Title: MacDonald v. Shaker Heights Bd. of Income Tax Review

State: ohio

Issuer: Ohio Supreme Court

Document:

[Until this opinion appears in the Ohio Official Reports advance sheets, it may be cited as 
MacDonald v. Shaker Hts. Bd. of Income Tax Rev., Slip Opinion No. 2015-Ohio-3290.] 
 
 
 
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. 2015-OHIO-3290 
MACDONALD ET AL., APPELLEES, v. SHAKER HEIGHTS BOARD OF INCOME TAX 
REVIEW, APPELLEE; THE CITY OF SHAKER HEIGHTS ET AL., APPELLANTS. 
[Until this opinion appears in the Ohio Official Reports advance sheets, it 
may be cited as MacDonald v. Shaker Hts. Bd. of Income Tax Rev.,  
Slip Opinion No. 2015-Ohio-3290.] 
Taxation—Appeals——R.C. 5717.011—Standard of review for appeal to Board of 
Tax Appeals pursuant to R.C. 5717.011 is de novo as to both facts and 
law. 
(No. 2014-0574—Submitted June 24, 2015—Decided August 19, 2015.) 
APPEAL from the Court of Appeals for Franklin County, No. 13AP-71,  
2014-Ohio-708. 
____________________ 
SYLLABUS OF THE COURT 
The standard of review for an appeal to the Board of Tax Appeals pursuant to 
R.C. 5717.011 is de novo as to both facts and law. 
____________________ 
SUPREME COURT OF OHIO 
 
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O’NEILL, J. 
{¶ 1} Before retiring as of December 31, 2006, William E. MacDonald III 
was an executive of the former National City Corporation in Cleveland.  National 
City offered a “supplemental executive retirement plan” or “SERP” for its 
executives.  Although for some tax purposes the SERP constituted an “unqualified 
deferred compensation plan,” MacDonald did not make contributions during his 
employment to fund the plan.  As he neared retirement, MacDonald selected an 
option under that plan consisting not of a lump-sum payout but rather an annuity 
that would make periodic payments designed to replace a percentage of his 
income once he was no longer working. 
{¶ 2} Because of MacDonald’s retirement and his SERP election, in 
preparing MacDonald’s W-2 tax document, National City included an amount in 
box 5 (the “Medicare wages” box) that reflected the present value of his future 
annuity payments which was $9,107,014.  But National City deliberately omitted 
this amount from box 18 of the W-2, which is the “local wages” box pertaining to 
municipal income tax, and accordingly the MacDonalds did not pay Shaker 
Heights income tax on that amount. 
{¶ 3} The substantive issue presented and decided below—first by the city 
tax administrator, then by the municipal tax board, the Board of Tax Appeals 
(“BTA”), and the Tenth District Court of Appeals, in that order—is whether, for 
tax year 2006, the present value of MacDonald’s future annuity payments 
qualifies as taxable wages or as a “pension” under a Shaker Heights ordinance 
that exempts pensions from the municipal income tax.  The city—both the tax 
administrator and the municipal tax board—held that the amount at issue were 
subject to municipal income tax.  The BTA reversed, and the Tenth District 
affirmed the BTA. 
{¶ 4} On appeal to this court, the city sought to raise two issues:  the 
substantive issue whether the tax was properly levied on the benefits at issue, and 
January Term, 2015 
 
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a procedural issue whether the BTA violated a duty of deference to the 
determination of the municipal tax board.  We declined jurisdiction over the 
substantive issue, but we accepted jurisdiction over the procedural issue.  139 
Ohio St.3d 1470, 2014-Ohio-3012, 11 N.E.3d 1192. 
{¶ 5} Accordingly, the substantive tax issue is not before this court, and 
we consider only the standard of review that the BTA should employ when it 
confronts an appeal pursuant to R.C. 5717.011 from a municipal income tax 
review board.  The appellants are the city of Shaker Heights, the income tax 
administrator for the city, and the Regional Income Tax Agency (“RITA”), which 
administers the municipal income tax on behalf of the city.  For convenience, we 
will refer to the appellants collectively as “the city.” 
{¶ 6} The city argues that when the General Assembly enacted R.C. 
5717.011 in 2003, authorizing appeal to the BTA in addition to the preexisting 
right of appeal to the common pleas courts under R.C. Chapter 2506, the 
legislature must have intended that the BTA review decisions of the municipal tax 
boards using the same standard of review that applies under R.C. Chapter 2506.  
We disagree.  Because there is no indication of any such intent in R.C. 5717.011, 
and because that section parallels the other statutes providing for appeals to the 
BTA at R.C. 5717.01 and 5717.02, we hold that the BTA’s standard of review 
under R.C. 5717.011 is de novo as to both facts and law.  We therefore affirm the 
judgment of the Tenth District Court of Appeals. 
COURSE OF PROCEEDINGS BELOW 
The tax assessment against the MacDonalds 
{¶ 7} This case originated with the filing of the MacDonalds’ 2006 
municipal income tax return.  As discussed, MacDonald retired from his 
executive position at National City as of December 31, 2006.  He selected, as 
indicated, a SERP annuity option, and as a result, its present value of $9,107,013 
was reported on the W-2 form, but not as wages for municipal income tax 
SUPREME COURT OF OHIO 
 
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purposes.  RITA issued a tax assessment, which the MacDonalds contested.  Their 
initial appeal was unsuccessful; the municipal tax appeal board upheld the 
assessment. 
The BTA proceedings and decision 
{¶ 8} The MacDonalds appealed to the BTA, which held a hearing on 
September 9, 2010.  On December 28, 2012, the BTA issued its decision, which 
held that the amount at issue was exempt from taxation under the pension 
exclusion in the Shaker Heights tax ordinance. 
{¶ 9} The BTA did address the issue of its standard of review in passing. 
The board cited Tetlak v. Bratenahl, 92 Ohio St.3d 46, 748 N.E.2d 51 (2001), for 
the proposition that the municipal tax board’s findings should be presumed valid.  
It also noted that this court had not yet ruled on the standard of review under the 
newly enacted provision for appealing to the BTA rather than the common pleas 
court.  Id. at *2. 
{¶ 10} Because the BTA had ruled in favor of the MacDonalds, it was 
now the city’s turn to appeal, and it elected to appeal to the Tenth District Court 
of Appeals.  See R.C. 5717.04.  The case was briefed and argued, and on February 
27, 2014, the Tenth District issued its decision.  In a two-to-one opinion for the 
court, Judge Klatt recited the history of the case and the nature of the income at 
issue and addressed the two assignments of error.  The first assignment concerned 
the merits, and the Tenth District affirmed the BTA’s approach and 
determination.  A second assignment objected to the BTA’s permitting further 
testimony on appeal and its conducting “de novo review” of the municipal tax 
board’s decision.  Here the Tenth District held that the restrictive review under 
R.C. Chapter 2506 did not apply because the BTA appeal statute, R.C. 5717.011, 
had materially different language and should not be read as incorporating those 
restrictions. 
January Term, 2015 
 
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{¶ 11} The city appealed to this court, seeking review on both points.  We 
accepted jurisdiction over the procedural issue only. 
R.C. 5717.011 REFLECTS THE GENERAL ASSEMBLY’S INTENT TO MAKE DE NOVO 
BTA REVIEW AVAILABLE IN MUNICIPAL INCOME TAX CASES 
Before 2003, municipal income tax cases were appealable under R.C. Chapter 
2506 to the common pleas courts, but not to the BTA 
{¶ 12} R.C. Chapter 2506 generally provides for appeals to the common 
pleas court from administrative decisions by officers and agencies, including 
boards, of any political subdivision in Ohio.  R.C. 2506.01(A).  This has long 
included appeals from decisions of municipal tax boards.  See, e.g., May Dept. 
Stores Co. v. Parma Taxation Div., 8th Dist. Cuyahoga App. No. 49844, 1985 
WL 4353 (Dec. 12, 1985).  Beginning in 2003, the legislature created an 
alternative route of appeal to the BTA.  R.C. 5717.011, Am.Sub.H.B. No. 95, 
125th General Assembly, 150 Ohio Laws, Part II, 1894-1895. 
{¶ 13} Appeals taken under R.C. Chapter 2506 go to the common pleas 
court, and the hearing of the appeal “shall proceed as in the trial of a civil action,” 
except that the court is confined to the evidentiary transcript created before the 
administrative authority below unless one of five criteria is present—all of which 
relate to some deficiency in the proceedings below.  R.C. 2506.03(A).  Finally, 
the standard of review prescribed by R.C. Chapter 2506 is deferential on issues of 
fact, though it is generally plenary on issues of law.  See R.C. 2506.04: 
 
[T]he [common pleas] court may find that the order, adjudication, 
or decision is unconstitutional, illegal, arbitrary, capricious, 
unreasonable, or unsupported by the preponderance of substantial, 
reliable, and probative evidence on the whole record.  Consistent 
with its findings, the court may affirm, reverse, vacate, or modify 
the order, adjudication, or decision, or remand the cause to the 
SUPREME COURT OF OHIO 
 
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officer or body appealed from with instructions to enter an order, 
adjudication, or decision consistent with the findings or opinion of 
the court. 
 
{¶ 14} The oft-quoted formulation of the standard of review under R.C. 
2506.04 comes from a case that involved a common pleas court’s review of a 
decision terminating the employment of a city employee: 
 
[I]t is quite evident that the Court of Common Pleas must 
weigh the evidence in the record, and whatever additional evidence 
may be admitted pursuant to R.C. 2506.03, to determine whether 
there exists a preponderance of reliable, probative and substantial 
evidence to support the agency decision.  We caution, however, to 
add that this does not mean that the court may blatantly substitute 
its judgment for that of the agency, especially in areas of 
administrative expertise. 
 
Dudukovich v. Lorain Metro. Housing Auth., 58 Ohio St.2d 202, 207, 389 N.E.2d 
1113 (1979). 
Even under R.C. Chapter 2506, an administrative agency’s construction of local 
tax ordinances is reviewed de novo by the courts 
{¶ 15} One aspect of R.C. 2506.04 must be noted at the outset.  On its 
face, the statute calls for review of the administrative decision for its 
constitutionality and legality—and there is no restriction placed upon that power 
of review.  This contrasts with R.C. 2506.04’s treatment of factual issues, which 
calls for review of the administrative decision to determine whether it is 
“arbitrary, capricious, unreasonable, or unsupported by the preponderance of 
substantial, reliable, and probative evidence on the whole record.”  The appellate 
January Term, 2015 
 
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decisions in tax cases do not indicate that any deference is owed to the municipal 
tax board on issues of law.  See Cincinnati Bengals, Inc. v. Papania, 92 Ohio 
App.3d 785, 787-788, 637 N.E.2d 330 (1st Dist.1993) (affirming the common 
pleas court’s reversal of income tax assessment on the legal ground that the 
income at issue constituted “intangible income” exempt from city tax pursuant to 
the ordinance); Cincinnati Bell Tel. Co. v. Cincinnati, 1st Dist. Hamilton Nos. C-
950931, C-950932, and C-950933, 1996 WL 733154, *1 (Dec. 24, 1996) (“on 
issues of law this court conducts a de novo review”), rev’d on other grounds, 81 
Ohio St.3d 599, 693 N.E.2d 212 (1998); Wardrop v. Middletown Income Tax 
Review Bd., 12th Dist. Butler No. CA2007-09-235, 2008-Ohio-5298, ¶ 14 (“The 
trial court’s application of law to undisputed facts involves a ‘question of law’ 
that we may review under R.C. Chapter 2506”).  Quite simply, neither the statute 
nor the case law provides support for the city’s argument that any deference 
would be owed by the common pleas court to the municipal tax board on a 
question of law.  As a result, even if the BTA’s standard of review under R.C. 
5717.011 were equivalent to that of the common pleas court under R.C. 2506.04, 
the BTA would still review legal issues without deference. 
{¶ 16} It follows that the city’s main argument here is unavailing to the 
extent that the BTA’s decision addressed a question of law.  Here the BTA 
construed and applied the Shaker Heights ordinance and determined that the 
amount reported in Box 5 of MacDonald’s W-2 form that related to the SERP 
constituted a “pension” under that ordinance.  The BTA acted within the proper 
sphere of its authority to review the determination of the municipal tax board in 
light of its own interpretation of the local law. 
R.C. 5717.011 tracks other BTA appeal statutes, and like them, it confers 
authority on the BTA to conduct de novo review as to both law and facts 
{¶ 17} At oral argument, the city’s counsel characterized the BTA’s 
decision as a “factual determination” that the lump sum at issue constituted a 
SUPREME COURT OF OHIO 
 
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“pension” under the local ordinance.  As discussed, the BTA resolved the issue 
before it based on legal grounds, by construing and applying the city’s ordinance 
to essentially undisputed facts. 
{¶ 18} But even if the BTA’s decision is seen as a factual finding, it would 
still have been appropriate for the BTA to conduct a de novo review of the 
determination of the municipal tax board.  This conclusion arises from a reading 
of two sources of legal authority:  the statutes and the case law. 
{¶ 19} The statute providing for appeals to the BTA from the boards of 
revision, R.C. 5717.01, and the statute providing for appeals from the tax 
commissioner, R.C. 5717.02(E), both contain language nearly identical to the 
statute at issue here, R.C. 5717.011, which states: 
 
The [BTA] may order the appeal to be heard upon the record and 
the evidence certified to it by the tax administrator, but upon the 
application of any interested party the [BTA] shall order the 
hearing of additional evidence, and the [BTA] may make such 
investigation concerning the appeal as it considers proper. 
 
R.C. 5717.011(D). 
{¶ 20} R.C. 5717.03(F) adds the following contours to the BTA’s 
authority: 
 
The orders of the [BTA] may affirm, reverse, vacate, modify, or 
remand the tax assessments, valuations, determinations, findings, 
computations, or orders complained of in the appeals determined 
by the board, and the board’s decision shall become final and 
conclusive for the current year unless reversed, vacated, or 
modified [on appeal]. 
January Term, 2015 
 
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{¶ 21} We have had occasion to fill in the blanks with case law.  Unlike 
the rulings on questions of law discussed previously, we have held that factual 
issues in the tax area are confided to the administrative tribunals that are charged 
by statute to hear and decide tax cases.  See Health Care REIT, Inc. v. Cuyahoga 
Cty. Bd. of Revision, 140 Ohio St.3d 30, 2014-Ohio-2574, 14 N.E.3d 1009, ¶ 19, 
quoting Cuyahoga Cty. Bd. of Revision v. Fodor, 15 Ohio St.2d 52, 239 N.E.2d 25 
(1968), syllabus (“ ‘The fair market value of [real] property for tax purposes is a 
question of fact, the determination of which is primarily within the province of the 
taxing authorities’ ”); accord Aluminum Co. of Am. v. Kosydar, 54 Ohio St.2d 
477, 483, 377 N.E.2d 785 (1978).  Moreover, the BTA itself constitutes one of 
those “taxing authorities,” with an independent duty to weigh evidence and make 
findings to which this court will defer.  Strongsville Bd. of Edn. v. Cuyahoga Cty. 
Bd. of Revision, 112 Ohio St.3d 309, 2007-Ohio-6, 859 N.E.2d 540, ¶ 22 (the 
value of property for tax purposes is a question of fact that is primarily within the 
province of the taxing authorities, and this court will ordinarily defer to the BTA 
on that issue); Sapina v. Cuyahoga Cty. Bd. of Revision, 136 Ohio St.3d 188, 
2013-Ohio-3028, 992 N.E.2d 1117, ¶ 15; Vandalia-Butler City Schools Bd. of 
Edn. v. Montgomery Cty. Bd. of Revision, 130 Ohio St.3d 291, 2011-Ohio-5078, 
958 N.E.2d 131, ¶ 13 (noting the duty of the BTA to independently weigh 
evidence and reach its own independent judgment concerning property value).  In 
the same way, the BTA’s review of tax-commissioner determinations, factual as 
well as legal, is de novo in character.  Key Servs. Corp. v. Zaino, 95 Ohio St.3d 
11, 16, 764 N.E.2d 1015 (2002), citing Higbee Co. v. Evatt, 140 Ohio St. 325, 
332, 43 N.E.2d 273 (1942) (“The BTA hearing is de novo”).  Also, “[t]he BTA 
may investigate to ascertain further facts and make its own findings independent 
of those of the Tax Commissioner.”  Key Servs., id., citing Nestle Co., Inc. v. 
Porterfield, 28 Ohio St.2d 190, 193, 277 N.E.2d 222 (1971). 
SUPREME COURT OF OHIO 
 
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{¶ 22} R.C. 5717.011 was enacted in 2003 and was numbered so as to fall 
between the statutes for appeals from decisions of boards of revision and the tax 
commissioner,  R.C. 5717.01 and 5717.02.  It follows the form of words in those 
two other appeal statutes, which have been construed to call for de novo review 
and independent judgment by the BTA in the cases appealed to it.  Moreover, 
under appeal statutes outside R.C. Chapter 5717, the BTA possesses similar de 
novo review authority in appeals from decisions of the county budget 
commissions.  See R.C. 5705.341, fourth paragraph (in a taxpayer appeal from the 
budget commission to the BTA, the BTA has broad authority to modify the 
budget commission’s action on the fixing of tax rates, and when it chooses to 
modify the commission’s action, “[t]he findings of the board of tax appeals shall 
be substituted for the findings of the budget commission * * *”); R.C. 5705.37 (in 
an appeal by a taxing district, public library, park district, or nonprofit from a 
decision of the county budget commission to the BTA, the BTA may, “in a de 
novo proceeding, * * * modify any action of the commission”).  An exception is 
specifically noted in the statutes:  R.C. 5747.53(G) (decisions of a county budget 
commission involving an alternative method of apportionment may be appealed to 
the BTA only “on the issues of abuse of discretion and failure to comply with the 
formula”). 
{¶ 23} Under all these circumstances, we conclude that in creating a right 
to appeal to the BTA from municipal tax boards, and in not specifying any 
limitation on the BTA authority on appeal, the General Assembly intended to 
confer on the BTA the authority to conduct de novo review in the context of 
appeals under R.C. 5717.011.  It follows that the standard of review at the BTA in 
this case was de novo both as to facts and law, and as a result, the city’s argument 
in this appeal must fail.  Whether the BTA’s decision in this case is understood 
primarily as a legal ruling on what constitutes a “pension” under the city 
ordinance, or as a fact-based application of the pension exclusion, the BTA 
January Term, 2015 
 
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properly exercised its own independent judgment in determining the facts and the 
law.1  Without expressing any opinion on the substantive question of tax law, on 
which we declined jurisdiction, we uphold the judgment below based on our 
disposition of the issue of the BTA’s standard of review. 
CONCLUSION 
{¶ 24} For the foregoing reasons, we affirm the judgment of the Tenth 
District Court of Appeals. 
Judgment affirmed. 
O’CONNOR, C.J., and PFEIFER, O’DONNELL, LANZINGER, KENNEDY, and 
FRENCH, JJ., concur. 
_________________________ 
 
Baker & Hostetler, L.L.P., Christopher J. Swift, Edward J. Bernert, and 
Elizabeth A. McNellie, for appellees William and Susan MacDonald. 
 
William M. Ondrey Gruber, Director of Law, for appellant Shaker Heights 
and Matthew J. Rubino, Tax Administrator. 
 
Amy L. Arrighi, for appellant Regional Income Tax Agency. 
 
Zaino, Hall & Farrin, Richard C. Farrin, and Stephen K. Hall, urging 
affirmance for amici curiae Ohio Chamber of Commerce and Ohio Society of 
Certified Public Accountants. 
 
Barbara A. Langhenry, Director of Law, and Linda A. Bickerstaff, 
Assistant Director of Law, urging reversal for amicus curiae city of Cleveland. 
_________________________ 
 
                                                 
1 At oral argument, counsel for RITA properly disclaimed any contention that the BTA’s authority 
to hear new evidence was restricted in the same manner as the common pleas court’s authority 
under R.C. Chapter 2506.  Under R.C. 2506.03(A), the common pleas court is “confined to the 
transcript.”  R.C. 5717.011(D) on its face requires the BTA, “upon the application of any 
interested party,” to “order the hearing of additional evidence.”  This authority to hear additional 
evidence is also part of the neighboring BTA appeal statutes, and we have confirmed that it means 
what is says.  Brown v. Levin, 119 Ohio St.3d 335, 2008-Ohio-4081, 894 N.E.2d 35, ¶ 10-11.