Title: Sugarcreek Twp. v. City of Centerville

State: ohio

Issuer: Ohio Supreme Court

Document:

[Until this opinion appears in the Ohio Official Reports advance sheets, it may be cited as 
Sugarcreek Twp. v. Centerville, Slip Opinion No. 2012-Ohio-4649.] 
 
 
NOTICE 
This slip opinion is subject to formal revision before it is published in 
an advance sheet of the Ohio Official Reports.  Readers are requested 
to promptly notify the Reporter of Decisions, Supreme Court of Ohio, 
65 South Front Street, Columbus, Ohio 43215, of any typographical or 
other formal errors in the opinion, in order that corrections may be 
made before the opinion is published. 
 
SLIP OPINION NO. 2012-OHIO-4649 
SUGARCREEK TOWNSHIP, APPELLEE, v. CITY OF CENTERVILLE, APPELLANT. 
[Until this opinion appears in the Ohio Official Reports advance sheets,  
it may be cited as Sugarcreek Twp. v. Centerville,  
Slip Opinion No. 2012-Ohio-4649.] 
Real property taxation—Annexation by municipality of property within 
township—Effect of Municipal tax-increment financing on township 
taxes—R.C. 709.023 and 5709.40. 
(No. 2011-0926—Submitted April 3, 2012—Decided October 11, 2012.) 
APPEAL from the Court of Appeals for Greene County,  
No. 2010-CA-52, 193 Ohio App.3d 408, 2011-Ohio-1830. 
__________________ 
SYLLABUS OF THE COURT 
Although a township continues to receive tax revenue on property that a 
municipality annexes through an expedited type-2 process under R.C. 
709.023, the municipality may adopt a tax-increment financing plan under 
R.C. 5709.40 that temporarily exempts from city and township property 
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taxes a portion of the improvements made to the annexed property to 
encourage the annexed property’s economic development. 
__________________ 
 
LANZINGER, J. 
{¶ 1} This case involves the interplay between a municipality’s so-called 
expedited type-2 annexation of real property located within a township pursuant 
to R.C. 709.023 and the municipality’s tax-increment financing (“TIF”) created 
pursuant to R.C. 5709.40 to encourage development of that property.  We hold 
that although a township continues to receive tax revenue on property that a 
municipality annexes through an expedited type-2 process under R.C. 709.023, 
the municipality may adopt a TIF plan under R.C. 5709.40 that temporarily 
exempts from city and township property taxes a portion of the improvements 
made to the annexed property to encourage the annexed property’s economic 
development. 
I.  Preliminary Principles 
{¶ 2} Our resolution of this case depends upon the effect of Ohio’s TIF 
statute upon land subjected to an expedited type-2 annexation.  Before 
considering the facts and issues present in this case, it is helpful to conduct a brief 
overview of Ohio’s annexation and TIF laws. 
A. Annexation 
{¶ 3} We have observed that “it is the policy of the state of Ohio to 
encourage annexation by municipalities of adjacent territory.”  Middletown v. 
McGee, 39 Ohio St.3d 284, 285, 530 N.E.2d 902 (1988).  In Ohio, the traditional 
method of annexation is codified in R.C. 709.02 to 709.11.  This method requires 
a number of steps before the annexation occurs, including requirements that 
owners submit an application for annexation to the board of county 
commissioners and that the board hold a hearing on the application.  This method 
gives the board of county commissioners some discretion over whether the 
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3 
 
application for annexation is granted.  R.C. 709.033.  Under this traditional form 
of annexation, land annexed from a township remains part of that township until 
the municipal corporation acts to change the township boundaries pursuant to 
R.C. 503.07. 
{¶ 4} In 2001, the General Assembly enacted legislation creating three 
special procedures for expedited annexation.  Am.Sub.S.B. No. 5, 149 Ohio 
Laws, Part I, 621.  An expedited type-1 annexation requires consent of all parties 
involved, including the municipality, the township or townships, and the land 
owners.  R.C. 709.022.  An expedited type-2 annexation allows for expedited 
annexation when all property owners agree. R.C. 709.023.  An expedited type-3 
annexation also requires consent of all property owners and permits annexation 
for a significant economic development project.  R.C. 709.024. 
{¶ 5} The expedited type-2 annexation process under R.C. 709.023 is at 
issue in this case.  As part of this process, when all of the owners of property 
subject to annexation approve of the annexation and meet the statutory 
requirements for filing the petition, the board of county commissioners is required 
to grant the annexation. R.C. 709.023(F).  R.C. 709.023(G) specifies that no 
appeal may be taken from the board’s entry granting the annexation.  R.C. 
709.023(H) ensures that unless the township agrees to exclude the annexed land 
from the township, the annexed land will remain part of the township.  
Furthermore, R.C. 709.023(H) specifies that the annexed territory “remains 
subject to the township’s real property taxes.”  The meaning of this clause is the 
heart of this case. 
B.  Tax-Increment Financing 
{¶ 6} The General Assembly has enacted a variety of laws to promote 
economic development in Ohio.  One such law for spurring economic growth is 
TIF, by which improvements to real property are exempted from taxation, and the 
funds that would have been applied toward taxes are instead applied toward 
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public improvements that benefit the property within the area subject to the TIF.  
R.C. 5709.40 grants municipalities the power to establish a TIF.  According to the 
statute, a municipal corporation “may adopt an ordinance creating an incentive 
district and declaring improvements to parcels within the district to be a public 
purpose and * * * exempt from taxation.”  R.C. 5709.40(C)(1).  “Improvement,” 
as applicable here, is increased assessed valuation of the real property subject to 
the TIF.  R.C. 5709.40(A)(4).1  Instead of paying real property taxes on the 
improvements to land within the incentive district, property owners make “service 
payments” pursuant to R.C. 5709.42, and those service payments are used to 
finance designated public infrastructure improvements in the district.  R.C. 
5709.40(C)(3)(a).  The municipal ordinance establishing the TIF  
 
shall specify the life of the incentive district and the percentage of 
the improvements to be exempted, shall designate the public 
infrastructure improvements made, to be made, or in the process of 
being made, that benefit or serve, or, once made, will benefit or 
serve parcels in the district. 
 
Id.  R.C. 5709.40(C)(4) specifies:   
 
Except with the approval of the board of education of each 
* * * school district within the territory of which the incentive 
district is or will be located, * * * the life of an incentive district 
shall not exceed ten years, and the percentage of improvements to 
be exempted shall not exceed seventy-five per cent. 
                                                 
1 R.C. 5709.40(A) provides, “As used in this section: * * * (4) ‘Improvement’ means the increase 
in the assessed value of any real property that would first appear on the tax list and duplicate of 
real and public utility property after the effective date of an ordinance adopted under this section 
were it not for the exemption granted by that ordinance. (Emphasis added.) 
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The TIF exemption expires on the date specified in the ordinance or on the date 
on which the public improvements are paid for in full, whichever occurs first.  
R.C. 5709.40(G). 
{¶ 7} In other words, a municipality may enact a TIF establishing an 
incentive district exempting from local real estate taxes improvements to real 
property within the district.  Instead of paying real estate taxes, the owners of 
exempted property make service payments to cover the cost of public 
improvements in the incentive district, such as roads, water and sewer lines, or 
environmental remediation.  R.C. 5709.40(A)(7), (B), and (C)(1).  Unless 
approval has been obtained from affected boards of education, the TIF lasts no 
longer than ten years and may exempt only up to 75 percent of the taxes on the 
improvements to the real property within the district.  R.C. 5709.40(C)(4). 
{¶ 8} With this background in mind, we turn to this discretionary appeal, 
which asks whether a city TIF may be applied to township property that was 
subject to an expedited type-2 annexation. 
II.  Facts 
{¶ 9} The property involved in this litigation consists of 268 acres 
located on both sides of Interstate 675 at the Wilmington Pike interchange in 
Greene County adjacent to appellant City of Centerville (“the City”) in appellee 
Sugarcreek Township (“the Township”).  In April 2006, the City entered into 
preannexation agreements with the property owners of that area.  The agreements 
specified that a third-party developer intended to purchase the property from the 
owners for a multiuse development.  As part of the agreements, the land was to be 
annexed to the City, and in return the City would create a TIF. 
{¶ 10} All of the property owners signed and submitted petitions to the 
Greene County Board of Commissioners in May 2006 to annex the property 
pursuant to R.C. 709.023.  The Greene County Board of Commissioners granted 
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the annexation petitions in June and July 2006, and the City accepted the 
annexations in October 2006.  Because this was an expedited type-2 annexation, 
and the parties did not agree otherwise, R.C. 709.023(H) applied and provided 
that the City’s annexed land also remained a part of the Township: 
 
Notwithstanding anything to the contrary in section 503.07 
of the Revised Code, unless otherwise provided in an annexation 
agreement entered into pursuant to section 709.192 of the Revised 
Code or in a cooperative economic development agreement entered 
into pursuant to section 701.07 of the Revised Code, territory 
annexed into a municipal corporation pursuant to this section shall 
not at any time be excluded from the township under section 
503.07 of the Revised Code and, thus, remains subject to the 
township’s real property taxes. 
 
{¶ 11} In September 2006, before the annexation was completed, the 
Township filed an action for declaratory judgment seeking in part a declaration 
that the City could not establish a TIF as the property owners and the City had 
agreed to do.  The trial court granted the Township’s motion for partial summary 
judgment on the TIF issue, concluding that real estate taxes would be diverted 
from the Township in violation of R.C. 709.023(H).  The trial court accordingly 
declared that the City could not implement a TIF on the annexed land of the 
Township. 
{¶ 12} The Second District Court of Appeals, however, recognized that 
both the City and the Township are entitled to tax the land because the land is 
within each entity’s borders.  184 Ohio App.3d 480, 2009-Ohio-4794, 921 N.E.2d 
655, ¶ 171 (2d Dist.).  The court of appeals distinguished between inside and 
outside millage.  R.C. 5705.02 establishes that 
January Term, 2012 
7 
 
 
[t]he aggregate amount of taxes that may be levied on any 
taxable property in any subdivision or other taxing unit shall not in 
any one year exceed ten mills on each dollar of tax valuation of 
such subdivision or other taxing unit, except for taxes specifically 
authorized to be levied in excess thereof. 
 
Taxes falling below this ten-mill limit are referred to as minimum levies or inside 
millage, while voter-approved taxes exceeding the ten-mill limit are referred to as 
additional levies or outside millage. 
{¶ 13} The court of appeals held that both entities were entitled to retain 
their minimum levies on the property within the annexation area, reduced to an 
amount within the ten-mill inside-millage limit in the manner prescribed by R.C. 
5705.31.  Id. at ¶ 172.  The court also held that both the Township and the City 
were authorized to enact TIF resolutions that exempt from taxation improvements 
on real property within the annexation area but that neither could enact TIF 
resolutions that would interfere with the other’s share of the minimum levies on 
the annexed property.  Id. at ¶ 174.  Because the trial court’s decision prevented 
the City from enacting even a TIF ordinance that did not interfere with the 
Township’s right to collect its share of the minimum levies on the property, the 
court of appeals reversed the trial court’s judgment and remanded the case.  Id. at 
¶ 176-178. 
{¶ 14} On remand, the parties disputed whether the City could enact a TIF 
on the Township’s outside millage.  The trial court concluded that “the TIF 
statutes do not allow Centerville to TIF outside millage real property taxes 
allowed by statute and reserved to the township by operation of R.C. § 
709.023(H).”  The trial court stated further that “when voters of Sugarcreek 
Township, including voters of the annexed territory, have voted for and 
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authorized outside millage levies, those levies are not subject to a TIF Plan and 
exemption enacted by Centerville for the annexed territory.” 
{¶ 15} Once again, the City appealed, arguing that it had the authority to 
adopt a TIF plan for the annexed land that affects the Township’s outside millage.  
193 Ohio App.3d 408, 2011-Ohio-1830, 952 N.E.2d 519, ¶ 15 (2d Dist.).  The 
City also asserted that the plain language of R.C. 709.023(H) does not preclude it 
from adopting a TIF ordinance under R.C. 5709.40 that limits the Township’s 
ability to collect property taxes on the annexed land.  Id. at ¶ 21.  The court of 
appeals held that “the plain language of R.C. 709.023(H) precludes Centerville 
from enacting a TIF plan that would prevent Sugarcreek from collecting the 
property taxes, whether in the form of inside millage or outside millage, to which 
it is entitled.”  Id.  The court of appeals concluded: 
 
R.C. 709.023(H) and 5709.40 should be read in pari 
materia to permit a municipal corporation to adopt a TIF ordinance 
affecting real property located within the municipality pursuant to 
R.C. 5709.40, except to the extent that the real property “remains 
subject to the real property taxes,” R.C. 709.023(H), of a township 
in which the real property likewise remains located following a 
type-2 annexation. 
 
Id. at ¶ 28. 
{¶ 16} The City appealed, and we accepted for review its proposition of 
law, which states, “R.C. 709.023(H) enacted as part of annexation reform does 
not guarantee a township will be paid all township real property taxes forever, 
free from temporary exemption provided by Ohio’s tax-increment financing laws 
solely because the ‘expedited type-2’ 100% owner supported annexation process 
is followed.” 
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III.  Legal Analysis 
{¶ 17} We must decide whether a municipality may adopt a TIF that 
temporarily exempts from township taxes a portion of the value of an 
improvement on land within a township that has been annexed using the 
expedited type-2 annexation method and is subject to a municipal TIF, or whether 
municipal TIF may not affect the property taxes received by the township.  We 
hold that a municipality may adopt a TIF that temporarily exempts improvements 
to the annexed property from township property taxes as well as municipal taxes. 
A.  The TIF Tax Exemption Applies to Townships Subject to Expedited Type-2 
Annexation 
{¶ 18} The City argues that the plain language of R.C. 709.023 indicates 
that both the municipality and township remain subject to the TIF exemption set 
forth in R.C. 5709.40.  It further argues that its interpretation is consistent with the 
General Assembly’s intention to support and promote economic development in 
Ohio.  The Township responds that the court of appeals’ interpretation was 
correct and that because R.C. 709.023(H) specifies that the annexed territory 
“remains subject to the township’s real property taxes,” it must be interpreted to 
mean that no township tax revenues may be exempted under a TIF plan.  In 
addition, the Township argues that policy considerations favor this interpretation. 
{¶ 19} “The primary goal of statutory construction is to ascertain and give 
effect to the legislature’s intent in enacting the statute.  Brooks v. Ohio State Univ. 
(1996), 111 Ohio App.3d 342, 349, 676 N.E.2d 162.”  State v. Lowe, 112 Ohio 
St.3d 507, 2007-Ohio-606, 861 N.E.2d 512, ¶ 9.  To determine the legislative 
intent, we must first look to the plain language of the statute itself.  Id., citing 
State ex rel. Burrows v. Indus. Comm., 78 Ohio St.3d 78, 81, 676 N.E.2d 519 
(1997).  “We apply a statute as it is written when its meaning is unambiguous and 
definite.  Portage Cty. Bd. of Commrs. v. Akron, 109 Ohio St.3d 106, 2006-Ohio-
954, 846 N.E.2d 478, ¶ 52, citing State ex rel. Savarese v. Buckeye Local School 
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Dist. Bd. of Edn. (1996), 74 Ohio St.3d 543, 545, 660 N.E.2d 463.”  Id.  If a 
statute is unambiguous, it “must be applied in a manner consistent with the plain 
meaning of the statutory language.  State ex rel. Burrows, 78 Ohio St.3d at 81, 
676 N.E.2d 519.”  Id. 
{¶ 20} The plain language of R.C. 709.023(H) provides that “territory 
annexed into a municipal corporation pursuant to this section shall not at any time 
be excluded from the township under section 503.07 of the Revised Code and, 
thus, remains subject to the township’s real property taxes.”  In other words, 
because the annexed land remains a part of the township, the township retains its 
ability to collect taxes on the property.  We agree with the City that the statute 
prevents the municipality from changing the Township’s borders pursuant to R.C. 
503.07 (and thus excluding the annexed land from the township) and clarifies that 
a township still receives property taxes from the annexed land after an expedited 
type-2 annexation.  In no way does the statute limit the ability of a municipality to 
enact a TIF. 
{¶ 21} The Township argues that interpreting R.C. 709.023(H) to mean 
that there is no prohibition against the application of TIFs to township land under 
an expedited type-2 annexation would render R.C. 709.023(H)’s final clause 
superfluous.  It asserts that a township’s ability to tax annexed land is implicit in 
the statute and that a municipality can never divert any taxes from the township. 
{¶ 22} We do not agree.  The two clauses are not independent sentences. 
The ability to tax is a result of the fact that the territory remains a part of the 
township.  We accordingly read the final clause of R.C. 709.023(H) to set forth 
the consequences of retaining the annexed land rather than provide for the 
township’s inviolable right to collect any taxes that may arise from annexed 
property.  Furthermore, because R.C. 5709.40 does not take away a township’s 
right to collect taxes on property subject to an expedited type-2 annexation, the 
statute does not contradict R.C. 709.023. 
January Term, 2012 
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{¶ 23} This interpretation is bolstered by R.C. 5709.40(F), which 
enumerates types of tax levies for which the municipality or township will receive 
funds despite the TIF that directs service payments toward public infrastructure 
improvements.  Included among those levies not affected by the TIF are those for 
developmental-disability programs, county hospitals, mental-health services or 
facilities, and libraries.  Although R.C. 5709.40(F)(8) lists taxes levied for the 
support of township park districts, there is no listing for township real property 
taxes to be excepted from the TIF.  Because the legislature chose not to provide a 
TIF exception for township real property taxes, we will defer to the legislature’s 
discretion rather than write one into the statute ourselves. 
B.  The TIF Statute Preserves a Township’s Ability to Collect Taxes 
{¶ 24} The Township argues that by exempting portions of the increased 
value of property, a TIF violates the condition of R.C. 709.023(H) that the 
annexed land “remains subject to the township’s real property taxes.”  The 
Township asserts that by diverting a portion of the tax on the increased property 
value, the City interferes with the Township’s collection of taxes that it would 
otherwise be able to obtain.  We do not agree that a TIF violates R.C. 709.023(H).  
Unless the affected boards of education approve a higher percentage, R.C. 
5709.40(C)(4) caps the amount of taxes that may be exempted under the TIF at 75 
percent.  Townships continue to collect their full share of taxes on the unimproved 
portion of the property.  In addition, they may collect their share of the taxes on 
the unexempted portion of improvements to the property—in one sense, a tax 
windfall that might not have existed without the TIF.  Viewed in this light, the 
TIF enhances rather than interferes with the Township’s ability to collect taxes.  
The Township also argues that policy considerations show that the City’s 
proposed TIF violates R.C. 709.023(H), resulting in a “terrific windfall” for the 
City and a “fiscal nightmare” for the Township because the City collects the TIF 
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funds while the Township must provide fire protection and emergency services to 
the area subject to the TIF.  We do not accept this argument. 
{¶ 25} The Township has not provided any support on the record that 
improvements arising from the TIF will result in an increased demand for fire 
protection and emergency services or that increased demand for these services 
will place the Township in dire fiscal straits.  Furthermore, the Township fails to 
acknowledge that it will be entitled to collect taxes on 25 percent of the value of 
any improvements to the annexed land, which arguably may be used to offset any 
increased demand in service. 
{¶ 26} Given our conclusion that the plain language of R.C. 709.023 and 
5709.40 grants a municipality the authority to establish a TIF applied to land 
subject to an expedited type-2 annexation, the Township’s extratextual policy 
argument is unavailing.  The General Assembly limited the TIF so that only 75 
percent of the value of the property improvements may be excluded from 
taxation, unless the municipality receives approval from the affected boards of 
education to exclude more than 75 percent.  This means that the Township may 
collect taxes on 25 percent of the value of the improvements.  Absent any 
evidence to the contrary, we defer to the statutory scheme created by the General 
Assembly, by which the Township may apply these additional funds toward costs 
arising from any increased demand for fire and emergency services in the annexed 
area. 
IV.  Conclusion 
{¶ 27} When township land has been annexed using the expedited type-2 
process established by R.C. 709.023, the township retains the ability to tax 
revenues on the annexed land.  But while R.C. 709.023(H) ensures that the 
annexed land “remains subject to the township’s real property taxes,” the statute 
does not grant townships the unfettered ability to collect any and all taxes that 
may arise from the real property or improvements to the real property.  The 
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annexing municipality may accordingly adopt a tax-increment financing plan 
under R.C. 5709.40 that temporarily exempts improvements to the annexed 
property from city and township property taxes on to support the annexed 
property’s economic development.  For these reasons, we reverse the judgment of 
the Second District Court of Appeals and remand the case to the trial court for 
further proceedings consistent with this opinion. 
Judgment reversed 
and cause remanded. 
O’CONNOR, C.J., and PFEIFER, LUNDBERG STRATTON, O’DONNELL, CUPP, 
and MCGEE BROWN, JJ., concur. 
__________________ 
Frost, Brown, Todd, L.L.C., Matthew C. Blickensderfer, and Scott D. 
Phillips, for appellee. 
 
Brahm & Cunningham, L.L.C., Richard C. Brahm, and Catherine A. 
Cunningham; and Altick & Corwin Co., L.P.A., and Scott A. Liberman, for 
appellant. 
 
Matthew J. DeTemple, urging affirmance for amici curiae Ohio Township 
Association, Coalition of Large Ohio Urban Townships, Ross Township, 
Weathersfield Township, Springfield Township, West Chester Township, Violet 
Township, Boardman Township, Miami Township, Hamilton Township, 
Howland Township, Pleasant Township, Royalton Township, Colerain Township, 
Moulton Township, Granger Township, Deerfield Township, Concord Township, 
Plain Township, Orange Township, Washington Township, Beavercreek 
Township, and Liberty Township. 
 
Leslie S. Landen, urging reversal for amicus curiae city of Middletown. 
 
Porter, Wright, Morris & Arthur L.L.P., Robert A. Meyer Jr., Mark A. 
Snider, and L. Bradfield Hughes, urging reversal for amici curiae Ohio Home 
SUPREME COURT OF OHIO 
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Builders Association, Building Industry Association of Central Ohio, Ohio 
Association of Realtors, and Central Ohio NAIOP. 
 
Darren Shulman, city attorney, urging reversal for amicus curiae city of 
Delaware. 
 
Wiles, Boyle, Burkholder & Bringardner Co., L.P.A., urging reversal for 
amici curiae Ohio Municipal League and cities of Troy, Kent, New Albany 
Zanesville, Westerville, Hilliard, Miamisburg, and Dayton. 
______________________