Clark v. Lee
| Decision Date | 30 June 1980 |
| Docket Number | No. 779S201,379S76,779S201 |
| Parties | Donald H. CLARK, Commissioner, Indiana Department of State Revenue, Theodore L. Sendak, Attorney General of the State of Indiana, Robert L. Real, Mayor, City of New Albany, State of Indiana, City Council of New Albany, State of Indiana, Appellants, v. R. Truett LEE and Lynda L. Lee, Appellees. Donald H. CLARK, Commissioner, Indiana Department of State Revenue, Theodore L. Sendak, Attorney General of the State of Indiana, and State of Indiana, Appellants, v. Michael L. HARRIS, Thomas Frazier, III, Hugo J. Bobzien, Jr., Robert W. Greene, III, J. Robert Hard, John F. McKay, D. Ray Miller, James E. Nivin, and Jack D. Wofford, Individually and As Representatives For and On Behalf Of All Other Taxpayers Similarly Situated, Appellees. |
| Court | Indiana Supreme Court |
Theodore L. Sendak, Atty. Gen., Alembert W. Brayton, Gregory Alan Clark, Deputy Attys. Gen., Indianapolis, for appellants.
Robert P. Ross, John K. Gordinier, Louisville, Ky., Charles W. Hoodenpyl, Jr., Jeffersonville, William M. Evans, G. Pearson Smith, Jr., Indianapolis, for appellees; Goldberg & Pedley, Louisville, Ky., Bose & Evans, Indianapolis, of counsel.
In this case we have consolidated two appeals for consideration. Both arise from judgments in which separate trial courts have declared the Indiana Occupation Income Tax Statute, Ind.Code §§ 6-3.5-3-1 through 6-3.5-3-14, as amended, unconstitutional upon application of Art. IV, § 2, of the United States Constitution as well as other federal and state constitutional provisions.
Appellees-taxpayers brought their actions pursuant to provisions of the Indiana Occupation Income Tax Act, Ind.Code § 6-3.5-3-11.5(4), (5), (6) and (7), which incorporate the refund provisions of the Adjusted Gross Income Tax Act, Ind.Code § 6-3-6-2 (administrative remedies) and Ind.Code § 6-3-6-4 (legal remedies). In addition to challenging the constitutionality of the Indiana Occupational Income Tax Act they sought to have its enforcement enjoined, to secure refunds of the occupation income taxes collected from them and to recover litigation expenses.
The Act empowers local governmental entities to enact ordinances imposing an annual tax on occupation income, as defined, at a rate of one and five tenths percent (1.5%) with provisions for the collection and administration of the tax by the Indiana Department of Revenue with ultimate receipt by the local governmental entities of the monies. The tax falls upon the income of those who devote more than fifty percent (50%) of the time they work to services performed within the local government entity imposing the tax without regard to whether they are residents or non-residents. However, according to Ind.Code § 6-3.5-3-6:
"A taxpayer is entitled to a credit against his occupation income tax liability in an amount equal to:
(1) His state adjusted gross income tax liability incurred under IC 6-3; or
(2) His occupation income tax liability;
whichever is less."
The courts below concluded that the Act through this "credit provision" was designed and operates to tax only the occupation incomes of non-residents working in Indiana, while effectively exempting the income of residents of the State of Indiana from the tax, thereby unconstitutionally discriminating against non-residents.
Appellant in one case sought to have the action dismissed for failure to join the local political subdivisions which had enacted ordinances and had pursuant to the statute been the final recipients of the taxes collected. The dismissal motion was denied.
Appellees in one case were allowed by court order to represent the class consisting of themselves and "all persons being nonresidents of, or domiciled without the State of Indiana, while principally employed within the State of Indiana", and to maintain their action as a class action pursuant to Ind.R.Tr.P. 23.
The State has appealed raising three issues: (1) whether the trial court erred in Cause No. 379 S 76 in ordering that the action was maintainable as a class action pursuant to Trial Rule 23; (2) whether the trial court erred in Cause No. 379 S 76 in denying appellant's motion to dismiss for failure to name real parties in interest under Ind.R.Tr.P. 17, and to join parties needed for a just adjudication under Ind.R.Tr.P. 19; and (3) whether both trial courts erred in declaring the Act unconstitutional.
Appellants first contend that the trial court erred in ordering the case maintainable as a class action. This assertion of error is predicated upon the absence of a showing to the trial court that all the members of the putative class, i. e., all non-resident workers having paid the occupational income tax, have exhausted their administrative remedies provided by Ind.Code §§ 6-3 et seq. of the Indiana Gross Income Tax Act. In support of this contention, appellants cite State ex rel. Indiana Dept of State Revenue v. Marion Circuit Court, (1970) 255 Ind. 501, 265 N.E.2d 241; Marhoefer Packing Co. v. Indiana Dept. of State Revenue, (1974) 157 Ind.App. 505, 301 N.E.2d 209; and Cooper v. County Board of Review of Grant County, (1972) 150 Ind.App. 232, 276 N.E.2d 533. These cases stand for the proposition that the circuit court is without jurisdiction to determine the legality of the imposition of a tax unless the plaintiff has exhausted administrative remedies. They do not support appellants' position. In the situation with which we are confronted, the named plaintiffs personally satisfied the jurisdictional requirements of the statute by exhausting their administrative remedies before bringing their action. In so doing they afforded the state government the opportunity of reckoning with their claim. The claim itself was constitutional in nature and sought to void the statute because it discriminated against a class to which plaintiffs belonged, namely, non-residents. It was by its nature a claim which would, if successfully prosecuted by a lone plaintiff, provide a basis for classwide relief in the absence of certification. We, therefore, conclude that the certification of this action as a class action does not vitiate or evade the jurisdictional requirements of the statute and is not contrary to the case law cited. The action satisfied all of the requirements of Trial Rule 23(A) and the requirement of subsection 2 of Trial Rule 23(B), and therefore the trial court did not err in ordering the case maintainable as a class action.
As a derivative of appellants' argument that this action is not properly maintainable as a class action, it contends that the trial court improperly awarded attorney fees. In light of our rejection of the main contention this argument likewise fails. Appellants also argue that the class certification is erroneous because some of the members of the class work in counties other than the one in which the class action was ordered, contrary to the requirements of Ind.Code § 6-3-6-4, requiring refund suits to be initiated in the county in which the taxpayer is either resident or has a business location. The named plaintiffs complied with this statutory provision and as before we find no authority or justification for concluding that the certification of this type of claim as a class action is contrary to such provision.
Appellants maintained in their motion to dismiss that the governmental subdivisions of Indiana which had enacted ordinances pursuant to the authority vested in them by the Act were the real parties in interest under Ind.R.Tr.P. 17, and were needed for a just adjudication under Ind.R.Tr.P. 19. Plaintiffs below sought refund of all monies collected under and pursuant to Ind.Code §§ 6-3.5-3-1 through 6-3.5-3-13. %17 Indiana Code § 6-3.5-3-11.5 provides that the Indiana Department of State Revenue has the occupation income tax within its province:
"The provisions of IC 6-3 (Adjusted Gross Income Tax Act) which are not in conflict with the other provisions of this chapter and which deal with one of the following subjects apply for purposes of collecting and administering the occupation income tax:
(1) Auditing of returns;
(2) Assessment and collection of tax liability;
(3) Examination of a taxpayer's books and records;
(4) Refunds;
(5) Statutes of limitation;
(6) Hearings;
(7) Legal proceedings;
(8) Maintenance of records by the department of state revenue; or
(9) Confidential treatment of taxpayer returns."
Indiana Code § 6-3.5-3-8 provides further that the distribution of collected monies to political subdivisions by the Department of Revenue shall be "less any amount needed for the payment of refunds." Based upon this statute we conclude that the Department of Revenue is the party statutorily authorized to make refunds and to defend legal proceedings initiated for that purpose. Plaintiffs below were following the legal course set by the Legislature in its enactment and upon that fact the ruling of the trial court was warranted.
Among the conclusions of law reached by both trial courts below, they determined that the Act impermissibly discriminated against non-residents in violation of the rights, privileges and immunities guaranteed under Art. IV, § 2, of the United States Constitution. Illustrative of the findings supportive of this conclusion are these:
"11. Section 6 of the Act provides that a taxpayer is entitled to a credit against his occupation income tax liability in an amount equal to 1) his state adjusted gross income tax liability or 2) his occupation income tax liability, whichever is less.
12. The Commonwealth of Kentucky and the States of Michigan, Illinois, and Ohio, being all of the Commonwealths and States whose boundaries are contiguous to the boundaries of the State of Indiana, have entered into reciprocal agreements with the State of Indiana pursuant to I.C. 6-3-5-1 and 2 exempting from the tax imposed by the Indiana Adjusted Gross Income Tax Act of 1963, as amended, the wages,...
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