On Monday, the U.S. Supreme Court held that Indianapolis’s refusal to refund sewer assessments paid in a lump sum by residents to fund a sewer project did not violate the Equal Protection Clause of the U.S. Constitution because the city had a rational basis for distinguishing between those who had fully paid their assessments and those who had not ( Armour v. City of Indianapolis, Sup. Ct. Dkt. 11-161 (U.S. 6/4/12), affirming 946 N.E.2d 553 (Ind. 2011)).
For many years, Indianapolis funded its sewer improvement projects under an Indiana law, the “Barrett Law,” which authorized Indiana’s cities to impose the cost of sewer projects on the lot owners who would benefit, either through a lump sum or in installments of up to 30 years. In 2005, the city changed its funding mechanism.
When this change occurred, the city had more than 20 sewer projects still open that had been funded under the old system, including the one at issue in this case. The plaintiffs had paid their $9,278 sewer assessment in a lump sum, while other lot owners had paid between $309.57 and $927.80 before the city suspended the installment payments going forward. The city refused to refund any of the lump-sum payments.
In affirming the Indiana Supreme Court, the U.S. Supreme Court explained that classifications in tax statutes are given broad latitude and that, because neither a fundamental right nor a suspect classification is involved here, there need only be a plausible policy reason for the distinction. And, because the classification is presumed constitutional, the plaintiffs have the burden to “negative every conceivable basis which might support it” (slip op. at 7, quoting Heller v. Doe, 509 U.S. 312, 320 (1993)).
The city’s reason for refusing to refund the lump-sum payments, while it forgave the installment payments still owed, was largely one of administrative convenience and cost, but that was sufficient under the standard the Court applied. The fact that there may have been a superior system to the one the city adopted was not relevant because the Constitution only required that the system be rational.
Dissenting opinion
In a dissenting opinion, Chief Justice John Roberts, joined by Justice Antonin Scalia and Justice Samuel Alito Jr., argued that Allegheny Pittsburgh Coal Co. v. Commission of Webster Cty., 488 U.S. 336 (1989), which struck down a property tax scheme that required tax assessments to be based on the property’s purchase price with no adjustment for differing values over time, should apply to this case. In Allegheny, the assessment scheme resulted in newer property owners’ paying 8 to 35 times more taxes than were paid by those who had owned their properties longer.
The majority opinion distinguished this case from Allegheny because Allegheny involved discrimination based on the length of time taxpayers lived somewhere, but the dissent believed the same issue is involved in both cases. The Barrett Law required that costs for sewer improvements be “primarily apportioned equally among all abutting lands or lots.” By suspending the payments that were due and denying refunds, the lot owners were not paying equal amounts, and that, the dissent said, violated the Equal Protection Clause.
The majority conceded that “administrative considerations could not justify . . . an unfair system” in which “a city arbitrarily allocate[s] taxes among a few citizens while forgiving many others on the ground that it is cheaper and easier to collect taxes from a few people than from many.” But the dissent noted, “If the quoted language does not accurately describe this case, I am not sure what it would reach” (Roberts, J., dissenting, at 5).
— Sally P. Schreiber ( sschreiber@aicpa.org ) is a JofA senior editor.
