Ohio Supreme Court: A SERP is a pension

Written on Sep 28, 2017

OSCPA staff report

After years of litigation, the MacDonalds can finally focus on their retirement.

The Ohio Supreme Court found this week that a supplemental executive retirement plan (SERP) is a pension, and therefore not subject to municipal income tax.

The unanimous decision in MacDonald v. Cleveland was announced Sept. 26. This was actually the second time MacDonald won a case 7-0 at the Ohio Supreme Court, as the first one in August 2015 clarified a procedural issue concerning the standard of review at the Ohio Board of Tax Appeals. But this time MacDonald received the decision he’d been seeking on the merits.

The plaintiff in the case, William MacDonald, was a retired executive at National City Corp. He was entitled to participate in the company’s SERP, which is used to supplement benefits received by executives under traditional plans. The city of Cleveland sought to tax the present value of future SERP payments at the time of his retirement. However, a Cleveland ordinance exempts “pensions” from the city income tax.

“Because we conclude that the SERP constitutes a pension, we hold that the city income tax does not apply,” the Court wrote, adding later: “An ordinary speaker of the English language would have little difficulty in concluding that what the MacDonalds received from National City was a pension.”

Also, the Court once again reinforced that Gesler v. Worthington allows the General Assembly to limit the power of municipalities to levy taxes.

“Further, even if the pension exclusion somehow did not satisfy the requirement of the state statute, our decision in Gesler would prevent the imposition of the tax. There, we held that although the General Assembly can restrict a city’s power to tax, it ‘cannot command (a city) to impose a tax (on specific income) when (the city) has chosen not to tax that income.’”

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