Consistent administration of laws, rational policymaking, and voter-imposed limits on government are just three principles at stake for taxpayers across America, according to observers of an Indiana property tax case now before the U.S. Supreme Court.
Citizen groups and public policy organizations are taking the side of the petitioners, claiming dangerous unintended consequences should the lower court’s judgment stand.
The case of Armour v. Indianapolis hinges on a conflict over the city’s reduction of its tax to pay for sewers. In 2001 the city notified property owners in the Northern Estates neighborhood they would be required to hook up to the city’s sewer system rather than use their septic systems. The city later imposed a $9,278 property tax assessment against each parcel that would be hooked to the sewer system and gave property owners the option of paying the full amount up front or in installments over 10, 20 or 30 years with annual interest charges of 3.5 percent.
Paid Up Front, Out of Luck
After lowering the tax, the city forgave obligations for taxpayers who were paying in installments. Those who had paid in full were refused a refund to make up the difference between their previously submitted payment and the new lower rate.
In response, the aggrieved taxpayers filed suit, which ultimately resulted in the Indiana Supreme Court upholding the city’s original actions.
City officials asserted not offering the refund to paid-up taxpayers benefitted low-income property owners. They separately argued administrative costs were enough of a barrier to inhibit refunds for everyone.
The Tax Foundation’s Joseph Henchman challenged these arguments, noting, “If poor taxpayers do benefit disproportionately, it is only by chance.”
The National Taxpayers Union and Tax Foundation are participating in the case as amicus curiae (friend of the court) in support of the petitioners in Armour v. Indianapolis, and are urging the Supreme Court to overturn the Indiana court’s decision. The groups, which have filed separate briefs with the Supreme Court, are concerned that any government could now use the Indiana court’s ruling to back policies that circumvent due process and equal protection.
Threat to Equal Protection
“The stakes are high for taxpayers throughout the nation,” said National Taxpayers Union (NTU) Executive Vice President Pete Sepp. “If the Supreme Court does not overturn the ruling, few egregious exercises of tax administration would seem to be off-limits under the Equal Protection Clause of the U.S. Constitution. Besides denied refunds, hyper-discriminatory schemes of property assessment as well as abandonment of citizen-initiated tax limitations at the state and local level would become easier for governments to justify.”
Henchman also cited these concerns saying, “The decision of the court … is disconcerting because it could conceivably uphold any governmental action justified by administrative cost concerns.”
NTU’s amicus brief discussed the Indiana court’s failure to properly interpret past decisions in (among others) the landmark Allegheny Pittsburgh Coal Company v. County Commission, and Nordlinger v. Hahn. The former case (in which NTU also filed a brief) involved inequitable property-assessment methods in a West Virginia county, while the latter involved interpretation of assessment rules under California’s Proposition 13 property tax limitation law. Both are regarded as “good law” defining the boundaries of disparate tax treatment.
In early January NTU filed a second amicus brief with the Supreme Court, further exploring the implications of the case. One important point NTU raised was that the city's policy "creates a clear injustice based on its retroactive undermining of the legitimate expectations of taxpayers .... [S]uch retroactive effects raise serious constitutional concerns on due process, takings, and equal protection grounds."
Look for a hearing with the U.S. Supreme Court sometime in the spring.
Doug Kellogg (firstname.lastname@example.org ) is communications manager for the National Taxpayers Union.