Resort tax affecting Ohio islands upheld by court

10/3/2002

COLUMBUS - Ohio's resort tax affecting three Lake Erie island communities does not unconstitutionally target island businesses, the state Supreme Court ruled yesterday.

Kelleys Island Caddy Shack, Inc. - owner of a complex consisting of a bar, game room, and stores - had challenged the Erie County village's additional 1.5 percent tax on business gross sales receipts on the grounds that the tax violates the uniform taxation clause of the Ohio Constitution.

Caddy Shack, Inc., had argued that the tax is a repackaging of the “island tax,” struck down by the Supreme Court a decade ago because it could be imposed only on the islands. The current court rejected that argument by a 6-1 vote.

“Because it is possible for any municipality or township throughout the state to become a resort area in the future, given a sufficient change in circumstances, we cannot say beyond a reasonable doubt that [the law] is clearly incompatible with ... the Ohio Constitution,” wrote Justice Deborah Cook, an Akron Republican.

Justice Paul Pfeifer, a Bucyrus Republican, was the sole dissenter.

“Perhaps the majority believes that this court should have found that the island tax ... satisfied the Uniformity Clause, since another ice age might yet produce another Lake Erie island that would be subject to the tax,” he wrote. “It's conceivable.”

The tax, collected by the state and distributed back to the communities, applies to sales on the islands as well as ferry transportation. Unlike a direct sales tax on the consumer, the resort tax is paid by the business but typically passed onto the consumer.

The successor to the island tax defines “resort” as a community in which 62 percent or more of housing is seasonal, where entertainment and recreational facilities are used primarily by nonpermanent residents, and where employment and demand for government services peak seasonally because of population influxes.

“This is the island tax all over again,” said Caddy Shack's attorney, Michael Yemc. “They made it so specific so it would apply to just Put-in-Bay and Kelleys Island. Everybody knows that, but the Supreme Court has spoken.”

Put-in-Bay village on South Bass Island in Ottawa County netted $434,569 in 2001 after the state deducted a 1 percent administrative fee, according to the Ohio Department of Taxation. Put-in-Bay Township received $144,088. Both impose a tax rate of 1 percent.

Kelleys Island, where the population can climb from 360 people in the off-season to 1,500 during the summer, received $89,965 from its maximum 1.5 percent tax.

Mayor Rob Quinn said the loss of that revenue, 10 percent of Kelleys Island's budget, would have had a huge impact on a community that has failed in recent attempts to convince voters to approve increased property-tax levies.

“Some of the opponents of the tax told me they were not opposed to the tax but to the distribution of it,” he said. “They'd like to see it earmarked more for tourist-specific issues since it is tourist-specific money, perhaps for a public restroom facility downtown or for security. Those are things we can address.”