ATTORNEYS FOR PETITIONERS:    ATTORNEYS FOR RESPONDENT:
HENRY J. PRICE    STEVE CARTER    
JANA K. STRAIN    ATTORNEY GENERAL OF INDIANA
PRICE, JACKSON, WAICUKAUSKI    Indianapolis, IN
& MELLOWITZ, PC
Indianapolis, IN     TED J. HOLADAY
    DEPUTY ATTORNEY GENERAL
    Indianapolis, IN
_____________________________________________________________________

    IN THE INDIANA TAX COURT _____________________________________________________________________

JOSEPH ZIEGLER, RICHARD WAIT,                                             )
MARCELINE WAIT, PAUL JOHNSON,                                                  )
PHILLIS HURD, and FRANK TESTER,                                                )
                                                                               )
    Petitioners,                                                               )
                                                                               )
    v.                                                                         )   Cause No. 49T10-0204-TA-41
                                                                               )                
INDIANA DEPARTMENT OF                                                          )                
STATE REVENUE,                                                                 )
             
                                                                              
                                                                 

II. If not, whether Indiana Code § 6-8.1-9-7 violates Article I, §§ 12 and 23 of the Indiana Constitution?

(1) The due date of the return.
The date of the payment.

Ind. Code § 6-8.1-9-1(a) (1999). Only after the person has filed a claim for refund with the Department, and the Department has issued a decision thereon, may the person appeal to the Indiana Tax Court. See footnote Ind. Code § 6-8.1-9-1(b) & (c) (1999). See also Ind. Code § 33-3-5-2(a) (“[t]he tax court is a court of limited jurisdiction,” and is limited to hearing cases that “arise under the tax laws of this state and that [are] initial appeals of final determination[s] made by” either the Department of State Revenue or the Indiana Board of Tax Review); Ind. Code § 33-3-5-11(a) (where “a taxpayer fails to comply with any statutory requirement for the initiation of an original tax appeal, the tax court does not have jurisdiction to hear the appeal[]”); State Bd. of Tax Comm’rs v. Mixmill Mfg. Co., 702 N.E.2d 701, 704 (Ind. 1998) (stating that “[i]n view of the explicit language of these [statutory] 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 Court[]”).
    The legislature established a similar procedure for those persons who seek the refund of taxes on a class-wide basis. Indeed, Indiana Code § 6-8.1-9-7 provides in relevant part:
A class action for the refund of a tax . . . may not be maintained in any court, including the Indiana tax court, on behalf of any person who has not complied with the requirements of [Indiana Code § 6-8.1-9-1(a)] before the certification of the class.

Ind. Code § 6-8.1-9-7 (1989). Thus, according to the plain terms of Indiana Code § 6-8.1-9-7, while individual members of a prospective class are not required to have received final determinations from the Department before pursuing class certification, they are required to have at least timely filed claims for refund with the Department. Id. See also Zayas v. Gregg Appliances, Inc., 676 N.E.2d 365, 367-68 (Ind. Ct. App. 1997), trans. denied.
    Despite the unambiguous language of Indiana Code § 6-8.1-9-7, the Petitioners maintain that they are nonetheless entitled to pursue their appeal as a class claim on behalf of all similarly situated persons – regardless of whether those persons filed claims for refund with the Department. More specifically, the Petitioners argue that Indiana Code § 6-8.1-9-7 conflicts with Indiana Trial Rule 23 See footnote in that it “effectively bars the courthouse door to Hoosier taxpayers.” (Petrs’ Reply Br. In Support of Mot. for Partial Summ. J. at 6.) As such, the Petitioners contend that Indiana Code § 6-8.1-9-7 must be declared invalid. The Court, however, disagrees.
    When a rule of procedure and a statute conflict, the rule will govern. Jackson v. City of Jeffersonville, 771 N.E.2d 703, 705 (Ind. Ct. App. 2002), trans. denied. To be “in conflict,” however, the rule of procedure and the statute must be incompatible to the extent that both could not apply in a given situation. Id. In this case, Indiana Code § 6-8.1-9-7 merely provides that prospective class members first file a claim for refund with the Department before they can be included in a certified class. It does not, by its terms, preclude or bar taxpayers from filing class actions pursuant to Trial Rule 23.
    In addition, Trial Rule 23(B)(3) requires this Court to determine whether a class action will be superior to other methods of adjudication, e.g., available administrative remedies. As stated earlier, this Court has exclusive jurisdiction over any case that arises under the tax laws of this state and that is an initial appeal of a final determination made by the Department. See I.C. § 33-3-5-2(a). One method to receive a final determination by the Department is to have a request for a refund denied. Thus, when an individual taxpayer seeks a refund of taxes paid, compliance with Indiana Code § 6-8.1-9-1 is mandatory. See I.C. §§ 33-3-5-2(a); 33-3-5-11(a). See also Mixmill Mfg., 702 N.E.2d at 704. The underlying purposes and policy for such a requirement has been explained by Indiana’s Supreme Court:
one reason to require [the claim for refund] procedure is to force the dispute into a channel that leads ultimately to the Tax Court. This . . . avoids the problem of multiple conflicting litigation [in different courts] on a matter as complex and critical to state government as the validity of a tax. This also provides for the legal infrastructure to process the case in an orderly manner, including timetables for decision.

State Bd. of Tax Comm’rs v. Montgomery, 730 N.E.2d 680, 685 (Ind. 2000). In other words:
The sound policy reasons supporting the Tax Court’s direct jurisdiction [] argue in favor of requiring exhaustion of the refund procedure, because that process ultimately brings the case to the Tax Court. If the legislature wishes to confer original jurisdiction on the Tax Court to entertain claims [in which the taxpayers have not complied with the statutory requirements to invoke its jurisdiction], it is of course free to do so. The current statutory framework limits access to the Tax Court to specified procedural channels. [I]t is not irrational to require plaintiffs who wish to present such a claim to proceed through the administrative apparatus the legislature has set up to deal with tax disputes, even if the ultimate constitutional issue may be resolved only at the Tax Court stage. That requirement assures that an adequate record is developed and that nonconstitutional issues that may moot [a] constitutional challenge will be considered. The advantages of consolidating the litigation in a forum with expertise are retained. If the cost in time and effort imposed by this procedure is too great, the remedy lies with the General Assembly.

Id. at 686.
    These policy reasons are no less applicable, or important, in cases where individuals seek tax refunds on a class-wide basis. Indeed, to interpret the two as conflicting would allow those taxpayers participating in class action lawsuits to bypass statutorily mandated administrative procedure, while those taxpayers who challenged the imposition of a tax on an individual basis would be required to exhaust all administrative procedures. As such, taxpayers might be induced to characterize their claims as class actions merely as an attempt to circumvent the exhaustion requirement. The consequences could be profound. The Department would be ill-informed of the claims against it and the tax system it administers, and the Court’s case load would grow exponentially, with valuable resources expended in reviewing the factual circumstances behind the individual claims – a task more appropriate for the Department. See id. (stating that the administrative bodies must initially determine whether a case can be decided on its merits, or whether other issues may moot the challenge).
Finally, the Petitioners’ reliance on Clark v. Lee, 406 N.E.2d 646 (Ind. 1980), to support their argument is misplaced. In that case, the Indiana Supreme Court held that several taxpayers, who were challenging the facial constitutionality of Indiana’s occupation income tax, were able to maintain their action as a class action pursuant to Trial Rule 23, despite the fact that the prospective members of the class (i.e., non-resident workers who had paid the occupation income tax) had not first exhausted their administrative remedies. Clark, 406 N.E.2d at 649. Clark, however, is distinguishable from this case.
At the time Clark was decided in 1980, Indiana Code § 6-8.1-9-7 did not exist. The statutes addressed procedure only as it related to individual claims. Consequently, case law as it existed at the time addressed only those situations whereby a single taxpayer challenged the imposition of a tax – holding that unless the taxpayer exhausted all administrative remedies, a circuit court was without jurisdiction to determine its challenge regarding the legality of the imposition of a tax. See id. at 648-49 (citing State ex rel. Indiana Dep’t of State Revenue v. Marion Circuit Court, 265 N.E.2d 241 (Ind. 1970); Marhoefer Packing Co. v. Indiana Dep’t of State Revenue, 301 N.E.2d 209 (Ind. Ct. App. 1973); and Cooper v. County Bd. of Review of Grant Co., 276 N.E.2d 533 (Ind. Ct. App. 1972)).
When the Indiana Supreme Court decided Clark, it merely extended the limited application of these cases to that in which a class was involved. In so doing, the Court in Clark held that as long as the “named plaintiffs personally satisfied the [statutory] jurisdictional requirements [] by exhausting their administrative remedies[,]” the fact that members of the putative class had not exhausted their administrative remedies “is not contrary to the case law[.]” Id. With the legislative enactment of Indiana Code § 6-8.1-9-7, however, Clark is no longer controlling.

(Petrs’ Br. In Support of Their Mot. for Partial Summ. J. at 17, 19.)
     In Martin v. Richey, 711 N.E.2d 1273 (Ind. 1999), the Indiana Supreme Court examined Article I, § 12 in the context of considering the constitutionality of the medical malpractice statute of limitations. In so doing, it noted that it had never held that there was a “fundamental right” to access to the courts. Id. at 1283. Rather, it recognized that the legislature “has the authority to modify or abrogate common law rights provided that such change does not interfere with constitutional rights.” Id. It then held that the occurrence-based statute of limitations was unconstitutional as applied to the plaintiff because otherwise the statute “would impose an impossible condition on plaintiff’s access to courts and ability to pursue an otherwise valid tort claim.” Id. at 1284 (emphasis added). In other words, the statute as applied completely denied plaintiff all access to the courts.
    Unlike the plaintiff in Martin, the putative class members the Petitioners’ seek to represent are not completely denied access to this Court. Rather, they are merely required to present their claims first to the Department. Thereafter, they may invoke the jurisdiction of this Court. Accordingly, the Petitioners have not overcome the presumptive constitutionality of Indiana Code § 6-8.1-9-7.

Id. at 80 (internal quotation and citation omitted).
    As more fully discussed in Part I above, the underlying purposes and policy of Indiana Code § 6-8.1-9-1, and thus Indiana Code § 6-8.1-9-7, justify the difference in treatment between taxpayers seeking a refund of taxes on a class-wide basis and other litigants seeking relief on a class-wide basis. Indeed, the exhaustion of the claim for refund process is the only way by which taxpayers can bring a refund case to the Tax Court; conversely, it is the only way by which this Court has jurisdiction to hear such appeals. Montgomery, 730 N.E.2d at 686. Furthermore, tax disputes are of a particularly sensitive nature: the disruption of the state’s prompt and orderly collection of taxes (and, in this case, the possibility that more than one billion dollars could be removed from the State’s treasury) could have catastrophic effects on Indiana’s economy, let alone the solvency of the state government. For these very reasons, the Indiana legislature has drawn classifications between taxpayers seeking a refund of taxes on a class-wide basis and other litigants seeking relief on a class-wide basis that are neither arbitrary nor manifestly unreasonable. See Budden v. Bd. of School Comm’rs of City of Indianapolis, 698 N.E.2d 1157, 1162 & n.7 (Ind. 1998) (stating that the preconditions set forth in Indiana Code § 6-8.1-9-7, as well as other tax refund statutes, “demonstrate that class claims are not personae non gratae in suits against the government[]”). Because the disparate treatment in this case is reasonably related to the inherent characteristics that distinguish taxpayers from other litigants, the Court concludes that Indiana Code § 6-8.1-9-7 does not violate Article I, § 23 of the Indiana Constitution.

SO ORDERED this 21st day of October, 2003.
     _________________________
     Thomas G. Fisher, Judge
Indiana Tax Court

DISTRIBUTION:

Henry J. Price
Jana K. Strain
PRICE, JACKSON, WAICUKAUSKI &
MELLOWITZ, PC
301 Massachusetts Avenue
Indianapolis, Indiana 46204

Steve Carter
Attorney General of Indiana
By: Ted J. Holaday
Deputy Attorney General
Indiana Government Center South, Fifth Floor
402 West Washington Street
Indianapolis, IN 46204-2770

the prosecution of separate actions by or against individual members of the class would create a risk of:
inconsistent or varying adjudications with respect to individual members of the class which would establish incompatible standards of conduct for the party opposing the class, or
adjudications with respect to individual members of the class which would as a practical matter be dispositive of the interest of the other members not parties to the adjudications or substantially impair or impede their ability to protect their interests; or
the party opposing the class has acted or refused to act on grounds generally applicable to the class, thereby making appropriate final injunctive relief or corresponding declaratory relief with respect to the class as a whole; or
the court finds that the questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy. The matters pertinent to the findings include:
the interest of members of the class in individually controlling the prosecution or defense of separate actions;
the extent and nature of any litigation concerning the controversy already commenced by or against members of the class;
the desirability or undesirability of concentrating the litigation of the claims in the particular forum;
the difficulties likely to be encountered in the management of a class action.

Ind. Trial Rule 23.