The Cleveland Plain Dealer
MENTOR — Paul and Mary Kay Makar knew when they hit the lottery last year that they would take a hit from the tax man.
So
after sharing a $16 million jackpot with nearly a dozen other winners
in January 1999, they took the $475,000 lump sum that remained and paid
more than 28 percent to Uncle Sam and 5 percent to Ohio.
But they said they hit their limit when Mentor put in for its 2 percent.
“We
didn’t think they were allowed to get it, so we decided to go ahead and
file our taxes normally,” said Mary Kay Makar. “But I think they were
waiting for us.”
When the Makars and another couple, Robert and
Nancy Horvath, didn’t declare their winnings, Mentor billed them for
about $15,000 each through its collection agency.
The couples did
not pay and have since hired an attorney to contest the tax bill –
saying that neither Mentor nor the Central Collection Agency has the
authority to siphon money from their gambling winnings.
The case is still pending before a CCA tax review board but is likely to end up in Lake County Common Pleas Court.
Legal precedence appears to favor the Mentor families, despite a ruling in the city’s favor last week in another tax case.
Last
Monday, a Lake County judge ruled in favor of the city and the CCA in a
lawsuit filed by a Florida couple who had tried to reclaim $77,000 in
taxes on their lottery winnings from 1995. The denial of the appeal,
however, was based on the couple’s failure to exhaust their appeals
with CCA and a statute of limitations on a court appeal.
A landmark Ohio Supreme Court ruling also apparently bodes well for
the Mentor families. The 1996 ruling from an Akron case states that a
city can collect taxes on lottery winnings, but only if there is
gambling-specific language in its tax code.
The law is still being tested, particularly in Lake County, where
the cities of Willoughby and Eastlake lost taxpayer appeals in just the
last year.
Willoughby has since stopped collecting taxes on gambling winnings,
while Eastlake is appealing the court decision. The Eastlake City
Council also reinforced its tax code in October to include gambling
winnings, Tax Administrator Angela Kenevan said.
None of the three cities had any specific tax code text relating to lotteries, gaming or gambling.
Eastlake’s law piggybacked on “income as taxable by the federal
government,” Kenevan said. Mentor’s law refers to “total income from
any source whatever” and “other compensation” in several places, but
does not mention lotteries specifically.
“One of these cases is eventually going to become another test case
in the appeals court or in the Ohio Supreme Court,” said Cleveland
attorney Phil Ciano, who won the Willoughby case and is representing the Makars and Horvaths.
“For now our theory is very straightforward — without a specific
provision in the city tax code authorizing the city to tax gambling or
lottery winnings, the city of Mentor is unable to do so,” Ciano said.
Mentor Law Director I. James Hackenberg disagreed. “It has always
been our contention that lottery winnings are income,” he said.
