State Bd. Of Tax Com'rs v. Montgomery

• Decision Date: 27 June 2000
• Docket Number: No. 45S00-9906-TA-340.,45S00-9906-TA-340.
• Citation: 730 N.E.2d 680
• Parties: STATE BOARD OF TAX COMMISSIONERS, et al., Appellants (Respondents Below), v. Troy MONTGOMERY, et al., Appellees (Petitioners Below).
• Court: Indiana Supreme Court

730 N.E.2d 680

STATE BOARD OF TAX COMMISSIONERS, et al., Appellants (Respondents Below), v. Troy MONTGOMERY, et al., Appellees (Petitioners Below).

No. 45S00-9906-TA-340.

Supreme Court of Indiana.

June 27, 2000.

Jeffrey A. Modisett, Attorney General of Indiana, Jon Laramore, Deputy Attorney General, Indianapolis, Indiana, Attorneys for Appellants.

Peter L. Benjamin, Gerald M. Bishop, Merrillville, Indiana, John S. Dull Indianapolis, Indiana, Attorneys for Appellees.

ON PETITION FOR INTERLOCUTORY APPEAL

BOEHM, Justice.

The petitioners in this case are Lake County, on its own behalf and on behalf of property owners in that county, the Lake County Council, the Board of Commissioners of Lake County, and several individual members of the Council or the Board who seek to sue in their official capacities and as taxpayers owning property in Lake County. All petitioners brought suit in the Indiana Tax Court against the Indiana State Board of Tax Commissioners, seeking a declaratory judgment that the Health Care for the Indigent program ("HCI") violates Article 10, Section 1 and Article 1, Section 23 of the Indiana Constitution. The Tax Court held that it had subject matter jurisdiction, despite the State Board's contention that the taxpayers had not exhausted their administrative remedies. That issue was certified for interlocutory review, and we granted the State Board's Petition for Review to address whether under these circumstances the taxpayers must first exhaust administrative remedies. We hold that the taxpayers must first exhaust the administrative remedy of requesting a refund, and that the Tax Court is without jurisdiction because no petitioner seeks review of a final order of the State Board.

Factual and Procedural Background

HCI was first enacted in 1986 and recodified in 1992 at Indiana Code §§ 12-16-2-1 to XX-XX-XX-X. It is designed to provide emergency medical care to indigent patients who do not qualify for Medicaid benefits. Before 1986, the counties bore all responsibility for indigent health care. HCI transferred the administration of indigent health care to the State and imposed an "HCI tax levy" to fund it. The State Board of Tax Commissioners is required to "review each county's property tax levy under this chapter and . . . enforce the requirements of this chapter with respect to that levy." Ind.Code § 12-16-14-4 (1998). The levy is imposed as a property tax, but unlike the general property tax levy,¹ the amount of the HCI levy for each county is statutorily prescribed as last year's levy increased by the percentage of growth in assessed value of all property in the state.² 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. § 6-1.1-18-3(7).

The Act provides for the establishment of an HCI fund in each county. Each county fund's balance is transferred monthly to a state fund. The initial HCI levy for each county was set at the average over 1984-86 of its indigent hospital care expenditures, with certain adjustments not relevant here.

The petitioners contend that the statutory formula for setting the HCI tax levy has resulted in a wide disparity between the contribution of Lake County residents to the HCI state fund and Lake County's percentage of statewide assessed value. According to petitioners, even though the assessed value of property in Lake County is 6.5% of the statewide assessed value, 37% of the HCI tax levy is imposed on Lake County.

Two taxpayers who are parties to this action, Troy Montgomery and Frances DuPey,³ directed a letter to the State Board in which they posed four questions:

(1) Is the State Tax Board of Commissioners willing to voluntarily adjust and revise the current funding formula for the HCI tax levy to assure that Lake County health care providers substantially receive the benefit of tax dollars that are paid in?

(2) If the answer to question number one is in the affirmative, please further state the mechanism and timetable regarding same.

(3) Please itemize where the distribution of the remaining sum of approximately $42,000,000.00 paid in by Lake County is allocated?

(4) On behalf of Lake County taxpayers, we are requesting a refund of the HCI overpayment for the past three (3) years. Members of the County council have filed timely objections over the years regarding our inflated HCI tax levy. Please advise us regarding your position to voluntarily repay to Lake County the amount of overpayment into the HCI fund for the past three (3) years.

The Chairman of the State Board, Frank J. Sabatine, was sympathetic to the concerns expressed by Montgomery and DuPey, but he responded that, "there is nothing the Board can do to voluntarily adjust the amount of Lake County's HCI property tax levy." He described the State Board's role as "ministerial" in nature, and told Montgomery and DuPey that the State Board had no discretion either to adjust the formula for assessing the HCI tax levy, or to order a refund of taxes for the alleged overpayment.

Sabatine expressed the State Board's willingness to "review the funding and reimbursement formulas⁴ to determine if there are ways to improve the HCI program." He also directed a letter to the Citizens' Commission on Taxes, asking it to consider Lake County's concerns in its recommendations to the General Assembly on proposals to remove the HCI tax levy from the property tax. Sabatine explained to Montgomery and DuPey that some of the apparent inequity of the HCI program is counterbalanced by its interaction with Medicaid.⁵ He concluded that any "concerns regarding inequities in the current levy calculation . . . must be addressed to the General Assembly and not to this agency."⁶

The petitioners, along with the Lake County Council and Board of Commissioners, then brought suit in the Indiana Tax Court against the State Board. They allege that the HCI tax levy violates the Indiana Constitution, specifically, Article 1, Section 23, the Privileges and Immunities Clause, and Article 10, Section 1, which provides for a uniform and equal rate of property assessment and taxation. They sought a declaration that the formula for calculating the tax levy was unconstitutional. They contended that jurisdiction of the Tax Court was conferred by the Sabatine letter, which constituted a "final determination" within the meaning of the Tax Court's jurisdictional statute. The State Board responded with a motion to dismiss, contending that the governmental entities lacked standing and the taxpayers were barred by the doctrine of exhaustion of remedies because they had neither objected to the levy nor claimed a refund pursuant to procedures set forth in the tax code.

The Tax Court concluded that the Sabatine letter did not constitute a final determination conferring subject matter jurisdiction, but nevertheless concluded that the claim was proper because administrative remedies for challenging the HCI levy were inadequate and therefore the parties were excused from pursuing them. See Lake County Council v. State Bd. of Tax Comm'rs, 706 N.E.2d 270, 275-77 (Ind.Tax 1999)

. The Tax Court first held that the taxpayers' ability to object to the tax levy was an insufficient remedy because an objection could be filed only by a group of ten taxpayers, and the adjudication of a constitutional claim could not be made to depend on agreement by nine others to bring the claim. See id. at 275-76. The Tax Court viewed the option of filing a claim for a refund as "more promising," but it nevertheless concluded that the refund process was also impractical. If a refund were ordered as to amounts remitted from the county fund to the State, the Tax Court surmised, it would have to be paid out of the county coffers, even though the ultimate recipient of the funds from the county tax was the State. See id. at 277-78. The Tax Court then noted the absence of any mention of a refund process in the HCI statute and concluded that the legislature did not intend the county to be commandeered into granting refunds of money it had forwarded to the State. In the Tax Court's view, the legislature "could not have intended" the refund provisions of the property tax to apply to the HCI tax levy. Id. at 277. The Tax Court then concluded that jurisdiction properly lay with the Tax Court. See id. at 278-79. It also ruled that the governmental entities, with the exception of Lake County itself, had no standing to contest the constitutionality of the HCI levy. See id. at 279-81.

Lake County was deemed a proper party to the declaratory judgment action because it had a cognizable interest in the lawsuit. If the petitioners were successful, the county would be required both to fund and also to administer the refund process. See id. at 281.

The State Board sought rehearing, arguing that because Lake County could seek reimbursement from the State for any refunds it would be forced to pay, the taxpayers' remedies were adequate and exhaustion should not be excused.⁷ In a second opinion,⁸ the Tax Court again concluded that it had subject matter jurisdiction and that petitioners' administrative remedies were inadequate and exhaustion was excused. See Montgomery v. State Bd. of Tax Comm'rs, 708 N.E.2d 936 (Ind. Tax 1999)

. The Tax Court also concluded that reimbursement was too speculative. See id. at 938. The Tax Court subsequently certified its opinions for interlocutory review by this Court, and this appeal followed.

The State Board argues that: (1) the taxpayers failed to exhaust their administrative remedies and they are not excused from pursuing these remedies on grounds of futility; (2) even if exhaustion were not required, the taxpayers still had no final determination by the State Board and therefore jurisdiction was improper in Tax Court; and (3) Lake County lacks standing to assert this claim against the State Board.

I. Exhaustion of Administrative Remedies

In State v....