INDIANA TAX COURT
MICHAEL GRIFFIN AND LAKE COUNTY, )
COMPANY, Successor in Merger with
v. ) Cause No. 49T10-0009-TA-98
DEPARTMENT OF LOCAL GOVERNMENT )
ORDER AND JUDGMENT ENTRY
June 28, 2002
The Petitioner, Michael Griffin, in this case requests that the Court grant him
a $180.29 refund of the Hospital Care for the Indigent (HCI) tax
See footnote and
enjoin the State from collecting the HCI tax. The Respondent, the Department
of Local Government Finance (DLGF), asks the Court to deny Griffins motion and
instead stay the effect of its April 3, 2002 decision in
Department of Local Government Finance, 765 N.E.2d 716 (Indiana Tax Ct. 2002), which
held that the HCI tax violated Article 10, Section 1 of the Indiana
Constitution. Griffin v. Dept of Local Govt Fin., 765 N.E.2d 716, 724
(Indiana Tax Ct. 2002).
When the Court rendered its decision in Griffin, by separate order it set
the matter for further proceedings to determine the nature and extent of Griffins
refund. Id. On May 6, 2002, Griffin filed a motion to
enjoin collection of the HCI tax. On June 17, 2002, the DLGF
requested that Griffins motion be denied and that the Court stay its April
3, 2002, order granting Griffins motion for partial summary judgment on the issue
of whether the HCI tax violated Article 10, Section 1 of the Indiana
Constitution. On June 24, 2002, the Court held a hearing on the
The parties have urged the Court to weigh the immediate harm of an
unconstitutional HCI tax levy against the potential harm to the States 750,000 Medicaid
recipients if the Court enjoins collection of the HCI tax. Griffin notes
that HCI revenue represents only 1.25% of the States $4 billion Medicaid budget.
Because HCI revenue represents only a small portion of the States Medicaid
budget, Griffin argues that any large-scale effect of an HCI refund on Medicaid
does not outweigh the harm to taxpayers who have been assessed for an
unconstitutional tax. Accordingly, he asks that collection of the HCI tax be
enjoined and that he be refunded with interest the HCI tax he paid
for fiscal years 199698, totaling $180.29. The DLGF argues, on the other
hand, that if federal Medicaid matching funds are taken into account,
See footnote a loss
of $50 million in HCI revenue ultimately would represent a loss of $126
million from the States Medicaid budget, making it more difficult to pay for
health care for Indianas neediest citizens. As a result, the DLGF asks
this Court to stay the effect of its April 3, 2002, decision, allow
the DLGF time to appeal the Courts ruling to our Supreme Court, and
allow the legislature time to fix the HCI tax.
It is appropriate for the Court in this case to balance Griffins immediate
interest in enjoining the State from further collecting HCI tax against the States
immediate interest in collecting HCI revenues.
See Smith v. Smith, 65 N.E.
183, 185 (Ind. 1902) (holding that a court should balance the fiscal needs
of the State and the claims of a citizen who seeks to enjoin
collection of an illegal tax). In striking this balance, the Court may
grant Griffins request for an injunction only at that stage of the proceedings
when his substantial right may be protected . . . with the minimum
amount of prejudice to the public[.] Id.; see also Town of St.
John v. State Bd. of Tax Commrs, 691 N.E.2d 1387, 138990 (Ind. Tax
Ct. 1998) (St. John IV), revd on other grounds. Furthermore, the remedy
of an injunction against an illegal and void tax is the proper one[.]
Yocum v. First Nat. Bank of Brazil, 43 N.E. 231, 232
(Ind. 1896). An injunction is also appropriate where it prevents a multiplicity
of suits related to the same subject matter. Gray v. Foster, 92
N.E. 7, 9 (Ind. Ct. App. 1910).
In testimony, Griffin offered his opinion as to various approaches that might offset
the financial effect of enjoining collection of the HCI tax, which would include
either a refund or a credit to taxpayers. Griffin argues that because
the $2 million of HCI revenue that is actually spent statewide on emergency
medical care for indigent patients is a relatively small amount, emergency medical care
for indigents will not be jeopardized if this Court opens the door to
statewide HCI tax refunds or credits. Griffin conceded, however, that there likely
would be an effect on the States Medicaid budget were immediate relief granted
to him. In particular, Family and Social Service Administration (FSSA), which runs
the States Medicaid program, could lose tens of millions of dollars of federal
matching funds as a result of any HCI refund. Nevertheless, Griffin suggests
that FSSA could (1) trim its budget, (2) suspend its operations until the
legislature fixes the HCI tax, (3) cut optional programs, or (4) rely on
intergovernmental transfers to solve any budget shortfalls. Finally, Griffin submitted evidence showing
that Lake County has received more than 160,000 requests for HCI tax refunds
and that were those refunds granted, Lake County would run out of money
before the end of the year.
The DLGF presented evidence showing that the State has already factored projected HCI
revenue into its $4 billion Medicaid budget for Fiscal Year 2003, which begins
July 1, 2002. Overall, the State stands to lose $126 million in
Medicaid funds if collection of the HCI tax is enjoined. In particular,
FSSA, which relies on HCI revenue to secure federal matching Medicaid dollars, serves
more than 750,000 Indiana residents and currently faces a budget shortfall of $250
million. It must somehow balance its budget before the end of Fiscal
Year 2003. According to FSSA officials, to immediately enjoin collection of the
HCI tax would add to its budget woes by eliminating $57 million it
would otherwise receive in federal matching funds leveraged by HCI revenue, thus necessitating
cuts in programs that serve the most disadvantaged citizens of the State.
Moreover, the FSSA officials testified that intergovernmental transfers need legislative approval and so
denied that such transfers could provide an immediate solution to FSSAs budget concerns.
Based on the foregoing, the DLGF rejects any suggestion that FSSA suspend
its operations and rather urges the Court to craft a remedy that is
equitable to the States Medicaid recipients.
The question, then, is whether the Courts decision in Griffin should be given
prospective effect only. It is appropriate for this Court to deny retroactive
effect to cases of first impression where retrospective relief could produce substantial inequities.
See Chevron Oil Co. v. Huson, 404 U.S. 97, 1067 (1971).
Griffin clearly is a case of first impression. Moreover, the Court is
mindful of the 160,000 claims for refund currently pending in Lake County (notwithstanding
the actions of the Lake County government). The Court is also mindful
of the possibility that taxpayers from other Indiana counties will, as Griffin has,
seek HCI tax refunds for the past three fiscal years, which could
amount to $150,000,000. Whether this sum ultimately would be paid out of
county treasuries or the State treasury, it would, in either event, substantially strain
an already suffering public fisc. In the end, the taxpayers of Indiana
would in all likelihood be taking funds from one treasury to place it
in the other treasury.
Accordingly, the Court holds that the effect of its decision in Griffin shall
be stayed until January 1, 2003 and ORDERS that an injunction against the
assessment and collection of the HCI tax shall be GRANTED on that date.
The State should be afforded a reasonable period of time to fix
the HCI tax rate or consider other suitable solutions, and the Court believes
that delaying the injunction against enforcing the HCI tax until January 1, 2003
will accommodate these concerns. See St. John IV, 691 N.E.2d at 138990
(delaying the effect of the Courts holding that a portion of the real
property tax system was unconstitutional); cf. Salorio v. Glaser, 461 A.2d 1100, 1110
(N.J. 1983), cert. denied, 464 U.S. 993 (1983) (delaying by 6 months the
effect of a decision declaring a $30,000,000 per year transportation tax unconstitutional).
The Court now DENIES Griffins request for a refund. The Court ORDERS
that the HCI tax shall continue to be collected through the November 2002
installment of property taxes, which taxes have in most instances been billed and
in some instances paid by those who pay for the entire year with
the May installment. The HCI remittances are to be made by the
counties to the State, as has been done in the past, with the
June 30, 2002 remittance and the December 31, 2002 remittance. The HCI
tax is not to be assessed, collected, or remitted on or after January
1, 2003 (unless it is a delinquent payment).
IT IS THEREFORE ORDERED, ADJUDGED AND DECREED that judgment be entered accordingly.
SO ORDERED this 28th day of June, 2002.
Thomas G. Fisher, Judge
Indiana Tax Court
Robert B. Wente, Deputy Attorney General
Office of the Indiana Attorney General
402 W. Washington St., Fifth Floor
Indianapolis, IN 46204
Beth H. Henkel, General Counsel
Department of Local Government Finance
100 N. Senate Ave., Room 1058
Indianapolis, IN 46204
Gerald M. Bishop
2115 W. Lincoln Highway
Merrillville, IN 46410
John S. Dull
8300 Mississippi St., Ste. F
Merrillville, IN 46410
Edward R. Hall
Merrillville, IN 46410
Ind. Code § 12-16-14-1.
The federal government matches approximately every $38 in state funds with $62
in federal funds.
The Court is unmoved by Lake Countys possible budget crisis. As
soon as Lake County learned that this Court had declared the HCI tax
unconstitutional, it spent at least $130,000 in taxpayers dollars by mailing Lake County
residents more than 250,000 forms 17T for a tax refund and letters encouraging
residents to file for a refund of the HCI tax. It then
advertised the refund in two prominent newspapers. Lake Countys own actions have
placed it on the path of a government shutdown. The Court has
The Court notes that as a result of its holding here, no
taxpayer, including Griffin, is entitled to a refund of HCI taxes due and
payable before January 1, 2003.