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Supreme Court rules CAT revenue from fuel sales must be used for highways

$140 million more annually for highways

Commercial Activity Tax revenue collected from the sale of motor fuels must be spent for highway-related purposes and not diverted to the state's general fund, the Ohio Supreme Court ruled Friday.

The high court's 6-1 decision could make an additional $140 million available per year for the Ohio Department of Transportation's highway construction program, which currently amounts to about $1.5 billion annually.

A group of highway contractors and county engineers filed the lawsuit in Franklin County Common Pleas Court in 2008, contending that by diverting CAT revenue to the general fund, rather than using it for highway purposes, the state was violating the Ohio Constitution.

Article VII, Section 5a of the constitution, adopted by voters in 1947, provides that, "No moneys derived from fees, excises, or license taxes relating to registration, operation or use of vehicles on public highways, or to fuels used for propelling such vehicles, shall be expended for other than costs of administering such laws, statutory refunds and adjustments provided therein, payment of highway obligations, costs for construction, reconstruction, maintenance and repair of public highways and bridges and other statutory highway purposes . . . ."

In response to the suit, state officials contended the Commercial Activity Tax, which is levied on the gross receipts of businesses at a rate of 0.26 percent, is a "tax for the privilege of doing business in Ohio," and not a tax on motor fuels or any other specific product or service.

That argument prevailed with the trial court and the Franklin County Court of Appeals, but it was rejected by the high court.

In the majority opinion written by Justice Robert Cupp, the court rejected the state's argument, saying, "Objectively, one is hard pressed to deny the close connection between the tax paid ('moneys derived') and the source (excise on 'fuels used') of that tax revenue.

While the court determined that the state has been improperly diverting CAT revenue, it accepted the recommendations of the plaintiffs and elected not to apply its decision retroactively, which would have required the state to replace the improperly diverted funds.

"The fiscal effect of reallocating other state revenue to replace money that has been expended for non-highway purposes would have a significant, consequential, and negative impact on the state's fiscal footing, which has been under sustained stress for several years during the course of the economic recession," Cupp wrote.

Further, the plaintiffs did not seek refunds of CAT amounts already paid, "which provides further indication that appellants have no contract or vested rights that would require this decision to have retrospective application," Cupp reasoned.

The court's ruling allows the state to continue to collect the CAT on motor-vehicle fuel sales, "but the revenue may not be expended until the General Assembly properly allocates the revenue according to Section 5a."

ACEC Ohio filed an amicus brief in support of the plaintiffs earlier this year, along with the Ohio Contractors Association and other highway construction-related organizations.

That brief, developed by Thomas Rosenberg and Michael Traven, of the law firm of Roetzel & Andress, was financed in part by a grant from the national ACEC Minuteman Fund.






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