Manal Morsy, a resident of the Philadelphia suburb Blue Bell who works for a Cleveland company, asked the Cuyahoga County Court of Common Pleas to declare unconstitutional a law
that temporarily deems remote work performed during the pandemic to occur at an employee's principal place of business. Morsy filed the suit, against Cleveland, after the city denied her tax refund request for days worked from home in 2020, according to the complaint, which names Sharon Dumas, the city's finance director, as the primary defendant.Morsy argued that imposing local income taxes on remote workers violates the U.S. Constitution's due process requirements and is an improper expansion of municipal taxing authority, echoing claims made by several Ohio residents who have filed suit against other Ohio cities. However, unlike those individuals, Morsy is an out-of-state resident. She also argued that the law runs afoul of the U.S. Constitution's commerce clause by discriminating against interstate commerce.
The law's income tax sourcing provision, created through the enactment of H.B. 197 last year, will be in effect until 30 days after Ohio lifts the state of emergency that was issued because of the pandemic. The Buckeye Institute, a free-market research group in Ohio, represents Morsy and the other individuals who challenged the law.
According to her complaint, Morsy would typically fly into Cleveland on Sunday or Monday and fly back home to Blue Bell on Friday, but she has worked exclusively from home since March 2020 because of the pandemic. Because 100% of her income is taxed in Pennsylvania, she said, Ohio's law results in her income being subject to double taxation.
In a statement, Jay Carson, a senior litigator at the institute who represents Morsy, said that Ohio's sourcing law "offends the basic principles of fairness and equity" and that the institute "urges the courts to bring an end to this modern-day form of taxation without representation."
The institute also announced Thursday that one of the cases against the city of Columbus has been resolved in the favor of the plaintiff, Eric Denison. In that case, the institute said Columbus had no right to impose its tax on Denison, an employee for the Ohio Department of Health who worked from home at the department's direction.
According to a Wednesday dismissal order from the Franklin County Court of Common Pleas, the parties stipulated that Denison was entitled to a refund for Columbus' income tax for days when he worked remotely. A March 12 affidavit from Columbus' tax administrator stated that Denison's refund request was "within the policy" of the city and had been granted in full.
Carson said in a statement that he hoped that case would spur the courts to recognize "that a city can only tax nonresidents for work that is actually performed in the city."
In a separate case against Columbus involving institute employees in which a ruling on the city's motion to dismiss their complaint is pending, Columbus has argued that the law was enacted to simplify the income tax rules during the spread of COVID-19, the respiratory illness caused by the coronavirus. Additionally, Columbus said that courts have held that states have broad sovereignty to institute tax policy within their borders as they see fit.
Carson told Law360 that Morsy's complaint introduces legal question different from that of the other outstanding cases because she is a Pennsylvania resident.
"In this case, neither the city of Cleveland nor the Ohio General Assembly would have any jurisdiction to tax someone who has not lived nor worked in the city or even the state for over a year," Carson said. "In addition, because this case involves one state taxing a resident of another, with no 'substantial nexus to the taxing state,' without any apportionment, and discriminating against out-of-state workers," it "raises a dormant commerce clause issue that wasn't present in the other cases."
Carson said Morsy is not subject to Ohio state income tax because Ohio and Pennsylvania have a reciprocal agreement that employees pay state taxes to the state of their residence.
A representative of Cleveland Mayor Frank Jackson did not immediately respond to a request for comment.
Morsy is represented by Jay R. Carson and Robert Alt of the Buckeye Institute.
Counsel information for Cleveland was not immediately available.
The case is Dr. Manal Morsy v. Sharon Dumans et al., case number CV21-946057, in the Cuyahoga County Court of Common Pleas.
--Additional reporting by Abraham Gross. Editing by Neil Cohen.
For a reprint of this article, please contact reprints@law360.com.