Three Year Limitation Period for Taking Civil Action: Beat the Clock

In 1968 the Ohio Supreme Court determined that municipalities may not extend the statute of limitations imposed by the General Assembly. In City of Akron v. Smith, 14 Ohio St. 2d 247 (1968), the city of Akron had a 10 year statute of limitations period for prosecution of an action for failure to file a return. The Revised Code at the time had a 1 year statute of limitations period.¹ The city of Akron sought to prosecute a non-filing resident three years after the tax return was due.² The court found that a municipality may not expand the limitations period of the General assembly.³ The Ohio Revised Code has prescribed a three year statute of limitations for bringing civil actions on unpaid municipal taxes, with some caveats. Additionally, a criminal prosecution for an offense punishable under a [municipality] resolution or [municipality] ordinance imposing an income tax must be commenced within three years after commission of the offense subject to certain exceptions.⁴ In the case of fraud, failure to file a return, or omission of twenty-five percent or more of income required to be reported, prosecutions may be commenced within six years after the commission of the offense.⁵ 

Ohio House Bill 5 which was approved by the Governor on December 19, 2014, is slightly changing the limitations statute for municipal corporations taking civil action and should be the blue print for how municipalities draft their ordinances surrounding limitations periods. ORC 718.12 took effect on January 1, 2016 and in accordance with City of Akron v. Smith, 14 Ohio St. 2d 247 (1968), any attempt to exceed the limits of ORC 718.12 will fail. Therefore, ORC 718.12 must be closely adhered to by municipalities. Now, a municipal corporation must bring civil action to recover income taxes, penalties, and interest within the later of:

• (i) Three years after the tax was due or the return was filed, whichever is later; or
• (ii) One year after the conclusion of the qualifying deferral period, if any.⁶

The limits within the provision may be extended at any time if both the tax administrator and the employer, agent of the employer, other payer, or taxpayer consents in writing to the extension of time.⁷ If a consent to an extension is permitted then this shall also extend the limitations period for receipt of a refund as well.⁸ Under ORC 718.11 the legislative authority of each municipal corporation that imposes a tax must maintain a local board of tax review to hear appeals.⁹ Any person who has been issued an assessment may appeal to the board.¹⁰ "The request shall be in writing, shall specify the reason or reasons why the assessment should be deemed incorrect or unlawful, and shall be filed within sixty days after the taxpayer receives the assessment".¹¹ The local board of tax review must schedule a hearing within 60 days of receipt of the appeal of the assessment unless the taxpayer requests additional time, or waives their right to hearing.¹² The board shall issue a final determination on the appeal within 90 days after the board's final hearing.¹³ The qualifying deferral period referenced in ORC 718.12 comes into play when a review has been filed with a local tax board.¹⁴ The one year period after the conclusion of the qualifying deferral referenced in ORC 718.12(A)(1)(ii) begins 60 days after the final determination by the local tax board is made.¹⁵ No civil action to recover municipal income tax, related penalties, or interest can be brought during:

1. The period during which a taxpayer has a right to appeal the imposition of that tax or interest or those penalties; or
2. The period during which an appeal related to the imposition of that tax or interest of those penalties is pending.

Therefore if 60 days passes after a taxpayer has received an assessment, and they have failed to appeal, civil action may be brought so long as they are within the limitations period. The statute also adds a provision imposing a limitations period of 60 days to amend a municipal return if it has been affected by a federal or state tax liability.¹⁶ Even if an appeal is pending, the taxpayer may pay all or a portion of the assessment and does not prejudice the claim for refund upon final determination of the appeal.¹⁷ If the assessment is reversed, there shall be a refund with interest on that amount.¹⁸

ORC 718.12's provisions must be closely adhered to when implementing a municipal ordinance. Anything that attempts to expand the limitations period or limit the rights of taxpayers will fail. Municipalities should encourage taxpayers to file a return, as it will allow the statute of limitations to be extended. Additionally, municipalities should encourage a tax payer to appeal a decision they disagree with to their local tax board, as that too will extend the statute of limitations. The appeals period must be closely monitored before imposition of civil action. If an appeal has been filed, it too must be monitored as civil action and cannot be brought while the appeal is pending. Also, it is very important for the municipality to implement a provision in its ordinance to amend any return affected by federal or state tax liability. This incentivizes taxpayers to amend their return without coercion.


¹ ORC 1905.33(Repealed)
² City of Akron at 247.
³ Id. at 249.
⁴ORC 718.12(B).
⁵ Id.
⁶ ORC 718.12(A)(1)(a).
⁷ ORC 718.12(A)(1)(b).
⁸ ORC 718.12(C).
⁹ ORC 718.11(A)(2). "The local board of tax review shall consist of three members. Two members shall be appointed by the legislative authority of the municipal corporation, but such appointees may not be employees, elected officials, or contractors with the municipal corporation at any time during their term or in the five years immediately preceding the date of appointment. One member shall be appointed by the top administrative official of the municipal corporation. This member may be an employee of the municipal corporation, but may not be the director of finance or equivalent officer, or the tax administrator or other similar official or an employee directly involved in municipal tax matters, or any direct subordinate thereof." Id.
¹⁰ ORC 718.11(C).
¹¹ Id.
¹² ORC 718.11(D). "If the taxpayer does not waive the hearing, the taxpayer may appear before the board and may be represented by an attorney at law, certified public accountant, or other representative. The board may allow a hearing to be continued as jointly agreed to by the parties. In such a case, the hearing must be completed within one hundred twenty days after the first day of the hearing unless the parties agree otherwise." Id.
¹³ ORC 718.(E). The taxpayer then has a right to appeal the boards final determination as provided in ORC 5717.011. Id. ORC 5717.011(B) – "Appeals from a municipal board of appeal created under section 718.11 of the Revised Code may be taken by the taxpayer or the tax administrator to the board of tax appeals or may be taken by the taxpayer or the tax administrator to a court of common pleas as otherwise provided by law. If the taxpayer or the tax administrator elects to make an appeal to the board of tax appeals or court of common pleas, and subject to section 5703.021 of the Revised Code with respect to appeals assigned to the small claims docket, the appeal shall be taken by the filing of a notice of appeal with the board of tax appeals or court of common pleas, the municipal board of appeal, and the opposing party. The notice of appeal shall be filed within sixty days after the day the appellant receives notice of the decision issued under section 718.11 of the Revised Code…" Id.
¹⁴ ORC 718.12(A)(2)(a). However, "That date shall not be affected by any subsequent decision, finding, or holding by any administrative body or court that the local board of tax review with which the aggrieved person filed the request did not have jurisdiction to affirm, reverse, or modify the assessment or any part of that assessment." Id.
¹⁵ ORC 718.12(A)(1) & ORC 718.12(A)(2)(b). "or, if any party appeals from the determination of the local board of tax review, the sixtieth day after the date on which the final determination of the local board of tax review is either ultimately affirmed in whole or in part or ultimately reversed and no further appeal of either that affirmation, in whole or in part, or that reversal is available or taken." Id.
¹⁶ ORC 718.12(E).
¹⁷ ORC 718.12(F).
¹⁸ Id.; See also ORC 718.19 & ORC 718.12(D).