The Ohio Supreme Court has ruled that on an appeal from a municipal board of tax review to the Ohio board of tax appeals (BTA), there is no presumption that the decision being appealed is correct as to either legal or factual issues. The court noted the appeal to the BTA is de novo, or that the BTA may take additional evidence and make rulings of both fact and law. This means that it has an independent duty to weigh the evidence and decide the factual and legal issues in the first instance. MacDonald v. Shaker Hts. Bd. of Income Tax Rev., Slip Opinion 2015-Ohio-3290 (August 19, 2015).

Background  

William MacDonald was an executive with a large public corporation that offered a supplemental executive retirement plan. As his retirement approached, MacDonald elected to take his benefits as an annuity, providing for a number of payments over a period of years. In reporting this benefit on Mr. MacDonald’s W-2, his employer included the present value of the future payments in box 5, “Medicare wages,” but excluded them from box 18, “local wages,” because the local tax ordinance exempted pensions from the municipal tax. The City of Shaker Heights, where Mr. MacDonald resided, assessed a deficiency against him on the basis that the amount in question was not a pension and was, therefore, subject to municipal income tax. The local municipal board of tax review upheld that determination.

Mr. MacDonald appealed the decision of the board of tax review to the BTA. The BTA took additional evidence before issuing a decision. In its ruling, the BTA mentioned in passing that the municipal tax board’s findings were presumed valid. However, it conducted a hearing, took additional evidence, and found that the income in question constituted a pension that was exempt from the tax. The city appealed that decision to the court of appeals. It argued not only that the decision was wrong on the merits and that the income was subject to tax, but also that the BTA should have deferred to the decision of the municipal board of tax appeal and not taken additional evidence. This latter argument was based upon the statutory scheme, R.C. Chapter 2506, that applied to administrative appeals to the courts of common pleas. In those cases, the reviewing court must defer to the factual conclusions of the administrative agency, unless it finds the conclusions to be “arbitrary, capricious, unreasonable, or unsupported by the preponderance of substantial, reliable, and probative evidence” in the record.

The court of appeals ruled against the city on both issues. On the procedural issue, it ruled that under the relevant statute, R.C. 5717.011, the BTA had de novo review authority. The language in the statute was materially different than that embodied in R.C. Chapter 2506, such that it could not be read to have incorporated those restrictions. In fact, R.C. 5717.011 specifically provided to the BTA the authority to take additional evidence.

The city attempted to take a discretionary appeal of both issues to the Supreme Court. The Supreme Court agreed to hear only the procedure issue.

Supreme Court Decision

In its decision, the court first noted that even under the R.C. Chapter 2506 proceedings, a court reviewed administrative agency decisions regarding issues of law on a de novo basis; no deference was owed to the administrative agency with respect to issues of law. Thus, the court concluded that even if this matter were decided under the scheme provided by R.C. Chapter 2506, no deference would be owed by the BTA to the decision of the board of tax review.

The court then noted that R.C. 5717.011, which governs appeals taken from municipal boards of tax review to the BTA, tracked language that was used in other BTA appeal statutes conferring authority on the BTA to conduct de novo review as to both law and facts. It specifically referred to nearly identical language contained in R.C. 5717.01, which governs appeals from county boards of revision to the BTA, and R.C. 5717.02(E), which relates to appeals from the tax commissioner to the BTA. In all three statutes, the BTA has authority to hear additional evidence and to conduct further investigations before making its decision.

The court also reviewed a number of cases involving appeals from both county boards of revision and the tax commissioner. Using various language, all of the cases indicated that the determination of factual issues was particularly the province of the BTA and that the BTA had an affirmative duty to weigh the evidence and to make factual conclusions based upon the evidence presented to it.

Based upon its review of the statutes and the cases, the court concluded that when the right to appeal to the BTA from a municipal board of tax review was created without any limitation on general BTA authority, the General Assembly intended to confer on the BTA the authority to conduct de novo review of issues of law and fact under R.C. 5717.011. Whether the merit issue was considered a legal issue of what constitutes a pension, or the factual issue of whether the payment in question was a pension, the court concluded that the BTA correctly exercised its independent judgment in determining the facts and the law in the case.

Conclusion    

The BTA has long held that decisions of county boards of revision appealed under R.C. 5717.01 are not entitled to any presumption of correctness and that the BTA has an affirmative duty to make its own factual and legal conclusions. This decision extends that same conclusion to appeals from municipal boards of tax review under R.C. 5717.011.

However, it also extends that same conclusion to appeals from the tax commissioner under R.C. 5717.02. In such appeals, the court has often held that the decisions of the tax commissioner are presumptively correct and that the taxpayer bears the burden of demonstrating error in those decisions. See Alcan Aluminum Corp. v. Limbach, 42 Ohio St. 3d 121, 537 N.E.2d 1302; (1989). While this language is dicta, it nevertheless serves as part of the basis for the court’s decision regarding the duty of the BTA under R.C. 5717.011. The decision clearly rejects the notion that nay deference is to be given with respect to the legal conclusions made by the tax commissioner. With respect to factual issues, it appears that the court may be suggesting that the presumption of correctness is merely a procedural device relating to the party that has the burden of going forward with the evidence. That is, the tax commissioner does not have to prove the correctness of that official’s assessment in the first instance, and the taxpayer has the burden of presenting evidence that supports its position. Its risk for failing to do so is to lose its appeal.