Cincinnati Bell Tel. Co. v. Cincinnati - Ohio Supreme Court Opinion - Ohio Supreme Court Decision

	ROMINGER LEGAL
		Ohio Court Cases and Opinions - Ohio Legal Research
					Need Legal Help?
					Need Legal Help?
LEGAL RESEARCH CENTER
LEGAL RESEARCH CENTER			LEGAL HEADLINES - CASE LAW - LEGAL FORMS	NOT FINDING WHAT YOU NEED? -RESEARCH

This court case was taken from the web sites of the Ohio Courts. Search our site for more cases - CLICK HERE

LEGAL RESEARCH

COURT REPORTERS

PRIVATE INVESTIGATORS

PROCESS SERVERS

DOCUMENT RETRIEVERS

EXPERT WITNESSES

Find a Private Investigator

Find an Expert Witness

Find a Process Server

Case Law - save on Lexis / WestLaw.

Legal News - Legal Headlines

CINCINNATI BELL TELEPHONE COMPANY, APPELLEE, v. CITY OF CINCINNATI ET AL.,
APPELLANTS.
[Cite as Cincinnati Bell Tel. Co. v. Cincinnati (1998), 81 Ohio St.3d 599.]
Municipal corporations -- Taxation -- Local net profits taxes are valid -- Tax
enacted by a municipality pursuant to its taxing power is valid in the
absence of an express statutory prohibition of the exercise of such power by
the General Assembly.
The taxing authority of a municipality may be preempted or otherwise prohibited
only by an express act of the General Assembly. Section 13, Article XVIII,
and Section 6, Article XIII, Ohio Constitution. (Cincinnati v. Am. Tel. &
Tel. Co. [1925], 112 Ohio St. 493, 147 N.E. 806, overruled; Haefner v.
Youngstown [1946], 147 Ohio St. 58, 33 O.O. 247, 68 N.E.2d 64,
paragraphs three and four of the syllabus, overruled, to the extent
inconsistent herewith; E. Ohio Gas Co. v. Akron [1966], 7 Ohio St.2d 73, 36
O.O. 2d 56, 218 N.E.2d 608, overruled.)
(No. 97-310 -- Submitted February 4, 1998 -- Decided May 13, 1998.)
APPEAL from the Court of Appeals for Hamilton County, Nos. C-950931, C-
950932 and C-950933.

The city of Cincinnati, city of Blue Ash, and the village of Fairfax have
enacted laws providing for the taxation of the net profits of corporations that are
derived from business activities conducted within each municipality. Pursuant to
the local ordinances authorizing the imposition of these taxes, all corporations are
subject to the tax. Net profits are calculated according to the same method by
which the net income of a corporation is computed and reported to the Internal
Revenue Service. Corporations must pay the tax regardless of whether a
corporation maintains an office or place of business within the municipality. In

essence, corporations conducting business within each of these municipalities
must pay a tax on the profits earned within and that are attributable to the business
activity occurring in the municipality.

Appellee, Cincinnati Bell Telephone Company, is a public utility that
provides telephone service to customers residing in Cincinnati, Blue Ash, and
Fairfax. For the tax years 1991, 1992, and 1993, Cincinnati Bell filed income tax
returns with each of the municipalities as well as first quarter estimated payments
for the tax year 1994. Cincinnati Bell paid a total of $935,942.28 to the city of
Cincinnati, $17,402.59 to the city of Blue Ash, and $2,015.64 to the village of
Fairfax in taxes for those years in question.

Subsequent to making those payments, Cincinnati Bell requested refunds for
those respective amounts from each municipality, asserting that a tax assessment
levied by the state of Ohio on the company pursuant to R.C. 5727.30 preempted
the authority of each municipality to assess its net profits tax. R.C. 5727.30
provides that "[e]ach public utility, except railroad companies, shall be subject to
an annual excise tax, as provided by sections 5727.31 to 5727.62 of the Revised
Code, for the privilege of owning property in this state or doing business in this
state during the twelve-month period next succeeding the period upon which the
tax is based." Public utility companies must pay a tax of 4.75 percent based upon
the total of all nonexempt gross receipts pursuant to R.C. 5727.38.

Cincinnati Bell filed its requests with the tax commissioners of the
respective municipalities. The tax commissioners of all three municipalities
denied Cincinnati Bell's request for a refund. Cincinnati Bell appealed these
decisions to the Cincinnati Finance Review Board, the City of Blue Ash Tax
Board of Review, and the Village of Fairfax Tax Board of Review, each of which
affirmed the decisions of the respective tax commissioner. Pursuant to R.C.

2

2506.04, Cincinnati Bell appealed the decisions of the boards of review to the
Hamilton County Court of Common Pleas, and also filed a complaint for a refund
pursuant to R.C. 718.06(C). The trial court consolidated the actions against the
municipalities, affirmed the boards of review, and granted summary judgment in
favor of the municipalities on the claims for refunds.

Cincinnati Bell appealed to the Court of Appeals for Hamilton County. The
court of appeals reversed, holding that the public utility excise tax, as defined in
R.C. 5727.30 et seq., impliedly preempts municipalities from enacting a tax on the
net profits of a public utility company that can be attributed to the business
activity of that company that is conducted within the municipality. The court
entered judgment in favor of Cincinnati Bell on its refund claims.

The cause is now before the court pursuant to the allowance of a
discretionary appeal.
__________________

Frost & Jacobs, L.L.P., Frederick J. McGavran and Larry H. McMillin, for
appellee.
Fay
D.
Dupuis,
City Solicitor, and Richard Ganulin, Assistant City
Solicitor, for appellants city of Cincinnati and Gary A. Papania, Tax
Commissioner.

Dinsmore & Shohl, L.L.P., Mark A. VanderLaan and Thomas Jacobs, for
appellants city of Blue Ash and Sharry K. Long, Tax Commissioner.

Dinsmore & Shohl, L.L.P., Gary E. Becker and Alan H. Abes, for appellants
village of Fairfax and Jennifer M. Kaminer, Clerk-Treasurer.

John E. Gotherman and Malcolm C. Douglas, urging reversal for amicus
curiae, The Ohio Municipal League.
__________________

3

MOYER, C.J. The question presented is whether a municipality is
preempted by R.C. 5727.30 et seq. from enacting a net profits tax. Our analysis of
the law causes us to conclude that a tax enacted by a municipality pursuant to its
taxing power is valid in the absence of an express statutory prohibition of the
exercise of such power by the General Assembly. Accordingly, we reverse the
judgment of the court of appeals.
I

Municipal taxing power in Ohio is derived from the Ohio Constitution.
Section 3, Article XVIII of the Constitution, the Home Rule Amendment, confers
sovereignty upon municipalities to "exercise all powers of local self-government."
As this court stated in State ex rel. Zielonka v. Carrel (1919), 99 Ohio St. 220,
227, 124 N.E. 134, 136, "[t]here can be no doubt that the grant of authority to
exercise all powers of local government includes the power of taxation."

However, the Constitution also gives to the General Assembly the power to
limit municipal taxing authority. Section 6, Article XIII provides that "[t]he
General Assembly shall provide for the organization of cities, and incorporated
villages, by general laws, and restrict their power of taxation * * * so as to prevent
the abuse of such power." Section 13, Article XVIII provides that "[l]aws may be
passed to limit the power of municipalities to levy taxes and incur debts for local
purposes * * *." See Franklin v. Harrison (1960), 171 Ohio St. 329, 14 O.O.2d 4,
170 N.E.2d 739.

Appellants assert that their local net profits taxes are valid because the
General Assembly has not, pursuant to these constitutional powers, expressly
preempted such a tax from local imposition. Appellants Blue Ash and Fairfax and
amicus suggest that the doctrine of implied preemption, upon which appellees
rely, be abrogated. Implied preemption of taxation, these appellants and amicus

4

argue, is an anachronistic doctrine, which is rooted in public policy considerations
and derives no support from the Constitution. For the reasons that follow, we
agree.
II
In
State ex rel. Zielonka v. Carrel, this court concluded that the exercise of
the taxing power is granted to municipalities pursuant to Section 3, Article XVIII
of the Ohio Constitution. 99 Ohio St. at 227, 124 N.E. at 136. In arriving at that
conclusion, this court raised, in dicta, the question of whether the General
Assembly could impliedly preempt municipal taxing power:

"It is enough to say that the general assembly has not expressly limited the
authority of municipalities to levy an occupational tax, nor has it impliedly limited
such authority by invading the field on its own account.

"It is possible, of course, that the interesting question whether both state and
municipality may occupy the same field of taxation at the same time, may some
day be presented to the courts for their determination." Id. at 228, 124 N.E. at
136.

This court then considered that question and established the doctrine of
implied preemption in Cincinnati v. Am. Tel. & Tel. Co. (1925), 112 Ohio St. 493,
147 N.E. 806. There, the city of Cincinnati attempted to levy an excise tax, at an
annual flat rate, on all railroads, telegraph companies, and telephone companies
operating or doing business within the city limits. At the same time, the state
levied excise taxes, on income measured by gross receipts, upon the same
companies. Former G.C. 5483, 5484, and 5486. This court concluded that the
municipal taxes were preempted by the state excise taxes, reasoning that "[t]he
power granted to the municipality by Section 3, Article XVIII, of the Constitution

5

* * * does not extend to fields within such municipality which have already been
occupied by the state." Id. at paragraph two of the syllabus.

Subsequent decisions to that establishment of implied preemption reflect the
court's effort to determine the precise scope and applicability of the doctrine. In
Haefner v. Youngstown (1946), 147 Ohio St. 58, 33 O.O. 247, 68 N.E.2d 64, a
municipal excise tax was levied upon consumers of utility services based upon the
rate charged. The state imposed both a sales tax on those consumers, and a
privilege tax measured by gross receipts on utility companies. The state sales tax
exempted utility services. Without relying specifically on either state tax as the
basis for its position, the court held that the enactment of both taxes by the state
constituted a preemption of "that field of taxation which includes, inter alia,
receipts by utility companies from natural gas, electricity, and water sold to
consumers and local service and equipment furnished to telephone subscribers."
Id. at paragraph four of the syllabus. The court also held that the power of a
municipality to raise revenue could be limited by "implication flowing from state
legislation which pre-empts the field" of taxation. Id. at paragraph three of the
syllabus. In explaining its basis for preemption, the court stated that
"[i]nferentially the whole legislative course shows an intent to avoid double
taxation of receipts whether they come from sales proper or are the `gross receipts'
of utilities." Id. at 64, 33 O.O. at 249, 68 N.E.2d at 67.
In
E. Ohio Gas Co. v. Akron (1966), 7 Ohio St.2d 73, 36 O.O. 2d 56, 218
N.E.2d 608, the court was presented with the question of whether, under the
doctrine of implied preemption, a municipal income tax imposed on public utilities
was preempted by a gross receipts tax levied by the state on public utilities
pursuant to R.C. Chapter 5727. The court determined that the state tax was
essentially an adjusted gross income tax, and that since the state tax and the local

6

tax were of a similar kind, the local tax was preempted by implication. Id. at 77,
36 O.O.2d at 59, 218 N.E.2d at 610. The court further stated that the case
presented "a clear-cut example of double taxation such as the court had in mind
when it originally created the doctrine of pre-emption by implication." Id. at 78,
36 O.O.2d at 59, 218 N.E.2d at 611.

This court's statement in East Ohio Gas that the public utilities gross
receipts tax was an income tax prompted the city of Cleveland to contend in State
ex rel. Cleveland v. Kosydar (1973), 36 Ohio St.2d 183, 65 O.O.2d 401, 305
N.E.2d 803, that it was entitled to a share of the receipts of that tax under Section
9, Article XII of the Constitution. In clarifying its position that the gross receipts
tax was an excise tax rather than an income tax, the court stated that nothing in the
syllabus or opinion of East Ohio Gas "should be construed to represent a
departure from this court's position" that the public utilities gross receipts tax was
an excise tax as opposed to an income tax. Id. at 185, 65 O.O.2d at 402, 305
N.E.2d at 804.

That the court has struggled to apply the doctrine it created in Cincinnati v.
AT & T is reflected by subsequent attempts to define what it meant in its holding
that municipal taxing power "does not extend to fields within such municipality
which have already been occupied by the state." (Emphasis added.) Cincinnati v.
AT & T, paragraph two of the syllabus. In one case, we implied that "field" might
be defined by the types of taxes involved, i.e., excise as opposed to income taxes.
Angell v. Toledo (1950), 153 Ohio St. 179, 41 O.O. 217, 91 N.E.2d 250. In
Angell, we stated that "[i]n the interpretation of the Ohio Constitution an income
tax is not to be treated as an excise tax." Id. at 183, 41 O.O. at 219, 91 N.E.2d at
252. We added that "Ohio municipalities have the power to levy and collect
income taxes in the absence of pre-emption by the General Assembly of the field

7

of income taxation * * *." (Emphasis added.) Id. at paragraph one of the syllabus.
Justice Taft, concurring in Angell, wrote that "the occupation by the state of a
small portion of a particular field of taxation does not necessarily indicate the
intention of the General Assembly to exclude municipalities from the portion of
such field not so occupied." Id. at 186, 41 O.O. at 221, 91 N.E.2d at 254.

In contrast, this court has at other times taken a broader view of what
constitutes the "field" of taxation. In Haefner, the court premised its application
of implied preemption on an analysis of the entire taxing scheme imposed upon
utilities by the General Assembly. Similarly, Chief Justice O'Neill, concurring in
Cleveland, stated that "if the General Assembly has levied a tax on a particular
subject matter, it will be presumed that the General Assembly has impliedly
exercised its power to prohibit a local tax on the same subject matter." (Emphasis
added.) Cleveland at 186, 65 O.O.2d at 403, 305 N.E.2d at 805.
III

The difficulty encountered by this court in applying the doctrine of implied
preemption is perhaps best illustrated by our statement in East Ohio Gas that "[a]
reading of the cases cited above will demonstrate that the language of this court, in
asserting or denying the doctrine of pre-emption by implication, has sometimes
been obscure, ambiguous, inconsistent and on occasion, almost contradictory to
previous cases in stating the grounds upon which the court's judgment was based."
East Ohio Gas at 77, 36 O.O.2d at 58, 218 N.E.2d at 610.

Today we end that confusion by analyzing municipal taxing power within
the context of the source of that power -- the Ohio Constitution.

Prior to the passage of the Home Rule Amendment, the source and extent of
municipal power was derived from the enactments of the General Assembly. See
Perrysburg v. Ridgway (1923), 108 Ohio St. 245, 140 N.E. 595. Passage of the

8

Home Rule Amendment provided municipalities with "full and complete political
power in all matters of local self government." Id. at 255, 140 N.E. at 598. The
municipal taxing power is one of the "powers of local self-government" expressly
delegated by the people of the state to the people of municipalities. Zielonka, 99
Ohio St. at 227, 124 N.E. at 136.

Pursuant to Section 13, Article XVIII, and Section 6, Article XIII, the
Constitution confers power upon the General Assembly to limit the exercise of
taxing power by a municipality. These provisions should be interpreted
coextensively with the general grant of local governing authority to municipalities
under Article XVIII. By the grant of this authority, the intention of the Home Rule
Amendment was to eliminate statutory control over municipalities by the General
Assembly. See Perrysburg at 255, 140 N.E. at 598. Its passage granted "
`municipalities sovereignty in matters of local self-government, limited only by
other constitutional provisions.' " (Emphasis added.) Canton v. Whitman (1975),
44 Ohio St.2d 62, 65, 73 O.O.2d 285, 289, 337 N.E.2d 766, 769. Given this
general, broad grant of power that municipalities enjoy under Article XVIII, the
Constitution requires that the provisions allowing the General Assembly to limit
municipal taxing power be interpreted in a manner consistent with the purpose of
home rule.

The clauses from which the General Assembly derives power to limit the
exercise of municipal taxing power indicate that "[l]aws may be passed to limit the
power of municipalities to levy taxes and incur debts * * *," Section 13, Article
XVIII, and that "[t]he General Assembly shall provide for the organization of
cities, and incorporated villages, by general laws, and restrict their power of
taxation * * * ." (Emphasis added.) Section 6, Article XIII. These provisions
clearly delegate power to the General Assembly to limit exercise of the municipal

9

taxing power. When these provisions are interpreted in relation to the purpose and
scope of the Home Rule Amendment, it is evident that a proper exercise of this
limiting power requires an express act of restriction by the General Assembly.
The mere enactment of state legislation that results in an occupation of a field of
taxation is not sufficient to constitute an exercise of the General Assembly's
constitutional power to limit municipal taxation. To construe the enactment of
such legislation to impliedly preempt municipal taxing powers would contravene
the principle underlying Article XVIII -- that municipal powers are derived from
the Constitution and not from the General Assembly. See Perrysburg, at
paragraph one of the syllabus. The adoption of Section 3, Article XVIII meant
that municipalities were entitled to exercise, fully and completely, "all powers of
local self-government." Among those powers is the power of taxation.
Accordingly, given the delegation, by the people of the state, of power to levy
taxes for municipal purposes, the exercise of that power is to be considered in all
respects valid, unless the General Assembly has acted affirmatively by exercising
its constitutional prerogative. In the absence of an express statutory limitation
demonstrating the exercise, by the General Assembly, of its constitutional power,
acts of municipal taxation are valid.

That the General Assembly is aware that it may exercise its limiting power
by expressly preempting municipal taxation by statute is demonstrated by its
passage of specific prohibitions on municipal taxation of certain types of income
as provided in R.C. 718.01(F). Pursuant to R.C. 718.01(F), "[n]o municipal
corporation shall tax" military pay, income of certain nonprofit organizations,
certain forms of intangible income, compensation paid to precinct election
officials, and compensation paid to certain employees of transit authorities.
Similarly, in providing for the collection of a state income tax, the General
10

Assembly has expressly provided that "[t]he levy of this tax on income does not
prevent a municipal corporation, a joint economic development zone created under
section 715.691, or a joint economic development district created under section
715.70 or 715.71 or sections 715.72 to 715.81 of the Revised Code from levying a
tax on income." R.C. 5747.02(C).

One analysis of the enactment of the state income tax provisions indicates
that the General Assembly included this express disclaimer to clearly state that the
state tax would not preempt, by implication, the power of municipalities to levy
income taxes. Dewey, Municipal Income Taxes in Ohio: Limitations on the Tax
Base by State Pre-emptions (1976), 7 U.Tol.L.Rev. 501, 503. This disclaimer runs
counter to, and implies disagreement with, the inference established in Cincinnati
v. AT & T that enactment of state tax legislation indicates the desire of the General
Assembly to preempt municipal taxation in the same area or "field." See
Municipal Income Taxes at 513.

Very clearly, there is no provision in the Ohio Constitution that contains
words preventing a municipality from exercising its taxing power simply because
the General Assembly has enacted tax legislation of its own. Rather, the foregoing
analysis indicates a balanced delegation of power, by the people, to municipalities
and the General Assembly with respect to municipal taxing power. This balance is
best maintained by interpreting the specific limiting power of the General
Assembly so that it does not engulf the general power of taxation delegated to
municipalities.
IV

The remaining cornerstone of the doctrine of implied preemption is this
court's stated "antipathy to `double taxation.' " East Ohio Gas at 77, 36 O.O.2d at
11

58, 218 N.E.2d at 610. In East Ohio Gas, this court stated that the primary basis
undergirding the doctrine was a desire to prevent double taxation. Id.

While there may be a desire to avoid double taxation as a matter of public
policy, there is no constitutional prohibition against double taxation. This court
stated in Sandusky Gas & Elec. Co. v. State (1926), 114 Ohio St. 479, 490, 151
N.E. 685, 688, that double taxation "does not render the statute invalid or the order
of the tax commission violative of any provision of either the federal or the state
Constitution." Plainly, multiple taxation of the same subject matter exists in the
form of taxation imposed by municipal, state, and federal governments against net
income.

Additionally, we have not always adhered to our position regarding double
taxation. This court had no "antipathy to double taxation" in Thompson v.
Cincinnati (1965), 2 Ohio St.2d 292, 31 O.O.2d 563, 208 N.E.2d 747, where we
held that both the city of Cincinnati and the city of Loveland could legally tax the
same income of a person who lived in Loveland but was employed in Cincinnati.
In paragraph four of the syllabus, we held that "[a] resident of one municipal
corporation who receives wages as a result of work and labor performed within
another municipal corporation may be lawfully taxed on such wages by both
municipal corporations."
V

There is no constitutional provision that directly prohibits both the state and
municipalities from occupying the same area of taxation at the same time. Rather,
the Constitution presumes that both the state and municipalities may exercise full
taxing powers, unless the General Assembly has acted expressly to preempt
municipal taxation, pursuant to its constitutional authority to do so. Our
interpretation of that authority today is consistent with the constitutional powers
12

granted to municipalities under Article XVIII, and our law that Article XVIII
powers may be limited only by other constitutional provisions.

Having determined that there is no constitutional basis that supports the
continued application of the doctrine of implied preemption, we are compelled, by
virtue of the foregoing analysis, to overrule Cincinnati v. Am. Tel. & Tel. Co., East
Ohio Gas v. Akron, and paragraph four and the portion of paragraph three of the
syllabus in Haefner v. Youngstown that is inconsistent with our holding today.
The power to restrict municipal taxing power as granted by Section 13, Article
XVIII and Section 6, Article XIII of the Ohio Constitution requires the General
Assembly to preempt municipal taxing power by express statutory provision.

Accordingly, we hold that the taxing authority of a municipality may be
preempted or otherwise prohibited only by an express act of the General
Assembly.

The judgment of the court of appeals is reversed.
Judgment reversed.

DOUGLAS, RESNICK, F.E. SWEENEY, PFEIFER and COOK, JJ., concur.

LUNDBERG STRATTON, J., dissents.
__________________

LUNDBERG STRATTON, J., dissenting. I disagree with the majority's
decision to overrule a long line of well-reasoned cases that have established the
doctrine of implied preemption. Therefore, I would affirm the court of appeals,
finding that the General Assembly intended to preempt this type of municipal tax
on public utilities by its enactment of the public utility excise tax. I disagree with
the majority's decision to outright abolish the doctrine of implied preemption.
Therefore, I respectfully dissent.
13