ATTORNEYS FOR PETITIONERS:    ATTORNEYS FOR RESPONDENT :

THOMAS M. ATHERTON            JEFFREY A. MODISETT
DUTTON OVERMAN GOLDSTEIN        ATTORNEY GENERAL OF INDIANA
& PINKUS
Indianapolis, IN

PETER H. DONAHOE                JON S. LARAMORE
HILL FULWIDER McDOWELL            DEPUTY ATTORNEY GENERAL
FUNK & MATTHEWS, P.C.            Indianapolis, IN
Indianapolis, IN

JAMES K. GILDAY                MARILYN S. MEIGHEN
WOOD TUOHY GLEASON            DEPUTY ATTORNEY GENERAL
MERCER & HERRIN                Indianapolis, IN
Indianapolis, IN

KENNETH J. FALK    
INDIANA CIVIL LIBERTIES UNION        
Indianapolis, IN

RICHARD A. WAPLES
Indianapolis, IN ______________________________________________________________________________

TOWN OF ST. JOHN, ET AL., JAMES                                            )
K. GILDAY, DIMPLE CLARINE SHELTON                                               )
and WILLIAM E. WISE,                                                            )
        Petitioners,                                                            )
                                                                                )
    v.                                                                          )        Case No. 49T10-9309-TA-00070
                                                                                )       
STATE BOARD OF TAX                                                              )
COMMISSIONERS,                                                                  )
                                                                                )
        Respondent.                                                             )
_____________________________________________________________________________
  
ON REMAND FROM THE INDIANA SUPREME COURT
                               
                                                                      

    The Town of St. John, James K. Gilday, Dimple Clarine Shelton, and William E. Wise (Petitioners or the Petitioners) challenge the constitutionality of Indiana's real property taxation system. In Town of St. John v. State Bd. of Tax Comm'rs, 665 N.E.2d 965 (Ind. Tax Ct. 1996) (St. John I), this Court held that Article X, section 1 of the Indiana Constitution requires a system of real property taxation based solely on fair market value. The Indiana Supreme Court reversed this holding and remanded the case to this Court to determine whether the True Tax Value system results in a uniform and equal rate of assessment and a just valuation based on property wealth. Boehm v. Town of St. John, 675 N.E.2d 318 (Ind. 1996) (St. John II). On remand, this Court holds that Indiana's property taxation system violates the Indiana Constitution.

    IV. Whether Indiana's True Tax Value system violates the Equal Protection Clause of the Fourteenth Amendment to the United States Constitution.

approved by the State Board. Ind. Admin. Code tit. 50, r. 2.2-2-1 (1996). See also Ind. Code Ann. § 6-1.1-4-13.6 (West 1989) (amended 1997). Each county has its own land valuation commission to collect and analyze sales data for the county and, on the basis of that information, the commission determines the values of the land contained therein. Ind. Admin. Code tit. 50, r. 2.2-4-5 (1996). These values are then either accepted by the State Board, or modified by the State Board without further input from the county commissions.See footnote 2 See Ind. Code Ann. § 6-1.1-4- 13.6; Ind. Admin. Code tit. 50, r. 2.2-4-3(a) (1996). The State Board's final figures are then compiled in a County Land Valuation Order. In theory, the True Tax Value of non-agricultural land approximates its market value.
    The True Tax Value of agricultural land is determined by a county agricultural land advisory committee. See Ind. Code Ann. § 6-1.1-4-13 (West Supp. 1997). Each county has an agricultural land advisory committee. Unlike the county land valuation commission, however, this committee does not collect and analyze sales data for agricultural land within the county. Rather, it determines the True Tax Value of agricultural land by taking a base rate of $495 per acre and then making adjustments up or down to reflect the soil's crop production capacity. Ind. Admin. Code tit. 50, r. 2.2-5-6(5), 2.2-5-7 (1996)See footnote 3 As a result, the True Tax Value of agricultural land purports to approximate a value based in part on its earning capacity.

    The True Tax Value of an improvementSee footnote 4 is calculated by the "reproduction cost" of the item, minus any physical depreciation or obsolescence depreciation. Ind. Admin. Code tit. 50, r. 2.2-2-1(c) (1996); see also id. r. 2.2-7-9. Reproduction cost is defined as the "whole-dollar cost of reproducing the item." Id. r. 2.2-7-7.1(f)(8). The "reproduction cost" of an improvement, however, is not the actual cost of reproducing the item. Rather, it is the "reproduction cost" as specified in the State Board's cost schedules.See footnote 5
    The cost schedules are divided into several basic classes: Residential Dwellings, id. r. 2.2- 7-11, Mobile and Manufactured Homes, id. r. 2.2-8-7, Residential Yard and Agricultural Improvements, id. r. 2.2-9-6, Commercial/Industrial Improvements, id. r. 2.2-11-6, Commercial/Industrial Yard Improvements, id. r. 2.2-12-5, Special Use Commercial Properties, id. r. 2.2-13-8, and Unit-in-Place, id. r. 2.2-15-1. The regulations provide assessors with "models to help identify and define various classes of buildings." Herb v. State Bd. of Tax Comm'rs, 656 N.E.2d 890, 893 (Ind. Tax Ct. 1995). These models direct the assessors to the applicable cost schedule. The schedules are made up of values (base prices in hundreds of dollars) that are then adjusted for various factors (additions, interior and exterior features, quality, grade, life expectancy, etc.). Such factoring may increase or decrease the value. Regardless of what category the property falls under, the only determination of value is made via the schedules. These cost schedules and adjustment factors are the only information that may be used in

determining an improvement's True Tax Value.
    In summary, True Tax Value is a figure produced by the application of a closed set of self- referential rules and formulas contained in Title 50. Everything needed to calculate True Tax Value is set forth in Title 50; evidence of value external to Title 50 is irrelevant. See Dawkins v. State Bd of Tax Comm'rs, 659 N.E.2d 706, 709 (Ind. Tax Ct. 1995); See also Institute of Property Taxation, Property Taxation 159 (Jerrold F. Janata, ed., 2d ed. 1993). As a result, evidence of an improvement's actual reproduction cost or evidence of the actual value of land is irrelevant under the True Tax Value system.

or any part thereof was framed and adopted, to ascertain the old law, the mischief, and the remedy." St. John II, 675 N.E.2d at 321 (citations omitted). There were two problems that led to the adoption of Article X, section 1.
    First, under the tax system then in place, some property escaped taxation while other property did not.See footnote 6 Not surprisingly, this was considered unfair. Governor James Whitcomb stated, "[I]t is quite manifest that a large amount of the invisible wealth of our community . . . is not found upon assessment rolls. This description of taxables is generally owned by those best able to pay." Indiana House Journal, 32d Sess. 125 (1848) (emphasis added). This observation was echoed by the comments of Daniel Read, the delegate to the Constitutional Convention who proposed Article X, section 1:
    There is manifest injustice in permitting property, in the hands of the wealthy, which ought     to be taxed as other property, to escape taxation altogether, or to be taxed only on a very     small part of its value. It is to me a strange doctrine, that, in this country, a man may     invest his money in any kind of stocks, and claim for it an exemption from taxation. It     runs athwart all my notions of justice and right, that any one may live in our midst_may     enjoy the full protection of Government_invest his money in the safest funds known in     the country, and yet entirely escape taxation. He may, according to the doctrine, have the     best fortune in Indiana, and pay on it not a dime to support the Government which     surrounds him with safety.

1 Report of the Debates and proceedings of the Convention for the Revision of the Constitution of the State of Indiana 946 (1850) (emphasis added) [hereinafter Debates].
    Second, under the tax system then in place, there was often a wide disparity in assessments of property. Delegate Read stated that he knew of farms "which were of equal value assessed at a difference of fifty perc., and farms of less value than others at a much higher rate."

Id. Delegate Borden offered two similar examples. First, he stated that there was an estate assessed at sixty thousand dollars, but later appraised at its real cash value at three hundred thousand dollars. Id. at 950. He added a second example of property taxed at a value of one hundred thousand dollars, but "really worth" four or five hundred thousand dollars. Id.
    It is readily apparent that concerns about the fairness of the then current taxation system animated the adoption of Article X, section 1 with its uniformity and equality provision and its just valuation provision. The framers intended to make Indiana's property tax system fair with these new provisions.See footnote 7 The idea of fairness, however, does little to elucidate the question at hand, i.e., what judicially cognizable standards are provided in Article X, section 1.
    Fortunately, the answer lies in how the delegates evaluated the system then in place. They evaluated its fairness, not by any rules of assessment, but rather based on a real world understanding about what the particular property was worth. They were not concerned with whether the law in place at that time dictated the unequal assessments.See footnote 8 See id. at 950. To them, the inherent fairness of property assessments was determined with reference to real world values.See footnote 9 The Supreme Court explicitly recognized that such a real world reference is a prerequisite to a

constitutionally valid property tax system. "We think the constitution requires that property, wealth, substantial values should be taxed, but not imaginary values." Florer v. Sheridan, 137 Ind. 28, 42, 36 N.E. 365, 369 (1894) (language cited with approval in St. John II, 675 N.E.2d at 325). Real world values are the opposite of "imaginary values."
    The writings of Thomas Cooley reflect the prevailing attitudes at the time of the framing. Cooley is largely regarded as the driving force behind the uniform and equal taxation principles of American constitutional law. See Morton J. Horwitz, The Transformation of American Law 1870-1960, at 21 (1992). Cooley believed that the power to tax was given to the government by the people and was a limited grant.See footnote 10 Cooley wrote that principles restricting the power to tax might seem unnecessary at first glance until "one considers how vast is this power, how readily it yields to passion, excitement, prejudice or private schemes . . . ." See 1 Thomas M. Cooley, Treatise on the Law of Taxation, preface to 1st edition 1876 (3d ed. 1903) [hereinafter Cooley, Treatise]. Cooley understood that the government should tax property based only on its actual worth. This is because the people's grant to the government of the power to tax is a limited grant. This grant can only be given, in an ad valorem system, to the extent of each person's ability to pay. In property taxation, the person's ability to pay is naturally limited to the actual wealth he has invested in his property. The government cannot collect a tax from a

citizen if that tax will be confiscatory. The delegates drafted Article X, section 1 of Indiana's Constitution with these ideas in mind.

Johnson, 173 Ind. 76, 89 N.E. 590 (1909). Support for this conclusion comes from the comments of the framers and the language of Article X, section 1 coupled with an understanding of ad valorem property taxation.
    In any ad valorem taxation system, the value of any property must be converted into standard units of measure (i.e., dollar figures). Property is not fungible and not freely convertible. It follows that, in a system where the assessments are required to be equal and uniform, the method by which property is to be converted into dollar figures must be objective. There must also be a means of determining whether equal property has been assessed equally.See footnote 12 The State Board admitted at trial that it was impossible under the present system to determine the system's compliance with the uniformity provision of the Indiana Constitution. (Tr. at 150, 642, 912-13, 1479). For this reason alone, the present system is unconstitutional. The State Board cannot create "an artificial distinction which results in an assessment which is not uniform . . . ." State Bd. of Tax Comm'rs v. Polygram Records, Inc., 487 N.E.2d 444, 445 (Ind. Ct. App. 1985). See also State Bd. of Tax Comm'rs v. Pioneer Hi-Bred Int'l, Inc., 477 N.E.2d 939 (Ind. Ct. App. 1985); State Bd. of Tax Comm'rs v. Lyon & Greenleaf, Inc., 359 N.E.2d 931 (Ind. App. 1977).See footnote 13

Without objective methods of converting property wealth into dollar figures, there is no way to verify that the constitutional guarantee of uniformity and equality is being adequately met. How can that right be adequately protected if there is no way to check the assessments against real world data? With no objectivity, there can be no justiciable standards. One must ask, "Who is watching the watchmen?"See footnote 14
    Requiring uniformity and equality of assessments means that assessments will be based on objectively verifiable data. It is impossible to conclude that the framers, who evaluated the propriety of assessments according to their real world understanding of a property's value, would create a system where the real world is irrelevant to property assessment. Such is the system in place today. See Ind. Code Ann. § 6-1.1-31-6(c) ("[t]rue tax value is the value determined under the rules of the state board of tax commissioners."); see also Dawkins, 659 N.E.2d at 709-10 (reproduction cost for assessment purposes means reproduction cost as determined by regulation, not actual reproduction cost).

the True Tax Value system, do not result in the property valuations bearing any nexus with real world, objectively verifiable, measurements.
    As noted previously, the cost schedules were generated by using the 1985 prices of items found in buildings reduced fifteen percent across the board.See footnote 15 Because the cost schedules were generated in accordance with real world data, it might be argued that assessments based on these tables comport with the constitutional mandate that assessments comport with real world values.
    The problem with this argument is that it does not allow the objective verification of the assessment. It asks taxpayers to trust a valuation made in accordance with a system that rejects evidence of actual worth. This is contrary to the protections afforded taxpayers in our constitution. Taxpayers have a right to have their assessments evaluated to ensure that they meet the standard of uniformity and equality. Under the present system, this right is ignored. Assessments now are solely evaluated according to State Board regulations.See footnote 16 The assessments, based on the State Board's cost schedules, are not tested in the crucible of comparison to objective data.See footnote 17
    By setting up a system whereby assessments are based on unchallengeable cost schedules

the State Board has in fact implemented a system of valuation by fiat. The definition of value is not the exclusive province of the State Board. It has constitutional meaning apart from any statute or regulation. The job of the State Board is to secure a just valuation, not define what value is.See footnote 18 See Ind. Const. art. X, § 1(a). Because the present system does not allow comparison of assessments to objective data, it cannot satisfy the constitutional requirements of uniformity and equality in property assessment.
    This holding is not inconsistent with St. John II. In reversing this Court's determination that Article X, section 1 requires adherence to fair market value in property assessments, the Indiana Supreme Court explained that although "a careful and accurate fair market value assessment may well be the system closest to our constitution's requirements for uniform and equal rates of assessment and taxation and for just valuation, a system based solely upon strict fair market value is not required. . . ." St. John II, 675 N.E.2d at 327.See footnote 19

    Use of objective data will allow taxpayers and courts the ability to review assessments to determine whether they truly are uniform and equal as required by the constitution. However, under our system of taxation, the same valuation methods must be applied to similar properties. If this is not done, we are left without the ability to measure or compare similar properties to determine whether such properties are being treated uniformly and equally.See footnote 20
    The State Board contends that under the True Tax Value system, the various classes of property are assessed equally in terms of property wealth. The State Board argues that "[t]he DeBoer study's conclusions about the shift of tax burdens under market value show that true tax value has accomplished its goal of valuing the various classes of property properly in relation to each other." (State Bd. Remand Br. at 16). As the State Board would have it, equality is demonstrated because the DeBoer Report shows the median True Tax Value for single family homes is 49% of fair market value in one county, while the median True Tax Value for single family homes in another county is 86% of fair market value. (State Bd. Ex. 64C at 5; State Bd. Remand Br. at 5 n.1). Both properties are said to be of equal value under the current system

within the category of residential properties because they are physically identical structures. Differences in deviation from fair market value in different counties hardly show uniformity and equality (except, perhaps in an Orwellian sense, where some properties are "more equal" than others).
    Remarkably, the State Board attempts to verify equality in terms of market data. Leaving aside the question of whether the disparate levels of assessment are "proper" or instead amount to a de facto classification system, it is clear that the State Board's measure of equality is the market value data in the DeBoer report. While the Court does not concur that these comparisons demonstrate equality, the Court finds that they demonstrate that even the State Board has not identified any other way to measure equality of taxation on the various classes of property, except by using real world, market information. Three economists, Dr. Zorn (Tr. at 912-13), Dr. Grimes (Tr. at 296) and Dr. DeBoer (DeBoer Dep. at 55-56) joined the State Tax Commissioners (Tr. at 150, 642, 1479) in being unable to identify any way other than market information to measure whether the various classes of property are being assessed equally under True Tax Value.
    In contrast to assessments based on True Tax Value, property assessments based on fair market value are objective valuations. Inherent in fair market value is, inter alia, the proposition that property is valued at its highest and best use.See footnote 21 A valuation system based on highest and best use is not required in Indiana. What is required, however, is a value that objectively measures property wealth. No evidence has been presented to the Court, nor has the Court found any other method of measuring property wealth other than with reference to market factors. There are

three recognized methods of determining value using market data:See footnote 22 1) the comparable sales approach, 2) income capitalization, and 3) reproduction cost minus depreciation. See Glenn W. Fisher, The Worst Tax? A History of the Property Tax in America 194-97 (1996); Joan Youngman, Legal Issues in Property Valuation and Taxation: Cases and Materials 34 (1994).
    Market information influences all three methods of valuation because each of these methods is tied to some type of real world data. For example, true reproduction cost is measured by the fair market value of lumber, bricks, mortar, and other materials, as well as labor. The cost of these items is dictated by the marketplace. The comparable sales approach uses data from actual sales in the real world to determine a property's value. Lastly, the income capitalization approach assigns a value to a particular piece of property based on its ability to generate income. This method is based on real world data. The return that a particular property will give is dictated by what the market will pay for the goods and/or services the property can produce.See footnote 23
    There are several methods of equitably and objectively valuing property that do not necessarily consider only the "highest and best use" of the property. One such valuation method, commonly used for agricultural land, is a strict income capitalization method using the actual data from the property to calculate the actual income. See Arthur O' Sullivan et al., Property Taxes and Tax Revolts 29 (1995). The income capitalization method clearly considers the

current use while objectively and justly valuing the property for taxation purposes. Some states have adopted "circuit-breaker" programs which provide a tax break after property taxes exceed a certain level of "acceptable" burden. Id. at 27. There are many creative ways to utilize common assessment and valuation techniques which would not violate the Indiana Constitution's just valuation requirement. Several states currently employ these methods to value property only at its current use value. Id. at 22.
    The difference between a valuation based on strict fair market value and a just valuation allowed under Article X, section 1 may be demonstrated by considering farm land located in or near a metropolitan area. The value of the land measured at its highest and best use may be far higher than its value measured at its current use as farm land. If the land were valued using an income capitalization method, the property wealth could be measured at its current use. Either method could result in a just value, and both are measured by objective evidence. The Indiana Constitution allows the legislature discretion in determining whether property is to be valued at its current use or highest and best use.See footnote 24
    As the Supreme Court explained, the Indiana Constitution delegates to the legislature the power to implement the uniform and equal clause of Article X, section 1:
        The second clause of Article X, Section 1, requiring the General Assembly to "prescribe regulations to secure a just valuation for taxation of all property," has been interpreted to authorize substantial, but not unlimited, legislative discretion in the methods utilized to achieve the standards of uniformity and equality of rates of assessment and taxation.

St. John II, 675 N.E.2d at 327; see also id. at 329 n.7 (Shepard, C.J., dissenting). Additionally,

the Supreme Court stated that Article X, Section 1 does not "immunize legislative policy judgments from judicial oversight, but rather establishes mandatory minimum requirements for our system of property assessment and taxation." Id. at 324. Therefore, a just valuation of property wealth must utilize objective data. This would satisfy the intent of the framers by ensuring that property is valued at its actual worth. Further, it would allow this Court, the Indiana Supreme Court, and, most importantly, the taxpayers of Indiana the ability to personally evaluate an assessment in the simple manner utilized by the framers of our Constitution_a common, real world, knowledge of property values.
    Although the current system may result in some accurate assessments by happenstance , this does not save the True Tax Value system from its fatal flaws. Article X, section 1 requires actual, objective valuation_not verisimilitude. We can indeed see that a piece of property is being assessed at $100,000. We can also observe that the tax based on this value is not confiscatory. However, this observation does not allow the taxpayer or the Court to evaluate an assessment to discern if it is a just valuation based on actual property wealth. The State Board's position is that the True Tax Value system is a measure of the "value in use" of property, is the most equitable way to determine the wealth of property in Indiana, and is therefore constitutional under Article X, section 1.
    The State Board is incorrect. The State Board's claim that the True Tax Value system measures value in use, or that it uses any method to determine property wealth, is a fiction. The State Board's spokesperson (Mr. Bisch) on the application of the regulations made the point clearly:
    Question by Mr Atherton: I understand your confusion. Does true tax value

measure the wealth of the owner of real property?

    Answer by Mr. Bisch: What do you mean by that?

    Q.    Does it have any_does it measure in any way the wealth or ability to pay in any aspect of the owner of the real property?

    A.    The wealth meaning how much an individual is actually worth?

    Q.    Or how much the property is worth.

    A.    How much the property is worth?
            As far as the individual is worth, no. How much the property is worth, because the land values on most lands are done under more of a market standard for review, then my answer would be probably so. Improvements, no.

(Bisch Dep. Vol. I at 88-89).     
    Applying arbitrary figures, rules, and regulations_the cost schedules found in Ind. Admin Code tit 50, r. 2.2_is not an application of the reproduction cost minus depreciation method.See footnote 25 Placing a specific value of $495 per acre on agricultural land is no valuation method at all. As used both currently and by the framers of the Indiana Constitution, "valuation" means "the act or process of valuing or of estimating value or worth." Philip Gove, Webster's Third New

International Dictionary of the English Language 2530 (1981).See footnote 26 Valuation is not simply choosing figures and numbers from a menu_more action and evaluation on the part of assessors is required. The cost schedules are arbitrary figures and formulas, determined by the State Board and applied to property by local assessors with little or no reference to actual value or worth. Certainly arbitrary rules and figures do not measure value in use. The State Board must measure property wealth in order to meet the dictates of the Indiana Constitution. This can only be done through the application of objective data and an application of real world factors affecting property values. See Woodbridge v. City of Detroit, 8 Mich. 274, 301 (1860) (Christiancy, J.) (Compelling individuals to contribute money or property to public use without reference to any objective standard, and without requiring sums paid by one kind of property to bear any relation to another kind is a forced contribution, not a valid tax.).
    Ind. Admin. Code tit. 50, r. 2.2-11-5 (1996) also demonstrates that True Tax Value does not measure value in use. The regulation instructs assessors as to which schedule to use in estimating the replacement cost of structures used for commercial and industrial purposes. Assessors regularly encounter buildings originally constructed as residences, but which have been converted to a commercial use, such as a funeral home or an office. In such a case, Ind. Admin. Code tit. 50, r. 2.2-11-5 provides, "If the improvement involved is either a dwelling or a

converted dwelling, it would be more appropriate to use the residential pricing schedules in computing reproduction cost." Thus, it is the physical characteristics of an improvement, not its use, which governs reproduction costs.
    In Herb, the taxpayer complained that property, which was used as a warehouse and distribution center, had been reclassified by the State Board from "truck terminal" to "light warehouse," thereby increasing the assessment. The taxpayer contended that "valuing a building based on its use violates the Indiana Constitution." Herb, 656 N.E.2d at 893. The Court did not reach that contention because the evidence established that "Herb's building was assessed based not on its use, but rather on its physical features." Id. at 894.
    Thus, while the model names are reflective of use, the model specifications actually reflect the physical features that are incorporated into the structure. Indeed, both the State Board hearing officer assigned to this case, as well as State Board Commissioner Gordon McIntyre testified at trial that the actual use of the property is not a determinative factor in selecting the appropriate model, but merely a starting point. As a result, the model that most closely resembles the subject improvement with respect to physical features is to be used, regardless of the model's name.

Id. at 893.
    The system currently used by the State Board does not result in an actual valuation of property wealth in Indiana.See footnote 27 Rather than using objective standards to value property as required by Article X, section 1 of the Indiana Constitution, the True Tax Value system uses arbitrary dollar values, rules, and regulations to arrive at the values it currently uses to assess tax.

Therefore, the current system does not accurately measure property wealth. Furthermore, Indiana's current system of property tax assessment does not result in a uniform and equal rate of taxation. The State Board must revise the current property tax scheme to bring it into compliance with the Indiana Constitution.See footnote 28
    While finding that True Tax Value is unconstitutional under Article X, section 1 would normally be dispositive of this case, the Court was instructed by the Supreme Court to consider and determine those claims of the Petitioners that have not as yet been addressed. St. John II, 675 N.E.2d at 319. The Court now turns to Petitioner's claim that the True Tax Value system fails to provide ascertainable standards, thereby rendering tax assessments arbitrary and capricious in violation of the due course of law clause of Article I, section 12 of the Indiana Constitution. The Court will then analyze Petitioner's federal claims.

ipse dixits. The resulting "system" violates the Supreme Court's basic due process jurisprudential tenant [sic] [tenet] that government act uniformly and with regularity based as much as reasonably possible on objective standards rather than subjective whim or caprice.

(Pet. Post-Trial Br. at 43) (footnote omitted).See footnote 30
    Article I, section 12 of the Indiana Constitution provides in relevant part that "every person, for injury done to him in his person, property, or reputation, shall have remedy by due course of law." Ind. Const. art. I, § 12. Due course of law (due process) imposes limits on governmental decisions that deprive individuals of life, liberty, or property interests within the meaning of the Indiana Constitution. The Court has previously found that the "[e]xtraction of a tax, . . . constitutes a deprivation of property, and states must provide procedural safeguards against the unlawful extraction of a tax in order to satisfy the commands of due process." Dalton Foundries, Inc. v. State Bd. of Tax Comm'rs, 653 N.E.2d 548, 553 (Ind. Tax Ct. 1995) (citing McKesson Corp. v. Div. of Alcoholic Beverages & Tobacco, 496 U.S. 18, 36 (1990)). The State Board does not contend that due process is inapplicable to taxpayer appeals. Rather, it contends that the True Tax Value regulations provide all the process that is constitutionally due.
    The Court has previously held that in order to satisfy due process,
    an administrative decision must be in accord with previously stated, ascertainable standards. This requirement is to make certain that administrative decisions are fair, orderly and consistent rather than irrational and arbitrary. The standards should be written with sufficient precision to give fair warning as to what the agency will consider in making its decision.

Harrington v. State Bd. of Tax Comm'rs, 525 N.E.2d 360, 361 (Ind. Tax Ct. 1988) (emphasis added) (quoting Podger v. Indiana Univ., 178 Ind. App. 245, 258, 381 N.E.2d 1274, 1283 (1978) trans. denied). See also Mechanics Laundry & Supply, Inc. v. Department of State Revenue, 650 N.E.2d 1223, 1233 (Ind. Tax Ct. 1995); Harlan Sprague Dawley, Inc., v. Department of State Revenue, 605 N.E.2d 1222, 1232 (Ind. Tax Ct. 1992); Hill v. State Bd. of Public Welfare 633 N.E.2d 352, 355 (Ind. Ct. App. 1994); Riggin v. Ball State Univ. Bd. of Trustees, 489 N.E.2d 616, 627 (Ind. Ct. App. 1986). The ascertainable standards requirement is actually a hybrid mix of procedural (fair warning) and substantive (consistent rather than irrational) due process, which has developed in Indiana. This idea implies that government agencies and the courts themselves must operate according to known rules and procedures. Agency promises of social and economic justice are certain to be unfulfilled unless such agency regulations can be translated into legal rights protected by courts free to apply known rules. What is required is a broad understanding of legal rights, how they have been gained, and how they may be lost. The preservation of due process may be the only means of preserving the enjoyment of private rights and personal freedoms.
    The Court has further recognized that Indiana's approach to the due process requirements of administrative agencies underscores the idea that "'[d]ue process,' unlike some legal rules, is not a technical conception with a fixed content unrelated to time, place and circumstances." Clifft v. Department of State Rev., 641 N.E.2d 682, 691 (Ind. Tax Ct. 1994) (quoting Cafeteria Workers v. McElroy, 367 U.S. 886, 895 (1961)), rev'd in part on other grounds, 660 N.E.2d 310 (Ind. 1995)). "[D]ue process is flexible and calls for such procedural protections as the particular situation demands." Morrissey v. Brewer, 408 U.S. 471, 481 (1972). Since the unique

"ascertainable standards" requirement of Indiana due process was addressed specifically by the Petitioners, the Court will treat it separately from the Petitioner's federal due process claims under the Fourteenth Amendment. However, because the Indiana Due Course of Law requirement of Article I, section 12 is analogous to the Due Process Clause of the Fourteenth Amendment, Haimbaugh, 653 N.E.2d at 104, the Court will incorporate in its analysis those cases interpreting federal due process requirements.

to measure the fairness of administrative action. Taxpayers as a whole are denied a meaningful opportunity to challenge their taxes on any objective basis. The following are some examples of the lack of ascertainable standards raised by the Petitioners at trial.

    One of the petitioners in this case, Mr. Gilday, provides a good example. The first hearing officer to handle Mr. Gilday's appeal recommended a "good" neighborhood desirability. The State Board followed that recommendation. However, when a second hearing officer found the neighborhood was "very good," the State Board reversed itself and determined the neighborhood to be "very good." However, Mr. Bisch, the second hearing officer, could not identify the facts upon which the determination was based. (Bisch Dep. at 408-414).
    The failure to establish any administrative standard forces the decisionmaker to develop his own. Mr. Bisch, when asked what is "prestigious" about a neighborhood, stated that the concept paints a picture in his mind, and from that he develops his own standard in making a decision. (Bisch Dep. at 415-416). Standards based on mental picture painting and the "eye of the beholder" do not comport with any idea of process, let alone constitutionally mandated due process. This not only invites arbitrary decisionmaking_it precludes taxpayers from discerning the standard being applied.

street from Petitioner Gilday's "prestigious" property did not affect the value of the Gilday's property since it was outside of his neighborhood boundary.See footnote 32 (Bisch Dep. at 404-407).
    Petitioners, as they did with neighborhood desirability, challenge the process allowed in determining a neighborhood boundary. They point to the fact that taxpayers have no chance of a meaningful opportunity to challenge a neighborhood boundary's effect on assessments. This is due to the fact that the State Board decides what the land values are in a particular subdivision, and then limits taxpayer appeals to a comparison of properties within the same subdivision. See Vonnegut v. State Bd of Tax Comm'rs, 672 N.E.2d 87 (Ind. Tax Ct. 1996).

useful information and simply highlight the lack of ascertainable standards involved. "'A' grade dwellings generally have outstanding architectural style . . . the detail and ornamentation are aesthetically appealing." Ind. Admin. Code tit. 50, r. 2.2-7-6(d)(1) (1996). On the other hand, "'B' grade dwellings are architecturally attractive . . . and the detailing is balanced and harmonious without being excessive." Id. tit. 50, r. 2.2-7-6(d)(2). These are to be distinguished from "C" grade dwellings in which "the design has universal appeal and optimal utility." Id. tit. 50, r. 2.2-7- 6(d)(3). "D" grade dwellings "are [de]void of any architectural detail." Id. tit. 50, r. 2.2-7- 6(d)(4). These are to be contrasted with "E" grade dwellings_those which are "devoid of architectural design and detailing." Id. tit. 50, r. 2.2-7-6(d)(5).
    The lack of ascertainable standards is particularly pronounced in the "A" grade classification. There is no guidance in the manual differentiating between an "A" and an "A+10" dwelling, leaving the decision completely subjective. (Tr. at 204-206, McIntyre). However, the difference is enormous. An "A" dwelling is priced at 160% of base price, and an "A+10" dwelling is priced at 360% of base price. Ind. Admin. Code tit. 50, r. 2.2-7-6(e),(g) (1996). (Tr. at 204- 206, McIntyre).

obsolescence is listed as "decreased market acceptability of the product for which the property was constructed or is currently used."See footnote 33 Obsolescence is granted to residential properties only in "extremely abnormal circumstance[s]." Id. r. 2.2-7-9 (1996).
    In Western Select Properties, L.P. v. State Bd. of Tax Comm'rs, 639 N.E.2d 1068 (Ind. Tax Ct. 1994), the Court reviewed whether an obsolescence adjustment was based on "ascertainable standards" and whether a parcel of real estate was assessed consistently with similar property of the same classification. Testifying in that case, Mr. Bisch acknowledged that he did not "really have any basis for saying [the proper obsolescence adjustment was] 75 versus 95 . . . ." Id. at 1073. The Court ruled that the State Board had acted arbitrarily and capriciously in reaching its determination. See also Thorntown Tel. Co. v. State Bd. of Tax Comm'rs, 588 N.E.2d 613 (Ind. Tax Ct. 1992). There are simply no objective bases for any economic obsolescence adjustment under a system that ignores real world information.
    The lack of ascertainable standards in the State Board's procedures, and the differing standards of value that change depending upon the property involved, deprive taxpayers of a meaningful opportunity to challenge their assessments. Furthermore, the numerous subjective factors contained in the regulations fail to provide meaningful guides to gauge the accuracy of assessments. These procedural shortcomings fail to "enable [a taxpayer] to 'mold' his argument to respond to the precise issues which the decisionmaker regards as crucial." Mathews, 424 U.S. at 345-46. This results in the erroneous deprivation of taxpayer's property in violation of the due course of law clause of Article I, section 12 of the Indiana Constitution.

measures property wealth. The current system is simply the mechanical application of a set of numbers taken from State Board regulations_with subjective adjustments based on assessors knowing something when they see it. See St. John I, 665 N.E.2d at 967; Ind. Admin. Code, tit 50 r. 2.2 (1996). The True Tax Value system denies taxpayers the opportunity to introduce any evidence of their property wealth outside of the arbitrary figures provided in the State Board regulations. A taxation scheme that is required to value property wealth, but which in turn denies taxpayers the opportunity to introduce evidence indicative of such wealth, is fundamentally unfair.
    The State Board's contention that Petitioner Wise prevails in 75% of his appeals before the State Board actually argues against the True Tax Value system. Assuming that the State Board is correct and Wise does not understand the system, (State Bd. Post Trial Br. at 36), Wise's winning 75% of the time indicates that the system is arbitrary. Merely contesting one's taxes should not lead to an automatic change in valuation. This seems to be possible under the current system. Furthermore, due process is not evaluated by the success or failure of a person challenging an assessment.
    The fact that the Court has been applying and interpreting the rules is equally unpersuasive. First, the Court has a deferential standard. See Ind. Code Ann. § 33-3-5-14 (West 1996). Furthermore, in both the amending of its rules and in the application of its regulations the State Board's interpretation "is given great weight unless the agency's interpretation would be inconsistent with the regulation itself." State Bd. of Tax Comm'rs v. Two Market Square Assoc., 679 N.E.2d 882, 886 (Ind. 1997). Given this deferential standard, and the closed, self-referential nature of the State Board's True Tax Value system, the only standard that is ascertainable is one of ipsedixitism: 1) value is whatever the State Board's

regulations declare it to be, and 2) the State Board's regulations can be modified and interpreted in any manner that the State Board wishes. Taxpayers are left with little to do other than rage in futility against an autonomous bureaucratic machine.
    It is not clear how the rule of law will survive in midst of such a taxation system. While the complexity of modern society has created difficult problems that legislators must try to regulate by statute or that courts must try to solve by case law, this cannot be allowed to evolve into a system of a complete self-directing bureaucracy. By means of a legislative act, experts are authorized to control the actions of certain areas of people's lives. Agencies must issue regulations with the force of law. The regulations, however, are difficult for many people to find and are frequently changed. Moreover, as is the case with the State Board, agencies may be the judge and interpreter of its own administrative rules. The idea of the rule of law now competes with a doctrine of government regulation by administrative orders. A peculiar quality of our common law system is that it still retains respect for due process and for courts administering known rules, rather than trying to divine an image painted in a decisionmaker's mind. See Arthur R. Houge, Origins of the Common Law 237-38 (1966).
    The True Tax Value system violates due process because it deprives taxpayers of their right to introduce real world, objective evidence in order to challenge assessments. Without objective data, the State Board is free to engage in an arbitrary system of taxation by fiat while informing the taxpayer that such a system is fair and beyond attack. See Aldrich, 172 N.E. 772 (Assessing body with right and duty to exercise judgment in determining value has no right to fix valuation by will alone); Heth v. City of Radford, 31 S.E. 8 (Va. 1898) (Assessment and valuation of land by commission that does not provide method for taxpayers to challenge valuation violates

due process); McFadden v. Longham, 58 Tex. 579 (1883) (statute providing for the ex parte determination of tax liability by ministerial officer without hearing violates due process). Until taxpayers are assessed upon a real world, objective measures of property wealth, the True Tax Value system will not be capable of constitutional application.

    important policy goals . . . can be met only through a valuation system like "true tax value" and . . . cannot be met through a fair market value system of valuation. "True tax value" has several advantages as a matter of policy. "True tax value" permits the same yardstick_replacement cost_to be applied to all classes of improved property, residential, commercial and industrial. . . . [T]his design ensures that commercial and industrial taxpayers pay their fair share of tax. . . . Fair market value systems permit different yardsticks for different types of property_usually comparable sales for residential; income for commercial; and replacement for industrial.

(State Bd. Br. on Const. Iss. at 8-9). The conclusive presumption inherent in True Tax Value not only expresses the State's "important policy goals" but also furthers them by excluding every fact and circumstance tending to indicate value outside of the State Board's standard of value.
    It is true that certain conclusive presumptions are invalid on federal due process grounds. See Schlesinger v. Wisconsin, 270 U.S. 230 (1926) (gift made within certain time of death held to be taxable inheritance); Heiner v. Donnan, 285 U.S. 312 (1932) (same). Outside of the taxation

context, see Stanley v. Illinois, 405 U.S. 645 (1972); Vlandis v. Kline, 412 U.S. 441 (1973); Cleveland Bd. of Ed. v. LaFleur, 414 U.S. 632 (1974). However, any substantive rule of law may implicitly make certain evidence irrelevant in determining the ultimate rights of parties. For example, in California, evidence brought more than two years after a child's birth that a certain person is the biological father of the child is irrelevant for purposes of determining the paternity of a child born into a marriage. See Cal. Fam. Code §§ 7540-7541 (West 1994). This "conclusive presumption" was upheld in Michael H. v. Gerald D., 491 U.S. 110 (1989) (Scalia, J., plurality opinion). See also Mourning v. Family Publication Serv., Inc., 411 U.S. 356 (holding rule that any payment agreement having four or more installments is a finance agreement not an improper conclusive presumption).
    It therefore follows that the mere fact that a substantive rule of law deems certain evidence irrelevant does not make that law an invalid conclusive presumption. Consequently, the real issue is not the procedural complaint that a meaningful opportunity to be heard is denied due to a conclusive presumption, but rather is the substantive question of "the adequacy of the fit" between the governmental policy and the conclusive presumption. Michael H., 491 U.S. at 121.
    The Court is unconvinced of the Petitioners' procedural due process argument for a further reason. The State Board is an administrative body that acted legislatively in enacting the regulations that determine what standard of value to use. It did not specifically deny Petitioners a hearing or the use of certain evidence; rather, it enacted a set of generally applicable regulations. Under federal due process, governing bodies may enact generally applicable laws, that is, they may legislate, without affording affected parties notice and an opportunity to be heard. Bi- Metallic Inv. Co. v. State Bd. of Equalization, 239 U.S. 441, 445 (1915). "The fact that a statute

(or statute-like regulation) applies across the board provides a substitute safeguard." Philly's v. Byrne, 732 F.2d 87, 92 (7th Cir.1984) (citing United States v. Florida E. Coast Ry., 410 U.S. 224, 245-46 (1973)).
    It is likely, as Petitioners assert, that the State Board acted intentionally to shift more of the property tax burden onto businesses and industries in Indiana. Courts have noted that "more [process] may be required . . . where the legislation affects only a tiny class of people_maybe a class with only one member." Philly's, 732 F.2d at 93. However, the Court does not believe that a generally applicable rule, generated by the fear that one particular group is not bearing its appropriate tax burden, converts the State Board's legislative action into a quasi-judicial act that requires more process. See Pro-Eco, Inc v. Board of Comm'rs, 57 F.3d 505, 513 (7th Cir. 1995) (citing Anaconda Co. v. Ruckelshaus, 482 F.2d 1301, 1306 (10th Cir. 1973) (finding no adjudication, and therefore no need for an individual hearing, where a general rule applied to a class that included only one member but remained open to possible future members and where there was such a community of interest in the regulation as to make rulemaking effective)).
    Thus, the Court rejects Petitioners' procedural due process challenge and proceeds to their substantive claim.

other Hoosier taxpayers."See footnote 35 (Pet. Post-Trial Reply Br. at 26). In order to claim that a law interferes with their substantive rights, Petitioners must be able to demonstrate either that 1) the law infringes "fundamental rights [or] liberties which are, objectively, 'deeply rooted in this Nation's history and tradition,' and 'implicit in the concept of ordered liberty,' such that 'neither liberty nor justice would exist if they were sacrificed.'" Washington v. Glucksberg, 117 S. Ct. 2258, 2268 (1997) (citations omitted); or 2) the law is "arbitrary and unreasonable, having no substantial relation to the public health, safety, morals, or general welfare." Euclid v. Ambler Realty Co., 272 U.S. 365, 395 (1926). "Arbitrary and unreasonable" has been interpreted to mean invidious or irrational. Coniston Corp. v. Village of Hoffman Estates, 844 F.2d 461, 467 (7th Cir.1988); Burrell v. City of Kankakee, 815 F.2d 1127, 1129 (7th Cir.1987). As Petitioners have neither hinted at nor provided the Court with "a 'careful description' of the asserted

fundamental" rights violated by the state,See footnote 36 see Glucksburg, 117 S. Ct. at 2268, the Court will review Petitioners' claim under the "arbitrary and unreasonable" standard.    
    The State Board has argued that the True Tax Value system "ensures that commercial and industrial taxpayers pay their fair share of tax." (State Bd. Br. on Const. Iss. at 8-9). "[G]overnmental action passes the rational basis test if a sound reason may be hypothesized. The government need not prove the reason to a court's satisfaction." Northside Sanitary Landfill, Inc. v. City of Indianapolis, 902 F.2d 521, 522 (7th Cir.1990) (citations omitted). Concern that certain types of property (i.e., commercial and industrial) may not be paying their fair share of the tax burden in a system based on market value is a sufficient reason on its face to pass the "arbitrary and unreasonable" test of Euclid. In trying to avoid "the systematic overvaluation of residential property in comparison to other classes of property," (State Bd. Remand Br. at 2), the

State Board acted in a rational manner. Therefore, Petitioners' substantive due process claim must fail.

taxation, the states are given especially wide latitude in choosing classifications. Nordlinger, 505 U.S. at 11. In Allied Stores, Inc. v. Bowers, for instance, the Court explained:
    The States have a very wide discretion in the laying of their taxes. When dealing with their proper domestic concerns, and not trenching upon the prerogatives of the National Government or violating the guaranties of the Federal Constitution, the States have the attribute of sovereign powers in devising their fiscal systems to ensure revenue and foster their local interests. Of course, the States, in the exercise of their taxing power, are subject to the requirements of the Equal Protection Clause of the Fourteenth Amendment. But that clause imposes no iron rule of equality, prohibiting the flexibility and variety that are appropriate to reasonable schemes of state taxation. The State may impose different specific taxes upon different trades and professions and may vary the rate of excise upon various products. It is not required to resort to close distinctions or to maintain a precise, scientific uniformity with reference to composition, use or value.

358 U.S. 522, 527-28 (1959). See also Lehnhausen v. Lake Shore Auto Parts Co., 410 U.S. 356, 359 (1973) ("Where taxation is concerned and no specific federal right, apart from equal protection, is imperiled, the States have large leeway in making classifications and drawing lines which in their judgment produce reasonable systems of taxation.") (footnote omitted).

acre. Finally, improvements on lands generally are assessed according to the State Board's reproduction cost schedules. These schedules purport to track 1985 reproduction costs, reduced fifteen percent across the board. It is important to note that while the assessments for commercial, industrial, and residential lands may tend to approximate current market values due to their reliance on sales data, the legislature makes clear that True Tax Value for all real property "does not mean fair market value." Ind. Code Ann. § 6.1.1-31-6(c).
    Petitioners contend that the differences in assessment standards across the different classes of property render the scheme unconstitutional under the Equal Protection Clause. (Pet. Post- Trial Br. at 39-42). Quoting from State Bd. of Tax Comm'rs v. Lyon & Greenleaf Co., 359 N.E.2d 931, 934 (Ind. App. 1977), Petitioners state that "a method of valuation 'which does not move towards the goal of securing a just valuation of all property on the principles of uniformity and equality cannot withstand constitutional attack.'" (Pet. Post-Trial Br. at 40). Petitioners emphasize that this is not simply a matter of employing different methods of valuation to approximate market value in each case. Rather, the different sorts of lands are valued under different standards to different ends. According to Petitioners, the True Tax Value system violates equal protection because "it intentionally applies different standards of value to different classes of properties without a rational basis." (Pet. Post-Trial Br. at 41).
    The Court is not persuaded by this argument for several reasons. First, Petitioners' reliance on Lyon & Greenleaf is misplaced. That case did not involve a federal equal protection challenge. The taxpayer in Lyon & Greenleaf argued that an Indiana tax on raw wheat was unconstitutional because it varied depending on who the owner was. The taxpayer owned a grain elevator and complained that it was taxed at a higher rate on its wheat than farmers were. The

Court of Appeals agreed that Article X, Section 1 prohibited such a tax. However, this does nothing to advance the analysis under the Equal Protection Clause.See footnote 38
    Second, many states tax different classes of property at different levels. A 1993 publication by the Institute of Property Taxation shows that thirteen states apply various rates of taxation to different sorts of property. Property Taxation, supra at 153. In addition, many states have enacted preferential assessments like Indiana's in an effort to prevent the loss of agricultural, forest, and open lands. See generally Jane Malme, Preferential Property Tax Treatment of Land (Lincoln Institute of Land Policy 1993); David A. Myers, Legal Aspects of Agricultural Districting, 55 Ind. L.J. 1 (1979); David A. Myers, Open Space Taxation and State Constitutions, 33 Vand. L. Rev. 837 (1980). Despite the prevalence of differential property taxation, Petitioners were apparently unable to find a single case standing for the proposition that taxing different property differently violated equal protection. In fact, in Weissinger v. White, 733 F.2d 802 (11th Cir. 1984), the Eleventh Circuit Court of Appeals upheld just such a preferential property tax scheme for agricultural and forest lands. The Court reasoned:
    The state is free to enact measures that attempt to perpetuate certain desirable uses of its land in the face of economic pressures to convert the property to other more lucrative pursuits. Institution of a favorable tax system is one rationally related means by which to effect that end.

Id. at 806.
    Third and perhaps most importantly, the United States Supreme Court has consistently held that states have broad discretion in shaping taxation schemes, and states may "divide different kinds of properties into classes and assign to each class a different tax burden so long as those

divisions and burdens are reasonable." Allegheny Pittsburgh Coal Co. v. Webster County Comm'n, 488 U.S. 336, 344 (1989). The Supreme Court has upheld, for example, state distinctions between corporations and individuals, Lehnhausen, 410 U.S. 356 (1973) (upholding state constitutional amendment exempting individuals but not corporations from the state's ad valorem personal property tax); between public service corporations and other taxpayers, Nashville, Chattanooga & St. Louis Ry. v. Browning, 310 U.S. 362 (1940) (upholding scheme under which railroad's property assessed at full value while other property assessed at less than full value); and even between residents and nonresidents where the state scheme disadvantaged its own residents, Allied Stores, Inc. v. Bowers, 358 U.S. 522 (upholding property tax exemption for nonresidents' property held in in-state warehouse while similar property of residents not exempt). Given the deferential approach by the Supreme Court, the Court will not hold the Indiana scheme unconstitutional on equal protection grounds simply because it distinguishes among commercial, industrial, residential, agricultural, and the various preferred land categories.

use, uniform across types of real property, and values like properties alike." (State Bd. Trial Br. at 17). The State Board has the better of this argument.
    The Equal Protection Clause does not require the states to base their taxation schemes on market values. While it is true that the Supreme Court has held that a differential valuation of property within the same class may rise to the level of a constitutional violation, see, e.g., Allegheny, 488 U.S. at 345-46, the high Court's recent decision in Nordlinger v. Hahn, 505 U.S. 1 (1992) makes clear that equal protection does not mandate taxation according to market values. Equal protection demands only that the classifications are rational and that taxpayers are treated equally within the classifications.See footnote 39
    The Supreme Court has held several times that the intentional and systematic undervaluation of property violates the principle of equal protection. See, e.g., Allegheny, 488 U.S. at 345; Cumberland Coal Co. v. Board of Revision of Tax Assessments, 284 U.S. 23, 28-29 (1931); Sioux City Bridge Co. v. Dakota County, 260 U.S. 441, 445-46 (1923); Sunday Lake Iron Co. v. Wakefield Township., 247 U.S. 350, 352-53 (1918).See footnote 40 In Allegheny, for example, the

Supreme Court held that it was a violation of equal protection for a county assessor to value certain real property based on its recent purchase price while making only minor adjustments to the assessments of properties not recently transferred. The evidence showed that the property at issue had been assessed at eight to thirty-five times more than comparable neighboring properties and that these disparities had persisted for more than ten years. Id. at 344. Constrained by the fact that the state constitution and laws demanded that the property tax be applied uniformly in terms of market values, the county argued that its scheme was its best effort to approximate current market values. Id. at 343. Based on the substantial evidence that the county's scheme failed to assess similarly situated property equally over time, the Court found a violation of equal protection. Id. at 346.
    Less than four years after Allegheny, the Supreme Court upheld what amounted to the same scheme when the Court found that it was supported by legitimate state purposes. See Nordlinger v. Hahn, 505 U.S. 1 (1992).See footnote 41 In Nordlinger, the Court reviewed Proposition 13, an amendment to California's constitution adopting a property tax scheme keyed to the value of the

property at the time of its acquisition rather than to its current market value.See footnote 42 As in Allegheny, the scheme in Nordlinger was challenged on the grounds that it resulted in wide disparities between property tax assessments and market values. The petitioner in Nordlinger introduced evidence that she was paying five times as much in taxes as similarly situated taxpayers. Id. at 7.See footnote 43 Unlike the situation in Allegheny, however, the state officials in Nordlinger were not constrained by state provisions tying property tax assessments to market values. The people of California had expressly announced their intention to experiment with a new sort of property tax, one not based on current market values. Id. at 4-5 (describing Proposition 13 as "a property tax revolt" by California voters).
    Freed from the concept of market value, the Court examined other possible rationales and had "no difficulty in ascertaining at least two rational or reasonable considerations of difference or policy that justify denying petitioner the benefits of her neighbors' lower assessments." Id. at 12.See footnote 44

First, the Court recognized the state's legitimate interest in maintaining the stability of local neighborhoods by discouraging changes in ownership. Id. (citing Euclid v. Ambler, 272 U.S. at 395). Second, the Court found that the state could legitimately act to protect the "vested expectations" of the owners of older homes. Id. at 12-13. This is to say that the state could legitimately decide that home owners should not be subject to the threat that, due to rising property values, they eventually might not be able to afford to keep their homes. Id. at 13-14 (citing various cases recognizing that states have legitimate interest in protecting reliance and expectation interests).
    The Court expressly distinguished Allegheny on the grounds that in that case, there was no indication of an acceptable rationale to support the systematic disparities in assessments. The Court stated that the critical distinction was "the absence of any indication in Allegheny Pittsburgh that the policies underlying an acquisition-value taxation scheme could conceivably have been the purpose for the Webster County tax assessor's unequal assessment scheme." Id. at 15. See also Glennon, supra, note 41 at 274 (stating that county attorney in Allegheny offered no rational basis, in briefs or at oral argument, for disparities and that attorney for petitioners emphasized repeatedly that difference between Allegheny and California's Proposition 13 was that California had proffered rational reasons for its tax scheme while West Virginia had not).See footnote 45 Thus, a reading of Allegheny and Nordlinger together, demonstrates that the Equal Protection Clause does not require states to base their property tax schemes on market information or to maintain a specific

ratio of assessment to market value. Rather, equal protection demands only that there be a plausible and reasonable explanation for the new scheme and its classifications.
    Indiana's True Tax Value scheme will be constitutional under equal protection, then, even though it is not based on market information so long as the scheme's classifications are rationally related to a legitimate state interest and nonarbitrary. The State Board contends that the classifications employed under its scheme are rationally related to "establishing a property taxation system that is understandable, easy to use, uniform across types of real property, and values like properties alike." (State Bd. Trial Br. at 17). In other words, it is the State Board's position that the True Tax Value system is a worthy experiment in property taxation.See footnote 46 While creating more efficient and uniform systems of property taxation are certainly legitimate state purposes, see Lehnhausen, 410 U.S. at 365 (upholding state tax exemption for individuals and not corporations in part because state purpose was to make system more fair and efficient), the question is whether the classifications left in place when the concept of market value was removed are arbitrary. The Court holds that they are not under a federal equal protection standard.
    In the context of state taxation, equal protection requires only that the classifications are related in a minimal sense to the nature of the property in question and that taxpayers are treated equally within the classes. The Supreme Court has upheld state distinctions between

corporations and individuals, id. at 364-65, among various individuals for inheritance tax purposes, Magoun v. Illinois Trust & Sav. Bank, 170 U.S. 283, 293 (1898), between anthracite coal and bituminous coal, Heisler v. Thomas Colliery Co., 260 U.S. 245, 255 (1922), between oils of different weights or gravities, Ohio Oil Co. v. Conway, 281 U.S. 146, 159 (1930), and between small businesses and chain stores, State Bd. of Tax Comm'rs v. Jackson, 283 U.S. 527, 537 (1930). Nor is equal protection violated by tax statutes singling out oil wholesalers, Southwestern Oil Co. v. Texas, 217 U.S. 114, 121 (1910), railroads, Browning, 310 U.S. at 369-70, or mining operations, Oliver Iron Mining Co. v. Lord, 262 U.S. 172, 179 (1922). In these cases, the Supreme Court upheld the challenged classifications, not because the states were able to relate each distinction to a particular state policy, but rather because the classifications were minimally related to the subject of the tax, and taxpayers were treated equally within the classes.See footnote 47
    The Court finds that Indiana's True Tax Value system is constitutional on equal protection grounds because the scheme employs traditional property tax concepts like physical

characteristics, use, and neighborhood desirability. This is so, of course, because when the legislature separated the taxation scheme from the concept of market value, it retained the traditional categories and classes of the old tax system. Petitioners complain that current scheme lacks a single, unifying rationale. (Pet. Post-Trial Br. at 31-32). Petitioners contend that the True Tax Value system is neither easy to understand, nor easy to administer. This, as Petitioners would have it, proves that the state has no rational basis for the classifications created by the system. The Court has in the past sympathized with those taxpayers mesmerized by the byzantine nature of the State Board regulations. See 20th Century Fiberglass v. State Bd. of Tax Comm'rs, 683 N.E.2d 1376, 1378 (Ind. Tax Ct. 1997). However, this is not enough to support a determination that the classifications created by the system are not rational (at least as far as equal protection is concerned).

were assessed by making only minor adjustments to previous assessments. This, the Court found, violated the Equal Protection Clause.
    In its determination, the Court found it significant that West Virginia law required that property be taxed according to its estimated current market value (thereby creating the standard by which the Court determined which properties were comparable) and that the county assessor's method of assessment resulted in "gross disparities in the assessed value of generally comparable property." Id. at 338. The Court concluded that there was systematic undervaluation of comparable property, which violated the complaining property owners' equal protection rights.     What the Court did not conclude was that a classification that violated state law necessarily amounted to a federal constitutional violation. Instead, the Court stated that an implicit policy that apparently violated state lawSee footnote 48 would not violate equal protection if it were applied even-handedly. In addition, Petitioners can find no support in Justice Thomas' concurrence in Nordlinger: "A violation of state law does not by itself constitute a violation of the Federal Constitution." Nordlinger, 505 U.S. at 26 (Thomas, J., concurring) (citing Snowden v. Hughes, 321 U.S. 1 (1944)).
    Besides the fact that Petitioners' argument finds little support in the relevant case law, the Petitioners argument is unsound for other reasons. First, a rule that a classification that violated state law was a due process or equal protection violation would convert every state law challenge to the legality of a classification into a federal constitutional case. Such a result is certainly antithetical to our federal system. Second, such a rule would allow federal courts to force state

actors to follow the federal court's interpretation of state law. See Evans v. City of Chicago, 10 F.3d 474, 481 (7th Cir. 1993). This flies in the face of well-settled United States Supreme Court precedent. See Pennhurst State Sch. & Hosp. v. Halderman, 465 U.S. 89 (1984). Obviously, the second concern is not present because this Court is a state court. However, because the Equal Protection Clause is to be construed identically by federal and state courts, Games, 684 N.E.2d at 477 (citing Oregon v. Hass, 420 U.S. 714, 719 (1975)), the federalism concerns that touch federal courts' interpretation of equal protection rights also touch state courts' interpretation of those rights. Consequently, the Court will not hold that the True Tax Value system violates the equal protection clause simply because it violates state law.

the State Board's rule-making authority comes from the Indiana legislature, not this Court, the Indiana legislature may need to enact legislation that will enable the State Board to promulgate the regulations to effect a real property tax system based on an objective, real world measure of property wealth.
    Consequently, under a separate order, the Court will schedule a hearing regarding how long the State Board will be given to bring the state's system of real property taxation into compliance with the Indiana Constitution. In the interim: (1) real property tax assessments shall be made in accordance with the current system, (2) any challenges to real property tax assessments shall be governed by the existing law, and (3) real property tax assessments are not subject to challenge on the ground that the True Tax Value system violates the Indiana Constitution.

765 (Tex. 1982).

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