County allowed to redistribute property taxes after payment error

DAN TREVAS
Supreme Court
Public Information Office
Published: December 6, 2024

Franklin County had the authority to retain and redistribute more than $407,000 collected from the city of Obetz for property tax overpayments, but cannot withhold any more funds to make up for the discrepancy, the Supreme Court of Ohio ruled recently.
In a 5-2 decision, the Supreme Court granted Obetz one of three requested actions. The city filed a lawsuit to obtain property tax payments withheld by the Franklin County auditor and treasurer. The dispute centered on resolving an error when Obetz collected more property tax payments than allowed for a tax-increment-financing (TIF) arrangement it put in place for a Goodyear Tire and Rubber Company warehouse.
Franklin County officials argued that state law allowed them to deduct property taxes paid to Obetz until the error was fully corrected. Writing for the Court majority, Justice Michael P. Donnelly stated the city could receive a Supreme Court order to prevent future withholdings, but could not recoup payments the county already distributed to other property-tax supported entities, including the Hamilton Local School District and Columbus Metropolitan Library.
Chief Justice Sharon L. Kennedy and Justices R. Patrick DeWine, Jennifer Brunner, and Joseph T. Deters joined Justice Donnelly’s opinion. Justice Patrick F. Fischer dissented without a written opinion.
Justice Melody Stewart dissented on procedural grounds. While Obetz sought a writ of mandamus from the Supreme Court to overturn the county’s actions, the true intent was to obtain a “prohibitory injunction” preventing the county from withholding money, she wrote. The Supreme Court cannot issue such injunctions, but she stated that Obetz could have sought an injunction first in Franklin County Common Pleas Court.
City Receives Improper Tax Payments
State law allows cities to create a TIF to encourage the development of commercial properties. The law allows the property owner to claim a tax exemption for the increased value of the property as it is developed. In return, the property owner makes payments “in lieu of tax” into a special fund to reimburse the city for the costs of making public improvements to the developed area, including roads, water, and sewer lines.
In 1997, Obetz implemented a TIF for the Goodyear property, which sent the Goodyear property tax payments into a fund managed by the county auditor. Each year, the auditor would assess the property’s value and the amount of tax owed by Goodyear, then send Obetz its portion to fund the improvements. The Goodyear property was formally approved for tax exemption by the state in 1999, and the TIF was intended to last 16 years.
In 2017, Obetz attempted to extend the TIF arrangement for 30 years. However, the state tax commissioner determined the exemption ended at the end of the 2014 tax year. Obetz could not extend the TIF but could start a new one in 2018, the commissioner stated, meaning Goodyear had to pay the full amount of property taxes owed to Franklin County for tax years 2015, 2016, and 2017.
Obetz challenged the tax commissioner’s decision. In May 2021, the Supreme Court, in Obetz v. McClain, found the property was not exempt for the three tax years. In response, the county auditor’s office notified the city that it wanted the return of the TIF funds sent to Obetz for those three years.
The city and county sought to reach a settlement. The city finance director maintained there was no mechanism in state law allowing the county to withhold property tax payments owed to the city to make up for the overpayments. But Obetz noted there was $212,000 in the TIF account, and the city turned the money over to the county, hoping to resolve the matter.
Further negotiations between Obetz and the county failed. In March 2023, the county auditor withheld the first half of 2022 property tax payments that the city was entitled to receive from property taxes paid by Obetz residential and commercial property owners. The amount totaled $194,944.
The money was reallocated to the other taxing jurisdictions, including the local school district and property-tax-funded county agencies, including the library and zoo.
Obetz asked the Supreme Court in May 2023 for a writ of mandamus requesting three actions. It wanted the return of the $212,000 already paid to correct the TIF error and payment of the $194,944 withheld property tax payments. It also sought an order preventing the county from withholding additional funds in the future.
Today’s opinion did not state the total amount the county projected Obetz owed in overpayments. The opinion also noted that as the case was pending, the county withheld the second half of the 2022 tax payments to Obetz but did not indicate the amount.
Supreme Court Considered Withholding Objections
Justice Donnelly explained for Obetz to receive a writ of mandamus, it must prove it has a clear legal right to recoup the money paid to and withheld by the county, as well as a right to stop the county from continuing the practice. It must also show the county auditor and treasurer have a duty to provide Obetz the funds and stop collection, and that Obetz has no “adequate remedy in the ordinary course of the law” other than to seek a Supreme Court order.
For the first request, the opinion stated that Obetz has failed to cite any legal authority that would require the county to return funds the city voluntarily paid as part of payment negotiations.
In response to returning the withheld taxes, the Court found that Obetz is not entitled to the return of the money because it is now in the hands of the other property-tax-funded governments. The opinion stated that Obetz “cites no authority establishing that the county has a clear legal duty to claw back funds that it reallocated” to other government bodies.
Regarding future payments, the county argued Obetz could not block further withholdings because state law required the county to use future property tax collections to offset what it paid Obetz in error. The county asserted a writ of mandamus cannot be sought to prevent an action Obetz anticipates the county will take. The county also described Obetz’s actions as an attempt to gain a prohibitory injunction, a court order prohibiting a government body from taking action.
The opinion explained the Supreme Court cannot issue prohibitory injunctions, which a lower court can issue. Obetz argued it was not seeking an injunction, but rather is trying to compel the county to follow two state laws, R.C. 321.31 and 321.33. Those laws, the city maintained, required the county to provide property tax distributions in full.
The county did not dispute the city’s argument that it must follow those two laws, which required payment in full. However, the county cited other state laws that permitted deductions. The Court today found those other laws apply to reducing tax payments when a taxpayer overpaid property taxes. The opinion noted that Goodyear is the taxpayer and paid the proper amount of taxes each year. Obetz is not a taxpayer, the Court ruled, but a recipient of a portion of those property taxes and is not entitled to more revenue from the Goodyear payments at the expense of other property-tax-funded government bodies.
The Court stated neither party could adequately explain how Obetz could receive the orders it sought other than by filing a writ of mandamus. The Court concluded that Obetz demonstrated the only way it could prevent withholding of future payments was with the writ of mandamus, and the Court granted that portion of its request.
Local Court Action Required, Dissent Maintained
Justice Stewart wrote that she agreed with the majority in denying repayment to Obetz. However, she argued the city could have filed for a declaratory judgment in common pleas court to reach its ultimate goal, which was a prohibitory injunction.
Justice Stewart explained the Supreme Court, through writs of mandamus, has been able to grant “mandatory injunctions.” However, she stated there is a difference between a mandatory injunction and a prohibitory injunction. A mandatory injunction is used to reverse an action already taken by a government body. In those cases, the Court is compelling the local government to take action to correct a previous incorrect decision, the dissent explained.
A prohibitory injunction seeks to stop a government body from acting. She wrote Obetz should seek a declaratory judgment because the county believes it has the legal right under state law to withhold the overpayments and redistribute the money. Obetz disputes the county’s legal interpretation, and under R.C. Chapter 2721, Obetz can file for a declaratory judgment in common pleas court for a ruling on how to apply the statute.
Because Obetz wants a court to prevent the county from distributing money it is owed, Obetz is requesting a prohibitory injunction, and the city cannot seek that assistance from the Supreme Court through a writ of mandamus, she concluded.
The case is cited 2023-0610. State ex rel. Obetz v. Stinziano, Slip Opinion No. 2024-Ohio-5460.

[Back]

The Daily Legal News • 114 E Front St, Ste 100 • Youngstown, Ohio 44503 • Phone: 330-747-7777 • Fax: 330-747-3977