Gahanna overcharged taxpayers who work outside city

The Columbus Dispatch (September 13, 2014)

The city of Gahanna might have to reimburse its taxpayers up to $11 million if a judgment against the city and the regional taxing authority stands.

Franklin County Common Pleas Judge Kimberly Cocroft ruled on Thursday that Gahanna and the Regional Income Tax Authority overcharged Douglas and Karla LaBorde for income tax owed the suburb. The couple, who work in Columbus, had said that Gahanna overcharged them, and that they actually owed the suburb nothing.

Gahanna has a 1.5 percent income tax; Columbus’ tax is 2.5 percent. Gahanna gives its residents an 83.3 percent credit on the tax they pay other municipalities.

In her summary judgment, Cocroft agreed with the LaBordes’ attorney, Todd Neuman, that Gahanna and RITA improperly applied the city tax code, which actually gives full credit for taxes paid elsewhere.

When the numbers are plugged into a RITA form, however, the taxpayer would see that he or she owes the city. RITA tells taxpayers that they can apply the 83.3 percent credit against the “lesser of” the workplace tax withheld or the amount of wages earned times Gahanna’s rate of 1.5 p ercent.

“They (Gahanna and RITA) were creating a false ceiling,” Neuman said yesterday.

That discrepancy cost the LaBordes $347 for tax year 2009 and $473 for 2011, Neuman said.

“It doesn’t matter where you work or the income tax there, you’re guaranteed to pay taxes to Gahanna,” Ted Johnson, a certified public accountant who heads the tax-litigation department at Parms & Co. in Columbus, said after reviewing the case.

Johnson, who is not associated with the case, agreed that the LaBordes owed nothing under Gahanna’s tax code. Actually, based on the code, Gahanna residents who work elsewhere would never owe their city money, Johnson said.

“There’s a bunch of people who are going to be filing for refunds,” he said.

Cities with a similarly written code could be in the same position, Johnson said.

Grandview Heights Finance Director Robert Dvoraczky said he can see how there could be confusion in Gahanna. His city, which has a 2.5 percent income tax, is more straightforward, he said.

“We express ours as 100 percent up to 2.25 percent,” he said. The taxpayer owes the difference of 0.25 percent times their wages.”

Johnson said that such wording fits better with the RITA form, and that cities that offer less than 100 percent credit can run into problems.

Brian Zets, who represented Gahanna, said: “We believe the city has interpreted the municipal income tax correctly.”

Officials with the city of Gahanna and attorneys for RITA could not be reached for comment yesterday.

Cocroft also ruled that the case could be heard as a class action encompassing all 12,000 or so Gahanna taxpayers, and she denied the city’s claim of governmental immunity.

Zets said he had not reviewed Cocroft’s ruling yesterday but anticipated that the city will appeal.

No date has been set to determine damages.

Neuman said the number of taxpayers affected and the $7 million to $11 million owed to taxpayers were based on information obtained from RITA.