ATTORNEYS FOR PETITIONERS: ATTORNEYS FOR RESPONDENT:
GERALD M. BISHOP STEVE CARTER
JOHN S. DULL ATTORNEY GENERAL OF INDIANA
EDWARD R. HALL Indianapolis, IN
ATTORNEYS AT LAW
Merrillville, IN FRANCES BARROW
DEPUTY ATTORNEY GENERAL
INDIANA TAX COURT
MICHAEL GRIFFIN and LAKE COUNTY, )
a political subdivision of the State of Indiana, )
v. ) Cause No. 49T10-0009-TA-98
DEPARTMENT OF LOCAL )
ON APPEAL FROM A FINAL DETERMINATION
OF THE STATE BOARD OF TAX COMMISSIONERS
April 3, 2002
Michael Griffin appeals the final determination of the State Board of Tax Commissioners
(State Board) denying his refund claim for real property taxes paid toward the
Hospital Care for the Indigent (HCI) property tax levy for the 1996, 1997,
and 1998 tax years. Griffin raises several issues in his motion for
partial summary judgment; however, the Court finds that the relevant issues are:
Whether the HCI property tax levy is a state tax;
Whether the HCI tax, as a state tax, exceeds the
one cent ($0.01) of
$100 assessed value tax rate allowed under Indiana Code § 6-1.1-
III. Whether the HCI tax rate violates Article 10, Section 1 of the Indiana
Constitution because it results in nonuniform and unequal taxation of substantially similar property.
For the reasons stated below, the Court GRANTS Griffins motion for partial
summary judgment and DENIES the State Boards cross motion for summary judgment.
FACTS AND PROCEDURAL HISTORY
Griffin is a Lake County resident and real property owner.
to 1998, the Lake County HCI property tax levy ranged from $0.4824 to
$0.5024 cents per $100 of assessed value.
On January 12, 2000, Griffin
filed two Forms 17T with the Lake County auditor seeking a refund for
the 1996, 1997, and 1998 tax years. Griffin claimed that he was
entitled to a refund of the HCI tax because it was illegal.
Specifically, Griffin argued that the HCI property tax levy was a state tax,
that it violated Article 10, Section 1 of the Indiana Constitution,
it surpassed the maximum state tax rate allowed by Indiana Code § 6-1.1-18-2.
Pursuant to Indiana Code § 6-1.1-26-2, the auditor forwarded Griffins refund claims to
the State Board for review. The State Board held a hearing, and
on July 31, 2000, it issued its final determination, denying Griffins claim for
refund. The State Board concluded that it had no authority to determine
the constitutionality of the HCI statute. The State Board also concluded that
the HCI tax was not a state tax. The State Board concluded
that even if it was a state tax, it did not violate the
statutory state tax limits. The State Board reasoned that because the statute
establishing the formula for the HCI tax was enacted subsequent to and was
more specific than the state tax rate statute (Indiana Code § 6-1.1-18-2), the
HCI statute repealed any inconsistent provisions in the state tax limit statute.
Griffin filed this original tax appeal on August 25, 2000.
filed a motion for partial summary judgment. The State Board filed its
response opposing the summary judgment motion and made a cross motion for summary
judgment in its favor. The Court heard oral arguments. Additional facts
will be supplied as needed.
ANALYSIS AND OPINION
Standard of Review
The Court gives great deference to the State Boards final determinations when the
State Board acts within the scope of its authority. Wetzel Enters., Inc.
v. State Bd. of Tax Commrs, 694 N.E.2d 1259, 1261 (Ind. Tax Ct.
1998). Accordingly, this Court reverses final determinations of the State Board only
when those decisions are unsupported by substantial evidence, are arbitrary or capricious, constitute
an abuse of discretion, or exceed statutory authority. Id. The taxpayer
bears the burden of demonstrating the invalidity of the State Boards final determination.
Clark v. State Bd. of Tax Commrs, 694 N.E.2d 1230, 1233 (Ind.
Tax Ct. 1998). Summary judgment is proper only when no genuine issues
of material fact exist and the moving party is entitled to judgment as
a matter of law. See Ind. Trial Rule 56(C). See also
W.H. Paige & Co. v. State Bd. of Tax Commrs, 732 N.E.2d 269,
270 (Ind. Tax Ct. 2000). Cross motions for summary judgment do not
alter this standard. W.H. Paige, 732 N.E.2d at 270.
Griffin argues that the HCI property tax levy is illegal because it is
a state tax, and as such, it violates Article 10, Section 1 of
the Indiana Constitution and exceeds the once cent ($0.01) per $100 assessed value
tax rate allowed under Indiana Code § 6-1.1-18-2. Because a review of
the HCI program will assist with a decision of the ultimate issue in
this case, the Court will first review the HCI program and property tax
levy. The issues of whether the HCI tax is a state tax,
whether Indiana Code § 6-1.1-18-2 applies, and whether it violates Article 10, Section
1 of the Indiana Constitution will be then be addressed in turn.
The HCI program, first enacted in 1986 and later recodified in 1992, was
enacted to provide cost-free emergency medical care to indigent patients who did not
qualify for Medicaid. State Bd. of Tax Commrs v. Montgomery, 730 N.E.2d
680, 681 (Ind. 2000). The HCI program is currently funded by a
tax levy on property located in each county and by distributions from the
financial institutions tax, motor vehicle excise taxes, and commercial vehicle excise taxes.
Ind. Code § 12-16-14-1 (West Supp. 2001);
see also Lake County Council v.
State Bd. of Tax Commrs, 706 N.E.2d 270, 273 (Ind. Tax Ct. 1999),
revd on other grounds by 730 N.E.2d 680 (Ind. 2000) (citing Ind. Code
§ 12-16-14-1 (1998)).
The fiscal body of each county annually imposes the property tax component of
the HCI program and collects it like other state and county ad valorem
property taxes. Ind. Code § 12-16-14-2. Although the county imposes this
tax levy, it has no discretion to fix the rate of tax because
the legislature, through a statutory formula, has mandated the rate. Ind. Code
§ 12-16-14-3. That formula requires each county to impose an HCI property
tax levy equal to the product of:
(1) the [HCI] property tax levy imposed for taxes first due and
payable in the preceding year; multiplied by
(2) the statewide average assessed value growth quotient, using all the county assessed
value growth quotients determined under IC 6-1.1-18.5-2 for the year in which the
tax levy under this section will be first due and payable.
Ind. Code § 12-16-14-3.
The HCI property tax rate, however, is
not uniform across the state but varies from county to county. Lake
County Council, 706 N.E.2d at 273. Indianas ninety-two counties have seventy-two different
tax rates. (Petr Partial Summ. J. Br. at 6; State Bd. Tr.
at 855.) Furthermore, a countys HCI property tax rate is not tied
to the amount of the state HCI fund spent in the particular county.
The State Board reviews each countys property tax levy and enforces the requirements
of the HCI property tax levy. Ind. Code § 12-16-14-4. Any
money collected from a countys HCI property tax levy is deposited into a
county HCI fund. Ind. Code § 12-16-14-5. Each month, all the
money from the county HCI fund is then transferred to the state HCI
fund. Ind. Code § 12-16-14-6(b). The State, which administers the HCI
program, reimburses providers of emergency medical care to the indigent for their expenses
from the state HCI fund. Ind. Code § 12-16-14-8.
In 1993, the legislature changed the HCI program to allow $35,000,000 of the
state HCI fund to be used to procure federal Medicaid matching funds, or
special Medicaid revenue. P.L. 277-1993, § 8, 1993 Ind. Acts 4642-43; see
also P.L. 277-1993, § 82, 1993 Ind. Acts 4783. This money was
appropriated before any payments to providers were made from the state HCI fund.
P.L. 277-1993, § 8, 1993 Ind. Acts 4642. After the State
received the federal Medicaid matching funds, the budget director had to return any
funds received in excess of $45,000,000 (up to a maximum of $18,000,000) to
the state HCI fund. Id. The State then used this money
to pay HCI providers under Indiana Code § 12-16-7-4.
Griffin argues that the HCI property tax levy is illegal because it is
a state tax that is not uniform and equal. To support his
argument that the HCI tax is a state tax, Griffin relies on this
Courts opinion in Lake County Council. (Petr Partial Summ. J. Br. at
10-11.) In Lake County Council, this Court found that the HCI property
tax was a state tax rather than a local tax because: (1)
the State, through the enactment of the HCI program, statutorily mandates that the
county fiscal bodies impose the HCI property tax levy at a formulary rate
set by statute; (2) the amount of tax collected in a particular county
is not a function of the actual indigent health care expenses in that
county; (3) the monies generated by the HCI tax are forwarded to the
State; and (4) those state HCI monies are used to defray the expenses
and obligations of the State. Lake County Council, 706 N.E.2d at 277
& n.13 (citations omitted). To further support his argument that the HCI
is a state tax, Griffin points out that the State uses the HCI
tax to leverage federal Medicaid funding and that State agencies administer Medicaid, which
would not be possible if the HCI tax were a county tax.
(Petr Partial Summ. J. Br. at 11.)
The State Board, on the other hand, argues that the HCI property tax
is not a state tax because the legislature refers to the HCI fund
in Indiana Code § 6-1.1-18-3, which establishes the maximum tax rate for political
subdivisions. (Respt Summ. J. Br. at 34) (citing Ind. Code § 6-1.1-18-3(b)(7).)
The State Board also points out that the Supreme Court in Montgomery
referred to this political subdivision statute when discussing the HCI property tax.
(Respt Summ. J. Br. at 34 (citing Montgomery, 730 N.E.2d at 681).)
This Court must reject the State Boards argument that the HCI tax is
a local tax because the legislature made mention to it under section (b)(7)
of the statute setting the maximum tax rates for political subdivisions. The
nature of a tax must be determined by its operation and incidence, rather
than by its title or designation made by the legislature. In other
words, the legislature may not change a factual situation by giving it a
different name or designation. Wright v. Steers, 179 N.E.2d 721, 723 (Ind.
1962), rehg denied. Therefore, the legislatures mere reference to the HCI tax
under the local tax limit statute does not transform it into a local
As this Court found in Lake County Council, the nature of the HCI
property tax reveals that it is a state tax. The legislature has
mandated by statute that the county impose and collect the HCI tax and
has formulated how much the county needs to collect. Ind. Code §
12-16-14-3. Each month, the county is required to remit these HCI taxes
to the State, which puts these monies into the State HCI fund.
Ind. Code § 12-16-14-6(b). The State disburses the HCI tax monies to
pay for the States expenses and obligations. Ind. Code § 12-16-14-8.
Furthermore, the State uses the HCI tax to leverage federal Medicaid dollars to
defray its State health care obligations. The nature of the HCI tax
shows that it is a state tax rather than a local tax.
Moreover, the Supreme Courts reference in Montgomery to the HCI tax as excluded
from a political subdivisions maximum tax rate does not dissuade this Court from
finding that the HCI tax is a state tax. In Montgomery, the
Supreme Court briefly summarized aspects of the HCI program. See Montgomery, 730
N.E.2d at 681. However, the Court did not analyze whether the HCI
tax was a state tax and did not look at the nature of
the tax. Because the nature of the HCI tax reveals that it
is used for state obligations, this Court finds that it is a state
State Tax Rate Limit Statute
The Court finds that Griffins argument that the HCI tax, as a state
tax, exceeds the one cent per $100 assessed value tax rate allowed under
Indiana Code § 6-1.1-18-2 is without merit. Rules of statutory construction state
that if two statutes are inconsistent in any of their provisions, then the
more recent statute will control and operate to repeal the former to the
extent of the inconsistency. Componx, Inc. v. Indiana State Bd. of Tax
Commrs, 741 N.E.2d 442, 446 (Ind. Tax Ct. 2000). Moreover, where provisions
of a statute conflict, the specific provision takes priority over the general provision.
Id. As the State Board correctly found, the HCI statute establishing
the formula for the HCI tax was enacted subsequent to and is more
specific than the state tax rate limit statute (Indiana Code § 6-1.1-18-2).
Thus, the HCI statute by implication repeals any inconsistent limitation provision of the
state tax rate limit statute. See Componx, 741 N.E.2d at 446 (regarding
rules of statutory construction). Accordingly, this Court will proceed to the
issue of whether the HCI tax is constitutional.
Article 10, Section 1 The Property Taxation Clause
Griffin argues that the HCI tax violates Article 10, Section 1 of the
Indiana Constitution because the HCI rates of taxation are not applied uniformly and
equally across the state. (Petr Partial Summ. J. Br. at 12-19.)
The State Board argues that the HCI tax does not violate the state
constitution because the rate of taxation does not need to be uniform throughout
the state and because the HCI tax is a welfare tax, and as
such, the constitutional restraints of uniformity and equality do not apply. (Respt
Summ. J. Br. at 17-20.)
The standard of review for alleged violations of the Indiana Constitution is well
established. State Bd. of Tax Commrs v. Town of St. John, 702
N.E.2d 1034, 1037 (Ind. 1998) (St. John V). Every statute comes before
the Court clothed with the presumption of constitutionality until clearly overcome by a
contrary showing. Id. The party challenging the constitutionality of the statute
bears the burden of proof, and all doubts are resolved against that party.
This Court rejects the State Boards argument that the Indiana Constitution does not
require a uniform and equal rate of taxation. Article 10, Section 1
of the Indiana Constitution plainly requires: (1) uniformity and equality in assessment;
(2) uniformity and equality as to rate of taxation; and (3) a just
valuation for taxation of all property. State Bd. of Tax Commrs v. Pioneer
Hi-Bred Intl, Inc., 477 N.E.2d 939, 942 (Ind. Ct. App. 1985), trans. denied
(quoting State Bd. of Tax Commrs v. Lyon & Greenleaf Co., Inc., 359
N.E.2d 931 (Ind. Ct. App. 1977)) (emphasis added); see also Boehm v. Town
of St. John, 675 N.E.2d 318, 326 (Ind. 1996) (St. John II); Indianapolis
Historic Partners v. State Bd. of Tax Commrs, 694 N.E.2d 1224, 1228 (Ind.
Tax Ct. 1998). The purpose of these constitutional requirements is to distribute
the burden of taxation upon the principles of uniformity, equality, and justice.
Board of Commrs of Johnson County v. Johnson, 89 N.E. 590, 595 (Ind.
1909); Indianapolis Historic Partners, 694 N.E.2d at 1228; Lyon, 359 N.E.2d at 934.
The limitation upon the legislature that taxation be equal can be satisfied when
there is no discrimination as between taxpayers. State ex rel. Lewis v.
Smith, 63 N.E. 25, 27 (Ind. 1902), rehg denied. This includes the
requirement that assessments be consistent with similar property of the same classification.
Harrington v. State Bd. of Tax Commrs, 525 N.E.2d 360, 361 (Ind. Tax
Ct. 1988) (citing Ind. Const., Art. 10, § 1); see also GTE North
Inc. v. State Bd. of Tax Commrs, 634 N.E.2d 882, 886 (Ind. Tax
Ct. 1994). [W]hen, for any reason, [taxation] becomes discriminative between individuals of
the class taxed, and selects some for an exceptional burden, the tax is
deprived of the necessary element of legal equality, and becomes inadmissible. Smith,
63 N.E. at 27 (quoting Cooley, Taxn, 169). Thus, if the legislature
creates a classification within a statute, that classification must not be arbitrary.
Lyon, 359 N.E.2d at 934. Instead, the classification itself must be based
upon reasons naturally inhering in the property or subject-matter of the legislation, so
as to produce no distinction between members of the same class. See
St. John V, 702 N.E.2d at 1042; Johnson, 89 N.E. at 593 (citations
omitted); Lyon, 359 N.E.2d at 934 (citing State ex rel. Lewis v. Smith,
64 N.E. 18, 20 (Ind. 1902)).
Article 10, Section 1 of the Indiana Constitution requires that if a property
tax levy is used for state purposes, then the rate should be uniform
and equal in all parts of the state. Bright v. McCullough, 27
Ind. 223, 1866 WL 2548, *4 (Ind. 1866). Griffin has shown that
the HCI property tax levy, which has a statewide application and is used
for state purposes, does not have a uniform and equal rate across the
state. As part of his summary judgment motion, Griffin introduced exhibits to
demonstrate that his HCI tax rate was not equal and uniform with other
similarly situated properties. (Ex. M.) Specifically, Griffin introduced evidence that showed
that in 1997, his Lake County property had an assessed value of approximately
$25,000 and that he paid $166 in HCI tax. (Trial Tr. at
21-22; Ex. M.) However, if he had the same $25,000 assessed value
property in a different county, such as Johnson County, he would have paid
$0.08 in HCI tax. (Trial Tr. at 22; Ex. M.) If
he had the same $25,000 assessed value property in the adjacent Porter County,
he would have paid $17.62 in HCI taxes. (Trial Tr. at 22;
Because the HCI property tax levy is based on an extrapolation of historical
HCI costs in each particular county, disparity exists among the HCI property tax
rates of Indianas ninety-two counties. The effect this disparity has on Griffin
and other Lake County taxpayers is demonstrated by the fact that in 1997,
Lake County taxpayers owned property totaling 6.46% of the total assessed value in
Indiana but paid 41% of the HCI property taxes collected. (State Bd.
Tr. at 538, 869.)
The HCI tax statutes have created a classification based upon the taxpayers county
of residence. This classification, however, is arbitrary because it is not based
on differences naturally inhering within the property itself. See St. John V,
702 N.E.2d at 1042; Lyon, 359 N.E.2d at 934. This classification resulted
in similarly situated taxpayers paying widely divergent HCI tax rates. Because the
classification created an artificial distinction, Griffins property is not taxed in an equal
or uniform manner with comparable properties. Accordingly, as the State Board conceded,
the HCI tax, as a state tax, violates Article 10, Section 1
of the Indiana Constitution. See Harrington, 525 N.E.2d at 361 (The constitutional
requirement of uniform and equal taxation requires that the assessments be consistent with
similar property of the same classification.).
For the aforementioned reasons, this Court finds that the material facts in this
case are undisputed and that, as a matter of law, the HCI tax
is a state tax, Indiana Code § 6-1.1-18-2 is repealed by implication by
the HCI tax, and the HCI tax violates the Property Taxation Clause of
the Indiana Constitution. Therefore, this Court GRANTS Griffins motion for partial summary
judgment and DENIES the State Boards cross motion for summary judgment. Accordingly,
this Court REVERSES the State Boards final determination. The Court, by separate
order, will set this matter for further proceedings to determine the nature and
extent of Griffins refund.
The State Board of Tax Commissioners (State Board) was originally the
Respondent in this appeal. However, as of December 31, 2001, the legislature
abolished the State Board. P.L. 198-2001, § 119(b)(2). Effective January 1,
2002, the legislature created the Department of Local Government Finance (DLGF),
§ 6-1.1-30-1.1 (West Supp. 2001)(eff. 1-1-02); P.L. 198-2001, § 66, and the Indiana
Board of Tax Review (Indiana Board). Ind. Code § 6-1.5-1-3 (West Supp.
2001)(eff. 1-1-02); P.L. 198-2001, § 95. Pursuant to Indiana Code § 6-1.5-5-8,
the DLGF is substituted for the State Board in appeals from final determinations
of the State Board that were issued before January 1, 2002. Ind.
Code § 6-1.5-5-8 (West Supp. 2001)(eff. 1-1-02); P.L. 198-2001, § 95. Moreover,
the law in effect prior to January 1, 2002 applies to these appeals.
Ind. Code § 6-1.5-5-8 (West Supp. 2001)(eff. 1-1-02); P.L. 198-2001, §§ 95,
117. Although the DLGF has been substituted as the Respondent, this Court
will still reference the State Board throughout this opinion.
Griffin also argued that the HCI property tax levy violates Article
1, § 23 of the Indiana Constitution and the Equal Protection and Due
Process Clauses of the Fourteenth Amendment to the United States Constitution. (Petr
Partial Summ. J. Br. at 2.) Because this Court finds that the
HCI property tax levy violates Article 10, § 1 of the Indiana Constitution,
the Court need not address these other issues.
The State Board responded to Griffins summary judgment motion and moved
for summary judgment in its favor on the same issues raised in Griffins
Footnote: Griffin also serves as Clerk-Treasurer of the town of Highland in
Lake County. However, he moves for partial summary judgment on his own
behalf to challenge the HCI taxes assessed against his real property.
See Indiana Code § 12-16-14-3 and n. 10 infra for
an explanation of the formula each county must apply in order to impose
the HCI property tax levy.
Article 10, § 1 of the Indiana Constitution the
Property Taxation Clause provides:
The General Assembly shall provide, by law, for a uniform and equal rate
of property assessment and taxation and shall prescribe regulations to secure a just
valuation for taxation of all property, both real and personal.
Ind. Const. art. 10, § 1(a). This constitutional provision is also codified
at Indiana Code § 6-1.1-2-2 (All tangible property which is subject to assessment
shall be assessed on a just valuation basis and in a uniform and
Under Indiana Code § 6-1.1-18-2, the State may not impose
a tax on tangible property in excess of
one cent ($0.01) per each
$100 of assessed valuation. Ind. Code § 6-1.1-18-2.
In addition to this original tax appeal seeking a refund of
the HCI tax (refund appeal), Griffin also filed an original tax appeal from
his remonstration of the Lake County budget (budget appeal). After Griffin remonstrated
against the imposition of the HCI tax in the 2000/2001 budget hearings, Griffin,
among other petitioners, filed an original tax appeal and a motion for preliminary
injunction to enjoin the State from collecting the HCI tax in excess of
the maximum state tax rate contained in Indiana Code § 6-1.1-18-2. This
budget appeal, filed February 23, 2000, and docketed as 49T10-0002-TA-27, was consolidated into
this refund appeal. Griffins motion for partial summary judgment, however, pertains only
to his refund appeal. (Petr Partial Summ. J. Br. at 3 n.4.)
While the financial institutions tax,
motor vehicle excise tax,
and commercial vehicle excise tax are listed taxes, see Indiana Code § 6-8.1-1-1,
the HCI property tax is not a listed tax. Montgomery v. State
Bd. of Tax Commrs, 708 N.E.2d 936, 940 n.5 (Ind. Tax Ct. 1999)
revd on other grounds by 730 N.E.2d 680 (Ind. 2000). In this
case, Griffin is only challenging the property tax component of the HCI program.
Effective January 1, 2000, the commercial vehicle excise taxes were added
as an additional funding source for the HCI tax.
See Ind. Code
§ 12-16-14-1(2) (West Supp. 2001).
This statutory formula, although recodified, has remained in place since 1989.
Lake County Council v. State Bd. of Tax Commrs, 706 N.E.2d 270,
273 n.2 (Ind. Tax Ct. 1999), revd on other grounds by 730 N.E.2d
680 (Ind. 2000). When the State gained responsibility of the HCI program
in 1987, the HCI property tax levy was initially calculated by using a
formula that took into account actual HCI expenditures in each county from 1984
to 1986 (prior to 1987, county departments of public welfare were responsible for
indigent health costs). Id. (citing Ind. Code § 12-5-6-6 (1982) (repealed 1992));
see also Montgomery, 730 N.E.2d at 681.
The Court notes that effective July 1, 2002, the HCI property tax levy
formula will be modified. Ind. Code § 12-16-14-3 (West Supp. 2001). For
the initial levy after July 1, 2002, Lake County, will impose a levy
equal to the HCI property tax levy for taxes first due and payable
in the 2002 calendar year minus $4,000,000 multiplied by the statewide average assessed
value growth quotient. Ind. Code § 12-16-14-3.4(1) (West Supp. 2001) (emphasis added).
In 1995 and 1998, the legislature made additional changes to the
HCI program and how the Medicaid matching funds and exchange would occur, which
are not relevant to this case.
See P.L. 156-1995, § 1, 1995
Ind. Acts 3120; P.L. 340-1995 § 8, 1995 Ind. Acts 4390; P.L. 126-1998
§ 5, 1998 Ind. Acts 1508.
During the tax years at issue, Indiana Code § 6-1.1-18-3
provided in relevant part:
. . . .
(b) The proper officers of a political subdivision shall fix tax rates
which are sufficient to provide funds for the purposes itemized in this subsection.
The portion of a tax rate fixed by a political subdivision shall
not be considered in computing the tax rate limits prescribed in subsection (a)
if that portion is to be used for one (1) of the following
. . . .
(7) To meet the requirements of the county hospital care for the
Ind. Code § 6-1.1-18-3 (West 2000, repealed 3-1-01).
Indeed, the State Board admits that the HCI tax, as
a state tax, is unconstitutional. (Trial Tr. 51-52 (If [the HCI tax
is] a state tax, it would be unconstitutional because people in different counties
pay different rates.).)