ATTORNEYS FOR PETITIONERS: ATTORNEYS FOR RESPONDENTS:
PETER L. BENJAMIN JEFFREY A. MODISETT
Merrillville, Indiana Attorney General of Indiana Indianapolis, Indiana
GERALD M. BISHOP
GRECO PERA & BISHOP ANGELA L. MANSFIELD
Merrillville, Indiana Deputy Attorney General
BETH H. HENKEL
Deputy Attorney General
LAKE COUNTY COUNCIL, as the ) governmental fiscal body of Lake County, ) Indiana, TROY MONTGOMERY, ) ROBERT CROSSK, WILLIAM SMITH, ) BERNADETTE COSTA, JOHN AGUILERA, ) LANCE RYSKAMP, and ) LARRY BLANCHARD, in their official capacity ) as members of the Lake County Council ) and individually as taxpayers residing in Lake ) County, Indiana, BOARD OF ) COMMISSIONERS OF LAKE COUNTY, ) INDIANA, FRANCES DUPEY, ) RUDOLPH CLAY, and GERALD SCHEUB, ) in their official capacities as members of the ) Lake County Board of Commissioners and ) individually as taxpayers residing in Lake ) County, Indiana, and LAKE COUNTY, a ) political subdivision of the STATE OF ) INDIANA, individually and on behalf of all ) other property owning taxpayers within the ) jurisdictional limits of Lake County, Indiana, ) ) Petitioners, ) ) v. ) Cause No. 45T10-9807-TA-00084
county ad valorem property tax. See id. § 12-16-14-2 (1998). In imposing the tax levy,
the county fiscal body has no discretion as to the rate of tax because it is determined
by a statutory formula.See footnote
See id. § 12-16-14-3 (1998). The State Board is charged with
reviewing each county's property tax levy and enforcing the requirements of the HCI
property tax levy. See id. § 12-16-14-4 (1998). Once the property taxes are collected,
they are deposited in the county HCI fund. See id. § 12-16-14-5 (1998). The money in
the county HCI fund is then deposited in the state HCI fund. See id. § 12-16-14-6
(1998). Payments to emergency medical care providers are made from the state HCI
fund. See id. § 12-16-17-3 (1998).
Under the HCI program, the HCI property tax levy (i.e., property tax rate) is not uniform across the State; it varies from county to county. Additionally, a county's
property tax levy is not correlated to how much of the state HCI fund is spent in the
particular county. Two of the petitioners, Mr. Troy Montgomery and Ms. Frances
DuPey were concerned about this, and they each wrote a letter to Mr. Frank J.
Sabatine, Chairman, State Board of Tax Commissioners (State Board) to express their
concerns. In their letters, Mr. Montgomery and Ms. DuPey, stated that Lake County's
HCI property tax levy was too high and specifically requested a refund of the HCI
overpayment by Lake County taxpayers over the past three years.
Mr. Sabatine responded to Mr. Montgomery and Ms. DuPey in a letter dated June 5, 1998. The letter was not unsympathetic to Mr. Montgomery's and Ms. DuPey's concerns and acknowledged that it is apparent that the amount of reimbursements received by Lake County providers has not grown as quickly as the HCI property tax levy. Letter From Frank J. Sabatine, Chairman, State Board of Tax Commissioners, to Troy Montgomery, President, Lake County Council and Ms. Frances DuPey, President, Lake County Commissioners 2 (June 5, 1998) (Petitioners' Exh. A) [hereinafter Sabatine Letter]. However, Mr. Sabatine stated that the State Board had no power to alter the statutory formula, no power to declare the statutory formula unconstitutional, and therefore had no power to issue a refund on the alleged HCI overpayment. Sabatine Letter at 4.
On July 20, 1998, the petitioners filed the instant original tax appeal. They contend that the property tax component of the HCI program violates article I, section 23 and article X, section 1 of the Indiana Constitution because Lake County taxpayers allegedly pay a disproportionate share of the HCI property taxes collected in Indiana
due to the high HCI property tax levy in Lake County. On October 9, 1998, the
respondents filed a motion to dismiss alleging that the Court did not have subject
matter jurisdiction over this case and challenging the standing of some of the
petitioners. On December 2, 1998, the Court heard the arguments of counsel
regarding the respondents' motion. Additional information will be provided as
tax appeal, the tax court does not have jurisdiction to hear the appeal. Id. § 33-3-5-
11(a) (1998); see also Mixmill Mfg. Co., 702 N.E.2d at 704 (In view of the explicit
language of these provisions, we can only conclude that the legislature intended to
require the taxpayer to follow all statutory procedures for review before going to the Tax
With these principles in mind, the Court turns to an analysis of the respondents' motion. The parties do not dispute that this case arises under the tax laws of Indiana. However, because subject matter jurisdiction cannot be conferred upon the Court by the parties, see Sons v. City of Crown Point, 691 N.E.2d 1237, 1239 (Ind. Ct. App. 1998), the Court will evaluate the issue. See City Securities Corp. v. Department of State Revenue, No. 49T10-9505-TA-00049, slip op. at 4 (Ind. Tax Ct. Dec. 30, 1998).
A case arises under the tax laws of Indiana if: 1) an Indiana tax statute creates the right of action; or 2) the case principally involves collection of a tax or defenses to that collection. Sproles, 672 N.E.2d at 1357; see also Common Council v. Matonovich, 691 N.E.2d 1327, 1329 (Ind. Ct. App. 1998), trans. denied. Under Ind. Code § 12-16- 14-1, the HCI fund consists of 1) [a] tax levy on the property located in each county [and t]he financial institutions tax (IC 6-5.5) and motor vehicle excise taxes (IC 6-6-5) that are allocated to the fund. The petitioners contest the constitutionality of that tax. Consequently, this case arises under the tax laws of this state. See Sproles, 672 N.E.2d at 1357 (constitutional challenge to tax arises under tax laws of Indiana). The second jurisdictional prerequisite is the necessity of a State Board final
In this case, there is nothing in the record specifically denominated as
a final determination of the State Board with respect to the petitioners' constitutional
challenge to the HCI property tax levy. This, the petitioners contend, does not deprive
the Court of jurisdiction for three reasons: 1) the letter dated June 5, 1998 from the
Chairman of the State Board, Mr. Frank J. Sabatine, regarding the HCI property tax
levy constitutes a final determination of the State Board and thus satisfies the statutory
2) resort to the administrative process would be futile; and 3) the
administrative remedies are inadequate.
544-45 (1971)). As the respondents correctly observe, the letter is merely a response
to inquiries from two of the petitioners.See footnote
(Rept's Mem. in Supp. Mot. to Dismiss at 5).
budget). In addition to these rights, taxpayers, under Ind. Code § 6-1.1-17-13 (1998),
may initiate an appeal to the State Board concerning a municipality's budget and the
associated property tax levy. However, in order to initiate such an appeal, ten or more
taxpayers must join the appeal. This requirement makes this process an unsatisfactory
method of adjudicating a constitutional challenge to the HCI property tax. First,
although ten or more taxpayers may decide to challenge a property tax levy under this
statutory provision, they cannot be required to do so. The vindication of an individual's
constitutional right cannot be made to depend on the happenstance of others asserting
the same right. Otherwise, an individual's rights under the Constitution would be
dependent on others suffering a denial of the same right. Second, the budget appeals
process makes no provision for the refund of a tax payment. Consequently, the
petitioners cannot be forced into the budget appeals process for the adjudication of
their claims. As a result, there is no need to discuss the petitioners' futility argument
with respect to the budget appeals process.
The other administrative route identified by the respondents is more promising. Under Ind. Code § 6-1.1-26-1(4)(ii) (1998), a taxpayer may file a refund claim for property taxes that the taxpayer has paid on the ground that [t]he taxes, as a matter of law, were illegal. This refund claim is to be filed with the county auditor within three years of payment of the tax. Id. § 6-1.1-26-1(1). If the refund claim is decided adversely to the taxpayer, the taxpayer may appeal that decision first to the State
Board and then to the Tax Court.See footnote
See id. §§ 6-1.1-26-2 to -4 (1998).
Because the HCI levy is a property tax, see Ind. Code § 12-16-14-2(a), the property tax refund process governs the adjudication of the petitioners' claim. The petitioners, however, seek to bypass this process so that they may proceed directly to this Court. In the petitioners' view, because the State Board is unable to declare the HCI statutory scheme unconstitutional,See footnote 9 see Sproles, 672 N.E.2d at 1360 (citing Ind. Const. art. III, § 1), requiring the petitioners to go through the administrative process is pointless.See footnote 10 See Roberts v. State ex rel. Jackson County Bd. of Comm'rs, 151 Ind. App. 83, 278 N.E.2d 285, 295 (1972) (The law does not require the doing of a useless
thing.). Therefore, according to the petitioners, there is no need for them to exhaust
their administrative remedies in this case.
However, it is well within the discretion of the legislature to require litigants challenging the constitutionality of a statute to resort to the administrative process before proceeding to the judicial system.See footnote 11 See Sproles, 672 N.E.2d at 1360-61; see also Winski Bros. v. Bayh, 679 N.E.2d 912, 914 (Ind. Ct. App. 1997), trans. denied. Where the legislature has chosen to do so, the courts may not interfere with that decision. See Sproles, 672 N.E.2d 1360-61 ([T]hese are considerations that must be addressed to the Legislature. Requiring exhaustion of remedies even in constitutional cases is well within legislative discretion.). The property tax refund scheme at issue does not distinguish constitutional challenges from all other challenges to a property tax. Accordingly, it is not for this Court to make such a distinction. But see Richeson v. State, 45S05-9710-CR-00558, 1998 WL 870891 (Ind. Dec. 15, 1998) (distinguishing between attempted murder and all other attempt crimes where the statute does not). Consequently, the fact that the State Board cannot strike down the HCI property tax levy, even if it is unconstitutional, is no basis for this Court to exercise jurisdiction over this case.
available through resort to the administrative process.
The petitioners make the
generalized contention that no refund of the allegedly illegal HCI property tax levy is
available. Therefore, the Court will examine the remedies available through the
property tax refund process.
Ind. Code § 6-1.1-26-5(a) (1998) governs property tax
refunds. Under that statutory provision, any refund ordered by the State Board or this
Court is required to be paid from the county general fund. In most cases involving
property tax refunds, this is not problematic. In general, property taxes fund local
expenditures; therefore, it is reasonable to require that any property tax erroneously
collected be refunded out of the county general fund.
The HCI property tax is different from most property taxes, however. Although the HCI property tax is nominally imposed by the county fiscal body and collected as any other ad valorem property tax, the revenues generated by the HCI property tax are remitted to the State, see Ind. Code § 12-16-14-6(b), and are used to defray the expenses and obligations of the State. See id. § 12-16-14-8 (1998); see also id. § 6- 1.1-2-3 (1998). In addition, as Mr. Sabatine acknowledged in his letter, the HCI property tax levy in each county is not tied to HCI expenditures in that particular county. This means that the HCI property tax is not a local tax, but rather a state tax. That local officials impose and collect the HCI property tax does not alter its essential character.See footnote 12
This leads to the question of whether the Court may order a refund out of the county general fund if the HCI property tax levy is declared unconstitutional. If the
Court is without power to do so, then the property tax refund process provides an
inadequate remedy. At first glance, there would seem to be little doubt that the Court
has this power. Subsection 6-1.1-26-5(a) is clear on its face: Refunds of illegally
collected property taxes are to be paid out of the county general fund.
The cardinal rule in statutory interpretation is to give effect to the intent of the legislature. See Indianapolis Historic Partners v. State Bd. of Tax Comm'rs, 694 N.E.2d 1224, 1227 (Ind. Tax Ct. 1998). Where the legislature has expressed this intent in clear and unambiguous terms, the Court must follow the terms of the statute, see J & J Vending, Inc. v. Department of State Revenue, 673 N.E.2d 1203, 1206 (Ind. Tax Ct. 1996), unless following the terms of the statute would lead to absurd results or a result that the legislature, as a reasonable body, could not have intended. See Guinn v. Light, 558 N.E.2d 821, 823 (Ind. 1990); Boushehry v. State, 648 N.E.2d 1174, 1179 (Ind. Ct. App. 1995); see also Public Citizen v. United States Dep't of Justice, 491 U.S. 440, 464 (1989).
The Court concludes that the legislature could not have intended subsection 6- 1.1-26-5(a) to apply to the HCI property tax levy. The State, through its enactment of the HCI program, requires county fiscal bodies to impose the HCI property tax levy at a rate prescribed by statute. The revenues generated by the tax are then forwarded to the State, thus making the HCI property tax levy a state tax. These revenues defray expenses and obligations of the State, rather than expenses and obligations of the
However, under a mechanical application of the subsection 6-1.1-26-5(a),
refunds of this state tax, if it is declared unconstitutional, are to be paid out of a county
The Court cannot believe that the legislature intended to commandeer county general funds in such a manner. First of all, nowhere in the HCI legislation is there any mention of chapter 6-1.1-26 or any other refund process. See Sorenson v. Secretary of the Treasury, 475 U.S. 851, 866-67 (1986) (Stevens, J., dissenting). The only mention about the property tax component of the HCI program is how the tax is to be calculated and how the tax is to be collected. Ind. Code §§ 12-16-14-1 to -3. This gives rise to an inference that the legislature did not consider how HCI property tax refunds were to be handled when it enacted the HCI program. The Court is confident, however, that had the legislature intended that refunds of the HCI property tax be paid from a county general fund, the legislature would have clearly expressed this intent in explicit terms. Therefore, the legislative silence on this point coupled with the odd result of having a refund of a state tax come from county coffers, and hence from county taxpayers, leads to the conclusion that the legislature could not have intended subsection 6-1.1-26-5(a) to be followed literally in this case.
In addition, there are serious doubts about the legality of such a provision. The refund of a state tax is the obligation of the State. This also militates against a
conclusion that the legislature intended subsection 6-1.1-26-5(a) to be followed literally
in this case. By placing the duty of discharging this obligation on the county general
fund, the State is actually placing the burden on the taxpayers of that county to
discharge the obligation, rather than the taxpayers of the Indiana as a whole.See footnote
improper. Although special taxes may be imposed on local residents so that a local
problem may be addressed without forcing the rest of the State to pay for the problem,
see Hoovler, 668 N.E.2d at 1235, the State may not force residents of one county alone
to foot the bill for an obligation of the State. See Ind. Const. art. I, § 23.
Consequently, the Court finds that it does not have the authority to order a refund from the Lake County general fund if the HCI property tax levy is declared unconstitutional. Therefore, the Court, if presented with a refund claim brought under chapter 6-1.1-26 challenging the HCI property tax levy, cannot order a refund, if the HCI property tax is declared unconstitutional, from a county general fund. Nor can the Court, if presented with a successful refund claim brought under chapter 6-1.1-26, order a refund to be paid by the State because the Court cannot engraft another remedy (i.e., allow the petitioners to collect refunds from the State) upon that statutory
scheme. See Mixmill Mfg. Co., 702 N.E.2d at 705 (Supreme Court may not fill gaps in
statutory scheme designed by legislature).
This leaves the administrative remedy as
provided in the statute inadequate because the Court could not order a refund of the
allegedly illegal taxes. Because the administrative remedy is inadequate, the
petitioners are not required to exhaust their administrative remedies. See Sproles, 672
N.E.2d at 1361 n.19. As a result, the petitioners may seek judicial review without first
seeking relief under chapter 6-1.1-26.See footnote
Now that the Court has determined that exhaustion of administrative remedies is not a prerequisite to judicial review, the Court must determine whether the case should have been brought in this Court or a court of general jurisdiction. This question seemed to have been settled by Sproles. The Sproles court stated, Where remedies are found to be inadequate, courts of general jurisdiction may adjudicate the claim because the Indiana Constitution [art. I, § 12] creates a right to judicial review of administrative actions. Id. at 1361 n.19 (emphasis added); see also Hoovler, 668 N.E.2d 1229 (reviewing circuit court's (i.e., court of general jurisdiction) determination that county economic development income tax was unconstitutional). Because the Indiana Tax Court is a court of limited jurisdiction, Sproles would seem to foreclose the possibility of this Court exercising jurisdiction in this case.
Given the Court's determination that the administrative remedies are inadequate,
this case will not go through the administrative process. Therefore, the question is not
if immediate judicial review is appropriate, but only where that review may be had.
Mixmill case does allow the Tax Court, a court of limited jurisdiction, to assume
jurisdiction in one situation where the statutory prerequisites for the Court's jurisdiction
could not have been met. Consequently, in light of the legislature's inten[t] that all
challenges to the tax laws . . . be tried in the Tax Court, Sproles, 672 N.E.2d at 1357,
the Court concludes that the petitioners' claim must be adjudicated in the Indiana Tax
Court and not a court of general jurisdiction. For these reasons, the respondents'
motion to dismiss on the basis that this Court lacks subject matter jurisdiction is
check on the exercise of judicial power by Indiana courts. Pence v. State, 652 N.E.2d
486, 488 (Ind. 1995). It is a key component of the Indiana's constitutional scheme of
separation of powers. See id. (citing Ind. Const. art. III, § 1). The standing
requirement does not implicate a court's subject matter jurisdiction. See Bielski v. Zorn,
627 N.E.2d 880, 888 (Ind. Tax Ct. 1994); see also Harp v. State Dep't of Highways, 585
N.E.2d 652, 659 (Ind. Ct. App. 1992) (discussing difference between jurisdiction over
class of cases and jurisdiction over a particular case). Accordingly, an allegation that a
party lacks standing is properly filed under Trial Rule 12(B)(6). See City of New Haven
v. Allen County Bd. of Zoning Appeals, 694 N.E.2d 306 (Ind. Ct. App. 1998) (affirming
dismissal of case pursuant to Trial Rule 12(B)(6) where party does not have standing to
sue), trans. denied; Musgrave v. State Bd. of Tax Comm'rs, 658 N.E.2d 135, 138-39
(Ind. Tax Ct. 1995); Rent Stabilization Ass'n v. Dinkins, 5 F.3d 591, 594 (2d Cir. 1993).
A decision that a party lacks standing pursuant to Trial Rule 12(B)(6) operates as an
adjudication on the merits (which, of course, the Court could not do if the Court did not
have subject matter jurisdiction) as to the party seeking to invoke the court's
See T.R. 41(B); Elliott v. United Ctr., 126 F.3d 1003, 1004 (7th Cir. 1997),
cert. denied, 118 S. Ct. 1302 (1998); Bleiler v. Cristwood Constr., Inc., 72 F.3d 13, 15
n.1 (2d Cir. 1995).
In order to have standing, a party must be able to show a personal stake in the outcome of lawsuit and that the party suffered some direct injury. See Hammes v.
Brumley, 659 N.E.2d 1021, 1029-30 (Ind. 1995) (quoting Higgins v. Hale, 476 N.E.2d
95, 101 (Ind. 1985)); see also Marion County Bd. of Review v. State Bd. of Tax
Comm'rs, 516 N.E.2d 1129, 1131 (Ind. Tax Ct. 1987). Accordingly, the governmental
petitioners must show how the HCI program causes them direct harm in order to have
standing in this case.
In this case, the governmental petitioners strenuously argue that the fact that Lake County taxpayers pay an allegedly illegal tax confers standing upon them. As counsel for the respondents cogently observed at oral argument, the petitioners have confused the concept of Lake County as an entity with the concept of Lake County as the sum of its citizens. (Oral Arg. at 43). Assuming arguendo that Lake County taxpayers are subject to an illegal tax does not mean that the political subdivision known as Lake County is suffering a legally cognizable injury.
In addition, it is well-settled that a county has no sovereign powers, and cannot act as parens patriae, asserting the claims of its residents. Bd. of Comm'rs v. Kokomo City Planning Comm'n, 263 Ind. 282, 330 N.E.2d 92, 101 (1975). Therefore, Lake County may not stand in the shoes of its citizens to vindicate their rights. The same holds true for the other governmental petitioners because they too are without sovereign powers. Accordingly, the Court finds that the governmental petitioners lack standing to claim that the HCI property tax levy is unconstitutional.See footnote 17
petitioners here are merely attempting to vindicate the rights of the taxpayers they
represent. Under Kokomo City Planning Commission, this is forbidden.
The Court acknowledges that the HCI property tax levy involves the rate of property taxation in Lake County. However, this does not bring this case into the ambit of Kokomo City Planning Commission or Bielski. With respect to the rate of property taxation, the amount of the HCI property tax levy is fixed by statute. The fiscal body of Lake County has no discretion in setting the levy rate, and its function with respect to that levy rate is ministerial only. Additionally, there is no allegation that the rate in this case was improperly calculated by the State Board. The only question here is the constitutionality of the HCI property tax levy. Therefore, this case, unlike State Board of Tax Commissioners v. Marion Superior Court and Bielski, does not implicate the interest of the fiscal body in setting the rate of property taxation.
However, this is not the end of the standing issue. Although Lake County may not assert the rights of its citizens, Lake County has a legally cognizable interest in this case. It has an interest in protecting the Lake County general fund from being commandeered by the State to pay for refunds of the HCI property tax levy, if that levy is declared unconstitutional. In addition, the Lake County general fund may be overwhelmed by refund claims if the HCI property tax levy is declared to be unconstitutional.See footnote 19 These possibilities give Lake County a direct legal interest in the
outcome of this case, thereby conferring Lake County with standing.See footnote
Thomas G. Fisher
Judge, Indiana Tax Court
Peter L. Benjamin
1000 East 80th Place, Suite 514 South
Gerald M. Bishop
2115 West Lincoln Hwy.
Jeffrey A. Modisett
Attorney General of Indiana
By: Angela L. Mansfield
Beth H. Henkel
Deputy Attorneys General
Indiana Government Center South, Fifth Floor
402 West Washington Street
Ind. Code § 12-16-14-3.
This statutory formula, though recodified, has been in place since 1989.
Prior to 1989, the HCI property tax levy was calculated by using a formula that took into account actual county expenditures (prior to 1987, county departments of public welfare were responsible for payment of HCI costs, see id. § 12-5-6-6 (1982) (repealed 1992)) for the HCI program during 1984 through 1986. See id. § 12-5-6-16 (Burns 1988) (repealed 1992). In 1987, the State became responsible for HCI costs. See id. § 12-5-6-6 (Burns 1988) (repealed 1992). When the State took over this responsibility for HCI costs, the program remained (as it does today) funded in part by ad valorem property taxes.
Sproles, 672 N.E.2d at 1362 n.20. In addition, if the HCI property tax levy is declared unconstitutional, Lake County taxpayers, if refunds are to be paid from the Lake County general fund, will be, in essence, paying themselves after the revenues from Lake County's HCI property tax levy have long since been spent.
Converted from WP6.1 by the Access Indiana Information Network