DEPT. OF LOCAL GOVERN. FINANCE v. Griffin

• Decision Date: 05 March 2003
• Docket Number: No. 49S10-0209-TA-489.,49S10-0209-TA-489.
• Citation: 784 N.E.2d 448
• Parties: DEPARTMENT OF LOCAL GOVERNMENT FINANCE, Appellant (Respondent Below), v. Michael GRIFFIN and Lake County, Appellees (Petitioners Below).
• Court: Indiana Supreme Court

784 N.E.2d 448

DEPARTMENT OF LOCAL GOVERNMENT FINANCE, Appellant (Respondent Below), v. Michael GRIFFIN and Lake County, Appellees (Petitioners Below).

No. 49S10-0209-TA-489.

Supreme Court of Indiana.

March 5, 2003.

Steve Carter, Attorney General of Indiana, Frances Barrow, Deputy Attorney General, Indianapolis, IN, Attorneys for Appellant.

Gerald M. Bishop, John S. Dull, Edward R. Hall, Merrillville, IN, Julia Blackwell Gelinas, Thomas Wheeler, II, Indianapolis, IN, Attorneys for Appellee.

Timothy Kennedy, Angela Smith, Hall, Render, Killian, Heath & Lyman, P.S.C., Indianapolis, IN, Attorneys for Amicus Curiae. SHEPARD, Chief Justice.

Michael Griffin requested a tax refund of the real property taxes he paid toward Hospital Care for the Indigent for the 1996-1998 tax years. It was denied. Griffin appealed to the Indiana Tax Court, claiming among other things that the tax violates Article 10, § 1 of the Indiana Constitution. The Tax Court agreed. It is apparent that the system devised by the legislature protects local taxpayers from open-ended liability for indigent care and also apportions local costs with local benefits. We conclude that the tax is constitutional, and thus reverse.

Facts and Procedural History

Griffin is clerk-treasurer for the Town of Highland and an owner of property in Lake County. On January 12, 2000, Griffin filed two 17T Forms with the Lake County Auditor requesting a refund for the taxes he paid toward Hospital Care for the Indigent ("HCI") for 1996, 1997, and 1998. During these three years, Lake County's tax rate for HCI ranged from $0.4824 to $0.5024 per $100 of assessed value. Griffin v. Dept. of Local Gov't Fin., 765 N.E.2d 716, 718 (Ind.Tax Ct.2002). The formula for the HCI tax rate is based on an extrapolation of historical HCI costs in each particular county,¹ thus producing disparate rates from county to county. See State Bd. of Tax Comm'rs v. Montgomery, 730 N.E.2d 680, 681 (Ind.2000)

; Griffin 765 N.E.2d at 720.

In his refund claim, Griffin asserted that disparity between counties rendered the HCI tax illegal and unconstitutional. Therefore, he requested a review of his taxes by the Department of Local Government Finance pursuant to Ind.Code. § 6-1.1-26-2.

The Department held a hearing in which Griffin claimed that the HCI tax violated Ind. Const. art. 10, § 1. The Department did not pass on the constitutionality of the tax, saying this was outside of its authority; it denied Griffin's refund claim. Griffin appealed the Department's determination to the Indiana Tax Court, asking the court to declare the HCI tax unconstitutional, illegal, and in excess of statutory authority. Griffin also sought an injunction preventing collection of the tax. Lake County joined in the petition as an interested party.

Following cross-motions for summary judgment, the Tax Court ruled (1) that the HCI tax is a state tax, not a local tax, (2) that the HCI rate formula is not limited by other code provisions limiting property tax rates generally, and (3) that because the HCI tax rates vary from county to county, that variance results in property not being taxed in a uniform or equal manner as required under Article 10, § 1. Griffin, 765 N.E.2d at 722-24. Consequently, the Tax Court granted Griffin partial summary judgment and reversed the Department's final determination. Id. at 724.

Having decided to apply its holding prospectively only, the Tax Court denied Griffin's request for a refund. Griffin v. Dep't of Local Gov't Fin., 770 N.E.2d 957, 960 (Ind.Tax Ct.2002). It also enjoined assessment or collection of the HCI tax but stayed its injunction until January 1, 2003, to allow the State reasonable time to revise the HCI tax rate or consider other solutions. Id. Accordingly, a taxpayer was not entitled to a refund of the HCI taxes due and payable before January 1, 2003.

Both sides petitioned for review. The Department challenges the ruling that the HCI tax is unconstitutional. (Department Br. at 10-11.) Griffin and Lake County request a review of the limited remedy the Tax Court afforded. (Pet'r Br. at 2.) Griffin also challenged the HCI tax as violating Ind. Const. art. 1, § 23, and the Equal Protection and Due Process Clauses of the Fourteenth Amendment. The Tax Court did not address these other claims, presumably because it viewed the Article 10 claim as dispositive.

Having granted review, we deem the issues to be: (1) whether Ind.Code § 12-16-14-1 et seq., which establishes the HCI tax, violates Article 10, § 1; (2) whether the Tax Court erred in refusing to order a refund; and (3) whether the Tax Court erred in staying its injunction against collection of the HCI tax. Our decision on the first of these resolves the other two. We begin with a brief review of Hospital Care for the Indigent.

I. What is the HCI Program?

We recently had occasion to analyze the structure and operation of the HCI program in State Bd. of Tax Comm'rs v. Montgomery, 730 N.E.2d 680, 681 (Ind. 2000). Before 1986, each of Indiana's counties bore all responsibility for indigent health care. Id. The legislature enacted the HCI provisions in 1986 and then recodified them in 1992 at Ind.Code §§ 12-16-2-1 to XX-XX-XX-X. Id. The general purpose was to provide cost-free emergency medical care to indigent patients who did not qualify for Medicaid. Id. The HCI program transferred the administration of indigent health care to the State and imposed an "HCI tax levy" to finance it. Id.

Under the present arrangement, the Department must "review each county's property tax levy under this chapter and ... enforce the requirements of this chapter with respect to that levy." Id. (citing Ind.Code § 12-16-14-4 (1998)). Each county annually imposes the levy as a property tax for that county and collects it like other state and county ad valorem property taxes. Ind.Code § 12-16-14-2 (1998). Unlike the general property tax levy,² the Indiana Code prescribes the amount of the HCI levy for each county; it is the previous year's levy increased by the percentage of growth in assessed value of all property in the state. Montgomery, 730 N.E.2d at 681³. Certain statutory limits on property tax rates may be exceeded "[t]o meet the requirements of the county hospital care for the indigent fund." Id. (citing Ind.Code § 6-1.1-18-3(7) (1998)).

The act establishes an HCI fund in each county. Montgomery, 730 N.E.2d at 681. The balance of each county's HCI fund is transferred to the state HCI fund. Id. The State administers the HCI program and reimburses providers of emergency medical care to the indigent for their expenses from the state HCI fund. Griffin, 765 N.E.2d at 720-21 (citing Ind.Code § 12-16-14-8 (1998)). In 1993, the legislature modified the HCI program to secure additional federal Medicaid funds by using $35 million of the state HCI fund as matching money. Id. at 721.

The initial HCI levy for each county had been set at the average of its indigent hospital care expenditures over 1984-86, with certain adjustments. Montgomery, 730 N.E.2d at 681. The HCI tax rate thus varies from county to county because of the difference in the counties' historical expenditures on hospital services for the indigent during the years immediately before the HCI program was enacted.

II. Taxation is Specially Legislative and Deference is Substantial

Every statute stands clothed with the presumption of constitutionality until clearly overcome by a contrary showing. Boehm v. Town of St. John, 675 N.E.2d 318, 321 (Ind.1996). The party challenging the constitutionality of the statute bears the burden of proof, and all doubts are resolved against that party. Id. at 321. If there are two reasonable interpretations of a statute, one of which is constitutional and the other not, we will choose that path which permits upholding the statute. Id.

Taxation is a power purely within the province of the legislature. Board v. Holliday, 150 Ind. 216, 49 N.E. 14 (1898); Board of Comm'rs v. Adler, 77 Ind.App. 296, 133 N.E. 602 (1922). As the Department notes, the legislature has wide discretion in taxing for the general welfare. See Yarger v. Raver, 237 Ind. 88, 143 N.E.2d 662 (1957)

; Morgan County v. Seaton, 122 Ind. 521, 24 N.E. 213 (1890). The power of the legislature regarding matters of taxation is unlimited, except as restricted by the Constitution. Brown v. Baltimore, 186 Ind. 81, 115 N.E. 86 (1917).

One constitutional restriction on this legislative power is Article 10, § 1, which provides, "The General Assembly shall provide, by law, for a uniform and equal rate of property assessment and taxation and shall prescribe regulations to secure a just valuation for taxation of all property, both real and personal." (Emphasis added.) These provisions seek to distribute the burden of taxation upon the principles of uniformity, equality, and justice. Davis v. Sexton, 210 Ind. 138, 200 N.E. 233 (1936).

Uniformity in rate, as required by the Constitution, means that the same rate shall apply alike to all in any given taxing district. Henderson v. London & Lancashire Ins. Co., 135 Ind. 23, 34 N.E. 565, 568 (1893). This means that as a general proposition, Article 10 requires that a tax for a state purpose must be uniform and equal throughout the state, a tax for a county purpose must be uniform and equal throughout the county, and so forth. Board of Comm'rs of Jackson County v. State, 155 Ind. 604, 58 N.E. 1037, 1039 (1900); Bright v. McCullough, 27 Ind. 223, 230 (1866).

What shall constitute a taxing district, and whether it may be confined to, or disregard, boundary lines of counties, townships, or municipalities, is a matter wholly within the discretion of the General Assembly. Brown, 115 N.E. at 86. The subjects and methods of taxation are legislative matters, and cannot be disturbed so long as the method prescribed is applicable alike to all within the prescribed class. Davis, 200 N.E. at 241. What is important is that there be uniformity and equality...