendants Larry Manley and Sandra Nunn filed Motions to Dismiss
and discovery requests including requests for Bills of Particulars. Amended Motions to Dismiss,
which included jurisdictional objections, were filed by Larry Manley and Sandra Nunn on April
30, 2008.
On May 6, 2008 the Trial Court denied Larry Manley's Motion to Dismiss. On May 9,
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2008, the City of Bryan provided a Bill of Particulars to Larry Manley.
On May 9, 2008 the City of Bryan made a Motion to Consolidate the cases of Larry
Manley and Larry Smith.
On May 28, 2008, the Trial Court ordered that the cases of Larry Smith, Larry Manley,
Sandra Nunn, and Kent Sniith be consolidated.
On June 18, 2008, a trial was held in the Bryan Municipal Court to try all of the
consolidated cases. At the end of the trial the Judge asked that any trial briefs be submitted
within one week. On July 23, 2008, the Trial Court held a hearing rendering its decision and
pronouncing sentencing. The journal entries dated July 23, 2008, stated Defendants Kent Smith,
Sandra Nunn, and Larry Manley were guilty of a violation of City of Bryan Codified Ordinance
Section 181.99(a)(3), failure to pay income tax and Defendant Larry Smith was found guilty of a
violation City of Bryan Codified Ordinance Section 181.99(a)(1) failure to file tax return.
The Defendants filed notice of appeal to the Sixth District Court of Appeals on August
20, 2008. Defendants filed their appeals brief on September 29, 2008. Appellee filed its answer
brief on October 17, 2008. Defendants filed a reply brief on October 31, 2008. Oral arguments
were held March 9, 2009. The Sixth District rendered its decision and judgment on May 15,
2009, affirming the decision of the trial court. On May 27, 2009, Defendants filed a motion to
certify the conflict to the Ohio Supreme Court asking the court to find a conflict existed between
their decision and the Ninth District Court of Appeal's decision in Czubaj v. City of Tallmadge
2003-Ohio-5466. Appellee filed opposition to that motion on June 4, 2009. The Sixth District
rendered it decision and judgment denying the motion to certify the conflict on June 9, 2009.
Defendants, Larry D. Smith, Larry G. Manley, Kent R. Smith, and Sandra L. Nunn are all
nonresidents of the City of Bryan. Ingersoll Rand is a nonresident entity of the City of Bryan and
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a New Jersey corporation.
In 2005 the Defendants were all employees of Ingersoll Rand and were members of Local
1349 of the International Association of Machinists and Aerospace Workers union. In 2004
Ingersoll Rand announced that it was going to close its plant in Bryan, Ohio. In order to keep the
plant operating a group of local businessmen formed a consortium (New Era LLC) to buy the
plant. In order to be profitable New Era wanted Ingersoll Rand to acquire wage and other
concessions from the union before the purchase of the plant could go through.
Ingersoll Rand presented a take it or leave it type of package to the union officials that
was never voted on by the union rank and file, in direct violation of the National Labor Relations
Act. An agreement in the form of a memo of understanding was entered into by the union
president and Ingersoll Rand as part of the wage and other contract concessions which explained
that the agreement was to encourage a continuity of the existing workforce by transitioning to the
new employer. Incorporated into paragraph 4 of the Memo of Understanding was a$10,000
payment (transition benefits) per employee to all union members which read "for these transition
benefits all grievances and claims based on the existing collective bargaining agreement with IR
will be extinguished the day of the transition." The Memo of Understanding made the payment
of the transition benefit contingent on employees remaining with the new employer for one year.
The agreement stated that the transition benefit would be paid to transitioning employees, the
earlier of - one year from the transition or at the employee's termination, provided that the
employee is not terminated for cause or voluntarily resigns. No where does the Memo of
Understanding say, nor was there any testimony that the payment was for work done or for
services provided or rendered, but the Memo of Understanding stated and testimony was given
that the payment was specifically for the extinguishment of all claims and grievances with a
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contingency that employees remain with the new company for one year. Defendants began
working for New Era in 2005. In 2006 Defendants received what Ingersoll Rand characterized as
a non-employee payment for the completion of the terms included in the Memo of
Understanding. In 2006, at no time did the Defendants work for Ingersoll Rand, so the $10,000
paid to them by Ingersoll Rand was not for work performed or a service provided. In 2006
Defendants did do work and performed services for New Era LLC, on which they did pay City of
Bryan income tax and received W-2 Wage statements from New Era.
In 2007, Defendants did not receive a W-2 wage statement from Ingersoll Rand but rather
received a 1099 Miscellaneous form listing their $10,000 payments as a "nonemployee
compensation" and not wages. Later in 2007 the City of Bryan sent all of the Defendants
determination letters that the tax was owed to the City of Bryan for the $10,000 of compensation.
ARGUMENT IN SUPPORT OF PROPOSITIONS OF LAW
1. Whether Non-employee Compensation in the Form of a Forbearance Written into an
Agreement is Constitutionally Taxable by a Municipality in Which the Agreement was
Executed
The power of a municipality to tax income is limited by certain constitutional provisions.
The General Assembly may pass laws limiting the power of municipalities `to levy taxes * * *
for local purposes' Section 13, Article XVIII, Ohio Constitution, and may `restrict their power of
taxation * * * so as to prevent the abuse of such power' Section 6, Article XIII, Ohio
Constitution.
The General Assembly enacted R.C. Chapter 718 that sets forth certain limitations on a
municipality's power to levy an income tax. See R.C. 718 et seg. The import of Article XVIII
of the Ohio Constitution and R.C. Chapter 718 in the interpretation of the municipal tax
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ordinance is that certain income may be taxed and certain income may not be taxed by a
municipal corporation. See Thompson v. Cincinnati (1965) 2 Ohio St.2d 292. Specifically R.C.
§§ 718.01, 718.011, 718.02 and 718.03 spell out items that are taxable and nontaxable for
municipal tax purposes.
For example pension, capital gains, and interest income while considered taxable income for
federal and state taxes are not taxable for municipal income tax purposes. If an item of income is
not specifically included in the statute then it is not taxable. See Bosher v. Euclid Income Tax
Bd. Of Rev., (2003) 99 Ohio St.3d 330. Nowhere in the statutes does it say that non-employee
compensation or forbearances are taxable for municipal income tax purposes thereby precluding
the inclusion of such items under the authority granted municipalities to tax in the Ohio
Constitution. "Strict construction of taxing statutes is required, and any doubt must be resolved
in favor of the citizen upon whom or the property upon which the burden is sought to be
imposed." as stated in paragraph one of the syllabus in Davis v. Willoughby (1962), 173 Ohio St.
338, see, also, Roxane Laboratories, Inc. v. Tracy (1996), 75 Ohio St.3d 125, Gulf Oil Corp. v.
Ko^dar (1975), 44 Ohio St.2d 208, Accountant's Computer Services v. Kosvdar (1973), 35
Ohio St.2d 120, 126; B. F. Goodrich Co. v. Peck (1954), 161 Ohio St. 202, 206; Shafer v.
Glander (1950), 153 Ohio St. 483, 485-486; Clark Restaurant Co. v. Evatt (1945), 146 Ohio St.
86, 91; Watson v. Tax Comm. (1939), 135 Ohio St. 377, 381.
Paragraph 4 of the Memo of Understanding is clearly a forbearance for which the Defendants
were compensated. And Paragraph 4 of that agreement states,
"4. The Union agrees that in exchange for these transition benefits all grievancesand claims based on the existing collective bargaining agreement with IR will beextinguished on the day of the transition."
This language would be akin to that for a settlement of legal claim, which is also not
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taxable for municipal income tax purposes. If such settlements were taxable for municipal
purposes every city and village in the state would want to have a court so that they could reap the
benefits of this new found taxable income.
For the purposes of the non-resident Defendants in this case the City of Bryan tax ordinance
states in section 181.02 of the Codified Ordinances that a tax shall be imposed, "(b) On all
salaries, wages, commissions and other compensation earned on and after October 1, 1967, by
nonresident individuals of the City, for work done or services performed or rendered in the
City." No evidence was presented that the $10,000 payments received by the Defendants were
salaries, wages, or commissions. The City of Bryan's taxing ordinance does not specifically
state that a forbearance is taxable income. For these payments to be taxable they would have to
be for "other compensation earned" and for "work done or services provided or rendered."
The Bryan tax ordinance does not specifically define "compensation", "earned", "work
done or services provided or rendered." Additionally, "[w]ords and phrases shall be read in
context and construed according to the rules of grammar and common usage" therefore the Court
must follow the rules of statutory construction to apply the clear meaning. See Bosher at ¶14.
Furthermore, we must keep in mind that tax ordinances must be strictly construed, and that
doubts as to meanings are to be resolved in favor of the taxpayer. Id. and R.C. 1.42.
The court in Czubaj v. City of Tallmadge, 2003-Ohio-5466, scrutinized a forbearance
clause under the exact language present in both the City of Tallmadge's and the City of Bryan's
enacting ordinance. The court of Appeals in Czuba' found that Chapter 5747 of the Revised
Code governing income taxes defines the term "compensation" as "any form of remuneration
paid to an employee for personal services." R.C. 5747.01(D). In this case the Defendants were
not employees of Ingersoll Rand as evidenced by the fact that they were issued a 1099 for what
10
was described on the form as payments to "non-employees", therefore the payment could not be
considered employee compensation based upon the definition in the Revised Code and therefore
not taxable for Bryan income tax purposes. Furthermore, the Defendants did not provide any
personal service to Ingersoll Rand, which even further excludes this income as taxable for Bryan
City income tax purposes. By contrast the Defendants did provide services to the new company
(New Era LLC) for which they were compensated, from that compensation municipal income
taxes were deducted and they received a W-2 wage statement showing both of these things.
The Czuba' court went on to scrutinize the word "earned" as meaning "compensation for
personal services actually rendered" and found the meaning of the phrase "personal services,"
cannot include one's forbearance from an act. The Czuba' Court had previously employed the
following definition for "earned," in a similar context: "to gain, get, obtain, or acquire as the
reward of labor or performance of some service." Campbell v. Don Plusquellic 91-LW-1708
(Ohio 9th Dist) quoting, Quaid v. Tax Rev. Bd. (1959), 188 Pa.Super. 623, 628. The foregoing
definitions of "earned" lead the Cznbai court to the conclusion that, "earned income" requires
some form of service that results from an affirmative act. There was no labor or services
provided to Ingersoll Rand by the Defendants so nothing in this transaction could be earned. No
affirmative acts were evidenced, the Defendant had to refrain from filing claims and grievances
and refrain from leaving their positions with the new company (New Era LLC).
The Czubai court was clear on this point, forbearance from the various activities
articulated in an agreement cannot constitute a "personal service".
A settlement of this type of labor relations claims (i.e violation of the National Labor
Relations Act based upon a take it or we close the doors negotiation) could be worth millions of
dollars and certainly considerably more than the $10,000 bargained for in this agreement, so it
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must be assumed that each party knew the substantial rights they were giving up to enter into this
agreement. It is clear that agreeing to give up one's rights to file a labor relations claim or file a
grievance is a forbearance and is not "other compensation earned for work done or services
provided or rendered" and on that point alone this Court would have to find the payment non-
taxable for municipal income tax purposes.
In error, the Trial Court flatly rejected the Ninth District's reasoning in Czuba' regarding
the taxability of a forbearance for municipal tax purposes. After defense counsel specifically
referenced the Czubai case in arguments for a Rule 29 dismissal the Trial Court stated the
following in regards to a forbearance.
"THE COURT: We did review that case. It's not our Court of Appeals, and its against theinterpretation of all my professors in law school. A forbearance, when I studied tax law,was taxable."
The reasoning in Czubai is sound for all Courts in Ohio and follows the rules of
interpretation of municipal tax statutes set down by the Ohio Supreme Court. Those rules of
interpretation and the reasoning which followed those rules were flatly rejected by the Trial
Court and that decision should be reversed.
II. Whether Specific Performance Required by a Contingency in a Settlement Agreement
Constitutes "Services Performed" as Required by the Ohio Revised Code for a finding of
Taxability for Purposes of a Municipal Income Tax
In this case the Defendants were paid the $10,000 in transition benefits in exchange for the
extingaishment of all grievances and claims based on the existing collective bargaining
agreement, and would be paid the $10,000 as long as they remained in their positions with the
new company for a period of one year. The appeals court took a different tact than the trial court
in finding that the $10,000 was taxable for municipal income tax purposes. Rather then finding
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that the forbearance was taxable as the trial court had found, the appeals court found that the
payment was for work performed in the city of Bryan even though no evidence existed in regards
to that issue.
While it is clear that in the settlement agreement (Memo of Understanding) the $10,000
payment was specifically for the extinguishment of all claims and grievances, a contingency as
to the successful transition of the Ingersoll-Rand employees to the new company (New Era LLC)
was part of the agreement. According to Paragraph number 3 of the Memo of Understanding the
transition bonus was to be paid to each transitioning employee at the earlier of: a) One year
following the date of transition or; b) The employee's termination, providing the employee is not
terminated for cause or voluntarily resigns or c) upon retirement following the transition.
Nowhere in the agreement does it state that the employees are being paid by Ingersoll-Rand for
work performed or services provided, nor is there testimony to that effect, in fact, testimony to
the opposite of that assertion existed.
As previously discussed, the Ninth District in Czubai explained how a forbearance could not
be considered a service performed for the purposes of a finding of municipal taxability. Under
the same reasoning a contingency under the same agreement cannot be taxable because it too
would require that an affirmative act take place in order to find that a service was performed.
There is no affirmative act in the contingency as evidenced by the fact that the Defendants had to
refrain from ending their employment with new company (New Era LLC) for one year in order
to be paid.
A finding that a specific performance contingency contained in a settlement agreement is
taxable opens the door for every community in Ohio that has a court to tax such agreements. This
slippery slope is clearly in contradiction to what is the intent of the Ohio Constitution and the
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Revised Code for municipalities to have the ability to tax wages and profits only.
III. Whether Compensation Paid for Work Performed in a Municipality is
Constitutionally Taxable if the Compensation is not a "Qualifying Wage" as required in
Chapter 718 of the Revised Code
In the first sentence of Article XVIII, section 13 of the Constitution of the State of Ohio
it states that "laws may be passed to limit the power of municipalities to levy taxes." The state
legislature has passed such a limitation in regards to a municipal income tax in Chapter 718 of
the Ohio Revised Code. In that chapter the state has granted municipalities the authority to tax
employee wages and business profits of those individuals living in the municipality or non
residents who are employed or doing business in the municipality. Any attempt by a municipality
to tax any other income than that spelled out in Chapter 718 is unconstitutional and the evidence
presented by the prosecution in this case shows an attempt at taxation which is unconstitutional.
Chapter 718 states specifically what income may be taxed and what income may not be
taxed. Revised Code Section 718.01(H)(10) states "(H) A municipal corporation shall not tax any
:(10) compensation that is not "qualifying wages" as defined in section 718.03 of the Revised
Code." The definition in Section 718.03 states that qualifying wages means wages, as defined in
section 3121(a) of the Internal Revenue Code. The definition in the Intemal Revenue Code states
the term "wages" means all remuneration for employment. The word employment is defined in
that section to mean any service, of whatever nature, performed by an employee for the person
employing him.
It is without question and the record is replete with evidence that none of the Defendants
were employees nor performed any service for Ingersoll Rand in return for receiving the
compensation at question. This is important because to be considered "qualifying wages" for
14
purposes of determination of municipal taxable income at a minimum the appellants would have
to be employees or perform a service for Ingersoll Rand.
Further evidence that the Defendants were not employees of Ingersoll Rand was the
prosecution's introduction into evidence of all of the Defendants 1099-Misc forms that stated that
the compensation they received was "non-employee compensation". If the Defendants were truly
receiving employee wages they would have all received a W-2 form from Ingersoll Rand, but
they did not because neither Ingersoll Rand nor the Defendants considered the compensation to
be employee wages. Rather all parties were aware that the compensation in question was a
settlement for all of their claims and grievances. This fact was specifically stated in paragraph 4
in the Memo of Understanding which the prosecution had admitted into evidence.
Further if the Defendants were employees of Ingersoll-Rand the City of Bryan Codified
ordinances and Ohio Revised Code §718.03 requires an employer to withhold the tax from the
employee's qualifying wages. Since the City of Bryan did not pursue this issue with Ingersoll-
Rand it can be concluded that the City of Bryan did not consider Ingersoll-Rand to be an
employer of the Defendants, which would be necessary for the payment to be considered a
qualifying wage. In either instance the payment is banned by the Revised Code from being
subject to municipal income tax because it is not a qualifying wage.
As lawyers we know that when a case is settled that the party receiving the settlement
payments gets a 1099-Misc form that categorizes the settlement compensation as "non-employee
compensation". The Defendants receipt of 1099-Misc forms for tax year 2006 from Ingersoll
Rand categorizing the payment as "non-employee compensation" is further evidence that this
transaction was a settlement and not wages earned as the Defendants, along with the rest of the
union members, settled a labor relations claim with Ingersoll Rand and received "non-employee
15
compensation". This is compelling evidence that the compensation was not qualifying wages as
required by the statute to be considered taxable for municipal income tax purposes.
Since this is a criminal case the evidence to prove that the compensation received by the
appellants was indeed "qualifying wages" needs to be shown beyond a reasonable doubt. In this
case no evidence was submitted that the appellants were employees of Ingersoll Rand, in fact,
testimony and documentary evidence to the contrary was submitted. Also no evidence was
submitted that the compensation was even considered a"wage° and the 1099-Misc forms were
evidence to the contrary of that needed element.
CONCLUSION
Serious constitutional questions regarding the taxability of this type of transaction for
municipal income tax purposes are present that affect not only the four Defendants in this case,
but also, all of their co-workers who received the same payment and all individuals acrossOhio
entering into a settlement agreement. Slippery slope questions are also present as to whether
expanding the taxability of settlement agreements or the taxability of specific performance
contingencies within those agreements will allow municipalities that have courts to tax those
agreements which take place within there borders.
The state legislature was given constitutional authority to limit municipalities' taxing
authority. The state legislature acted upon that authority by creating a wages and profits
municipal income tax in Revised Code Chapter 718 and any attempt to broaden that authority
should be quashed as unconstitutional.
Respectfully submitted,
Timothy C. Holtsberry, Counsel of Record
16
Timothy C. HoltsberryCOUNSEL FOR APPELLANTS, LARRY D. SMITH,LARRY G. MANLEY, KENT R. SMITH, and SANDRA L. NUNN
CERTIFICATE OF SERVICE
I certify that a copy of this Memorandum in Support of Jurisdiction of Appellant Larry D.
Smith, Larry G. Manely, Kent R. Smith, and Sandra L. Nunn was sent by ordinary U.S. mail to
counsel for Appellees, Rhonda Fisher, Bryan Municipal Prosecutor, P.O. Box 7076, 1399 East
High Street, Bryan, Ohio 43506 on June 25, 2009.
COUNSEL FOR APPELLANTS, LARRYD. SMITH, LARRY G. MANLEY, KENTR. SMITH, and SANDRA L. NUNN
17
«uo ao: aa 417Y134844 6TH DISTRICT APPEAL5 YHUC o.L/ no
FfLEDOURT OF APPEALS
MAY 15 2009KIMBERLY HERMANCLERK OF COURTStNlLLIAMS CO.OHIO
IN THE COURT OF APPEALS OF OHIOSIXTH APPELLATE DISTRICT
WILLIAMS COUNTY
State of Ohio
V.
Appellee
Court of Appeals No. WM-08-016
Trial Court Nos. CRB08001$9CRB0800191CR130800196CRB0800192
Larry D. Smith, Larry G. Manley,Kent R. Smith, and Sandra L. Nunn DECISION AND JUDGMENT
Appellants Decided: MAY 15 Z009
Rhonda L. Fisher, Bryan Municipal Prosecuting Attomey, for appellee.
Timothy C. Hottsberry, for appellants.
*«*^^
SINGER, J.
{¶ 1} Appellants, Larry D. Smith, Lazxy G. Manley, Kent R. Smith, and
Sandra L ♦ Nunn, appeal from decisions of the Bryan Municipal Court fimdin.g them each
guilty of failing to pay city income tax. Finding no reversible error, we affirm the
judgments of the trial court.
JOURNAUZED DATE
1.
no i5^Lb0`J b8:58 4192134844 6TH DISTRICT APPEALS rAUt ez ne
{l 2} The facts giving rise to this appeal are as follows. In 2005, the Ingersoll-
Ran.d Corporation was planning on closing its.manufacturing division located in Bryan,
Ohio. In an effort to save jobs, some local investors got together and decided to purchase
the plant. The new plant, called New Era LLC, was to be located at the former Ingersoll-
Rand location. Before the sale was completed, Ingersoll-Rand and the union,
representing th.e employees of the plant, entered into an agreement wherein New Era
wouId retain Ingersoll-Rand's employees in return for wage concessions. Employees
who agreed to transition to New.Era. and work there for one year were to receive a
$10,000 bonus from Ingersoll-Rand. The sale was cotnpleted and, one year. later, all
employees who had coi.npleted a year of employmen.t with New Era received a $10,000
transition bonus from Ingersoll-Rand.
(913) Appellants, as former Ingersoll-Rand and current New Era employees, each
received transition bonuses. These causes of action arose because appellants failed to pay
city income tax on the bonuses. Appellants' cases were consolidated and a trial:
coinmenced on June 18, 2008. Appellants were found guilty on July 23, 2008. They
now appeal setting fo113i the following assignm.ents of error:
{T 4} "I. The trial court erred in fmding that the city of Bryan has authority_----- ------ -------
and/or by fnding that the trial court can exercise jurisdiction over this case either through
home.rule powers or the municipal income tax statutes ui the Ohio Revised Code by
asserting jurisdiction over a transaction between non-resident individuals and a non-
resident entity.
2.
05/15/2009 08:58 4192134844 8TH DISTRICT APPEALS NAUt e^I/nd
(15) "II. The trial court erred in interpreting tlte. language in the city of Bryan
municipal tax ordinance.
{¶ 6) "III. The trial court erred in its interpretation of the city of Bryan municipal
tax ordinance to construe all language in the ordinance in favor of the taxpaye.rs as
required by the Ohio Supreme Court.
{¶ 71 "IV. The trial court erred when it entered judgtnent against d1e defendants
on th.e charge of failure to pay income tax and failure to file a tax.return when the
evidence was insufficient to sustain the conviction and conviction was against the
tnanifest weight of the evidence when the city of Bryan failed to prove beyond a
reasonable doubt all of the required elements of the offense.
{¶ 8) "V. The trial court erred in allowing witness Karen Gallagher to testify
about income tax board of review's case that did not involve any of the defendants which
included that board's interpretation of the law (the city of Bryan municipal tax ordinance)
which is the exclusive province of this court.
{¶ 91 "VI. The trial court erred in not using the language contained in the city of
Bryan municipal tax ordinance which is the only statute enforceable, but rather, used. a
dcfinition from the rules developed for the clerk-treasurer to assist in enforcing the
mun.icipal income tax in violation of the city's charter to convict the taxpayers."
{¶ 10) Appellants' first three assignments of error will be addressed together.
Appellants challenge Bryan Municipal Ordinance 1.81.02, the ordinance authorizing the,
city's imposition of the tax at issue. Appellants contend that the ordinance does not apply
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UJ/1J/LpU'7 aa:5tl 41`J11:34tl44 6TH DI5T12IG1 F1YI'tHLS FH^^
to them.because they received their transition bonuses from a nonresident entity,
Ingersoll-Rand, rather from a resident entity, New Era;
{¶ 11 } Ohio municipalities have the power to levy and collect income taxes
subject to the power of the General Assembly to limit the power of municipalities to levy
taxes under Section.13, Article XVIII or Section 6, Article XIII, ofthe Ohio Constitution.
Angell v. Toledo (.1950); 153 Ohio St. 179. It is well settled that a municipality may levy
a tax on wages resulting from work and labor performed within its boundaries by a
nonresident of that municipality. Thompson v. Cincinnati (1965), 2 Ohio St.2d 292,
paragraph one of the syllabus.
{¶ 12} Bryan Municipal Ordinance 181.02 provides in pertinent part:
{¶ 13} "To provide funds for the purpose of general municipal operations,
maintenance of equipment, new equipment, cxtension, enlargement and improvement of
municipal services and facilities and capital improvements of the City, there is hereby
levied a tax upon. the earnings at the rate of one percent (1 %) upon the following:
{¶ 14}
1.5} "(b) On all salaries, wages, colnmissions and other coinpensation earned on
and after October 1, 1967, by nonresident individuals of the City, for work done or
----------smlces perforined or rendered in the City."
{T 16} Appellants were convicted of violating Bryan MunicipalOrdinance
181..99(a)(3) which provides:
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tl5/15/'L0b`J 6B:58 4192134844 6TH DISTRICT APPEALS rrat7t nwud
{¶ 1.7} "The following shall be considered violations of the provisions of this
(income taxj chapter:
{¶18)°** *
{T 19) "(3) Failing, neglecting or refusing to pay the tax, penalties or interest
imposed by the provisions of this chapter;"
{¶ 20} Pursuant to longstanding rules of statutory construction, we must look at
the specific language contained in the ordinance, if the language is unambiguous, we
must apply the clear meaning of the words used. Roxane Laboratories, Inc. v. Tracy, 75
Ohio St.3d 125, 127. In addition, words and phrases shall be read in context and
construed according to the rules of grammar and common usage. R.C. 1.42.
{¶ 211 Appellants' arguments are without merit. We recognize that any doubt in
the construction of taxing statutes is to be resolved in the taxpayer's favor. Gulf Oil
Cor,p. v. Kosydar (1975), 44 Ohio St.2d 208. However, we find notbing ambiguous in
Bryan Municipal Ordinance 181.02. For purposes of this ordinance, payer Ingersoll.-
Rand's status as a nonresident entity is irrelevant. What is relevant is that appellants
received their bonuses for work they performed in the city of Bryan. Appcllants' first
three assignments of error are found not-well taken.____----
{¶ 22} Tn thei.r fourth assignment of error, appellants contend that their convictions
were based on insufficie.nt evidence and against the manifest weight of the evidence.
{¶ 23) Zn an examination of the sufficiency of the evidence, we must determine
whether the eviden.ce presented at triai l.s legally sufficient to support all of the elements
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n3(i5lL641y d8:56 4192134844 6TH DISTRICT APPEALS PAUt ee ea
of the offense. State v. Thornpki:ns (1997), 78 Ohio St.3d 380, at 386-387. The question
is whetlier the prosecution has presented evidence which, if bel:ieved: would convince the
average mind of the defendant's guilt beyond a reason.able doubt. Id. at 390. Manifest
weight implicates a weighing of the evidence wherein the appellate court acts as a
thirteenth juror, assessing whether the jury lost its way with a resulting manifest
miscarriage of justice warranting reversal of the conviction. Id. at 387.
{¶ 241 The uncontroverted evidence presented at trial demonstrated that appellants
were nonresidents who, in 2006, each received $10,000 for working in the city of Bryan.
The uiucontroverted evidence also showed that appellants cach fai.led to pay city income
tax on their compensation. This evidence, if believed, was sufficient to support a
conclusion, beyond a reasonable doubt, that appellants were guilty of violating Bryan
Municipal Ordinance 181.99(a)(3). Furthermore, we find no miscarriage of justice in the
guilty verdicts. Appellants' fourth assignment of error is found not well-taken.
{¶ 25) In appellants' fifth assignment of error, they contend that the court erred in
allowing a member of the Bryan Income Tax. Review Board to testify regarding another
case involving an employee of New Era.
{¶ 261 "The admission or exclusion of relevant evidence rests within the sound
--------^cretion o.f the trial court." State v. Sage (1987), 31 Ohio St.3d 173. Even "(w]here
evidence has been improperly admitted in derogation of a criminal defendanfs
constitutional riglits, the admission is harmless 'beyond a reasonable doubt' if the
reinaining evidence alone comprises 'overwhelmin.g' proof of defendant's guil.t_" State v.
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uw1ultou7 ntl:= 411JLl.i4ti4451H ll151K1u1 HrrtHL-o
Williams (1983), 6 Ohio St.3d 281, 290, quoting Harrington v. California (1969), 395
U.S. 250, 254. In this case, without determining whether or not the witness's testimony
was relevant, we find that the remaining evidence co;;nprises overwhelming evidence of
guilt and, as such, the trial court's admission of the testimony was harmless. Appellants'
fifth assigninent of error is found not well-taken.
{¶ 27} In their sixth assignment of error, appellants curiously contend that the trial
court did not follow the language -of Bryan Municipal Ordinance 181.99(a)(3) in
convicting appellants. tiVh.ile many theories of culpability and statutory interpretation
were explored during the trial, the judge in this case found appellants guilty of violating
Bryan Municipal Ordinance 1.81.99(a)(3). As already discussed, the evidence supports
appellants' convictions. Finding no evidence that the judge failed to follow the language
of the ordinance, appellants' sixth assignment of error is found not-well taken.
{¶ 28) On consideration whereof, the judgments of the Bryan Municipal Court are
affirm.ed. Court costs assessed to appellants pursuant to App.R. 24.
JUDGMENTS AFFI.RMED.
A certified copy of this entry shall constitute the mandate pursuant to App.R. 27. See,also, 6th Dist.Loc.App.R. 4.
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ooiloltuey bt:5b 4192134844 6TH DISTRICT APPEALS rHut na nes
State v. SmithC.A. No, WM-08-016
Mark L. Pietrvkowski, J.
Arlene Singer. J.
Thomas J. Osowi J.CONCUR.
This decision is subject t^^iarthet.editing by-the-Suprem^Cour of "-Oh:io s Reporter. of Decisions. Parties interested in vicwing the fmal reported
version are advised to visit the Ohio 5upreine Court's web site at:http://www.sconet.state.oh.us/rod/newpdf/?souroe=6.
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