Hay v. Indiana State Bd. of Tax Com'Rs

• Decision Date: 06 December 2002
• Docket Number: No. 02-1199.,02-1199.
• Citation: 312 F.3d 876
• Parties: Stephen M. HAY, Wawasee Airport, Incorporated, Suzanne Bishop, and Michael Umbaugh, Plaintiffs-Appellants, v. INDIANA STATE BOARD OF TAX COMMISSIONERS, Jon Laramore, Chairman of the Indiana State Board of Tax Commissioners, Gordon E. McIntyre, member of the Indiana State Board of Tax Commissioners, and Lisa Acobert, member of the Indiana State Board of Tax Commissioners, Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

312 F.3d 876

Stephen M. HAY, Wawasee Airport, Incorporated, Suzanne Bishop, and Michael Umbaugh, Plaintiffs-Appellants, v. INDIANA STATE BOARD OF TAX COMMISSIONERS, Jon Laramore, Chairman of the Indiana State Board of Tax Commissioners, Gordon E. McIntyre, member of the Indiana State Board of Tax Commissioners, and Lisa Acobert, member of the Indiana State Board of Tax Commissioners, Defendants-Appellees.

No. 02-1199.

United States Court of Appeals, Seventh Circuit.

Argued September 25, 2002.

Decided December 6, 2002.

Randy Spitaels, Kindig & Sloat, Nappanee, IN, David L. Pippen (argued), Indianapolis, IN, for Plaintiffs-Appellants.

David A. Arthur (argued), Office of the Atty. Gen., Indianapolis, IN, for Defendants-Appellees.

Before BAUER, ROVNER, and WILLIAMS, Circuit Judges.

ILANA DIAMOND ROVNER, Circuit Judge.

Plaintiffs-Appellants, Stephen M. Hay, Wawasee Airport, Inc., Suzanne Bishop and Michael Umbaugh ("landowners") object to the manner in which their real properties have been assessed for Indiana State property tax purposes. Consequently, they filed a complaint against the Indiana State Board of Tax Commissioners, Jon Laramore, as Chairman of the State Board, and Gordon McIntyre and Lisa Acobert, members of the State Board (collectively "State Board").¹

The complaint alleges that the method used to assess the landowners' real property violates their due process rights under the Fifth and Fourteenth Amendments. The State Board filed a Motion to Dismiss the landowners' complaint for lack of jurisdiction. The District Court granted the motion to dismiss and the landowners appeal. We affirm.

I.

Indiana's real property tax assessment methods have been plagued with problems and subject to extensive state court litigation. See, e.g., State Bd. of Tax Comm'rs v. Town of St. John, 702 N.E.2d 1034 (Ind.1998). As a result of this litigation, the State Board issued new assessment regulations which became effective May 23, 2001. The plaintiffs in this case are all taxpayers in Indiana who contend that the State Board violated their constitutional rights under the Fifth and Fourteenth Amendments to the United States Constitution by continuing to use superceded tax assessment methods that the state court has declared to be infirm. The landowners filed a complaint in federal court challenging the assessments made using this former, flawed system. The State Board countered with a motion to dismiss for lack of subject matter jurisdiction, claiming that the Federal Tax Injunction Act prohibits the district court from hearing challenges to state tax law regulations where the state law provides an effective remedy for such challenges. The landowners argue, however, that their claim is not barred by the Tax Injunction Act as they have no effective remedy for their complaint within the state court system. Their response to the motion to dismiss hinges on their contention that the district court must accept as true, without looking beyond the allegations of the complaint, their allegation that they have no plain, speedy and effective remedy in the state court system.

Reviewing the district court's dismissal for lack of subject matter jurisdiction de novo (see CCC Info. Servs., Inc. v. American Salvage Pool Assoc., 230 F.3d 342, 345-46 (7th Cir.2000)), we find that the Tax Injunction Act does indeed bar the landowners from pursuing a claim in federal court.

II.

Unlike the state courts of Indiana, the federal district courts are courts of limited jurisdiction. Before entertaining any claim, a federal district court must assure itself that it has jurisdiction to hear the matter presented to it. The Tax Injunction Act is one particular statute that limits the jurisdiction of federal district courts. It provides:

The district courts shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State.

28 U.S.C. § 1341. The Supreme Court has explained that "[t]he statute has its roots in equity practice, in principles of federalism, and in recognition of the imperative need of a State to administer its own fiscal operations." Rosewell v. LaSalle Nat'l Bank, 450 U.S. 503, 522, 101 S.Ct. 1221, 67 L.Ed.2d 464 (1981) (internal citations omitted). Consequently, a federal district court must abstain from involving itself in questions regarding the collection of state taxes provided that state law provides a "plain, speedy and efficient remedy" for challenges to the state tax law. See 28 U.S.C. § 1341.

The landowners urged the district court to read their complaint liberally and accept as true the well-pleaded allegations of the complaint. In particular, they contend that the court should accept the allegation that the landowners have no plain, speedy or effective remedy in the state courts. The landowners assert that unless the defendant proffers evidence to call the court's jurisdiction into question, the court cannot look beyond the four corners of the complaint. Of course if, as the landowners claim, we have no choice but to accept the lack of adequate remedy allegation on its face without more, the Tax Injunction Act would not apply and the plaintiffs would be free (at least for the time being) to pursue their claim in federal court. It would be a simple route to the federal courts not only for the landowners, but for all plaintiffs challenging state tax regulations. Under the landowners' scenario, a plaintiff could simply allege the lack of a plain, speedy and efficient remedy in the state courts and the doors to the federal courts would spring open. But as we detail below, there is no such magic key to federal jurisdiction, and the federal courts cannot blindly accept a plaintiff's claim that jurisdiction exists.

Jurisdiction is the "power to declare law," and without it the federal courts cannot proceed. Ruhrgas v. Marathon Oil Co., 526 U.S. 574, 577, 583, 119 S.Ct. 1563, 143 L.Ed.2d 760 (1999). Accordingly, not only may the federal courts police subject matter jurisdiction sua sponte, they must. Id.; United States v. Smith, 992 F.2d 98, 99 (7th Cir.1993). The landowners cite portions of Commodity Trend Serv., Inc. v. Commodity Futures Trading Comm'n, 149 F.3d 679 (7th Cir. 1998), which allude to the fact that a court may look beyond the allegations of a complaint "once a defendant proffers evidence that calls the court's jurisdiction into question." Id. at 685. The landowners would like us to conclude that the contrapositive of this proposition is also true — that the court cannot look beyond the allegations of the complaint when the defendant has not proffered evidence that calls the court's jurisdiction into question. This is not what Commodity Trend or its progeny say, however. See Commodity Trend Serv., Inc., 149 F.3d at 685 ("On a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(1), the court is not bound to accept the truth of the allegations in the complaint. Rather, the plaintiff has the obligation to establish jurisdiction by competent proof, and the court may properly look to evidence beyond the pleadings in this inquiry."). See also Bastien v. AT & T Wireless Servs., Inc., 205 F.3d 983, 990 (7th Cir.2000) (same). Given the court's responsibility to police jurisdiction sua sponte, Wright and Miller assert that it is "not appropriate" for a court to evaluate a Rule 12(b)(1) motion by accepting all allegations as true. 5A Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1350, at 149 (2d ed. Supp. 2002). "Accordingly, upon a challenge to the court's jurisdiction by a party, the court should conduct a careful inquiry and make a conclusive determination whether it has subject matter jurisdiction or not...." Id.² We conclude that the district court had not only the right, but the duty to look beyond the allegations of the complaint to determine that it had jurisdiction to hear the landowners' claim.

Having concluded that the federal courts properly may look beyond the factual allegations of the complaint, we now do so to determine whether in fact the district court had jurisdiction to consider the landowners' claim. The Tax Injunction Act divests the district court of jurisdiction if the state courts provide a "plain, speedy and efficient remedy" for a taxpayer's claim. 28 U.S.C. § 1341. The landowners assert that they have no plain, speedy and efficient remedy in the state courts. They allege several reasons why this is so, most of which can be boiled down to the following two allegations: first, the state court refuses to hear facial challenges to the old regulations, and second, although finding that the state tax assessment regulations violated the state constitution, the state courts have allowed only prospective relief.³

Although the landowners claim that the remedy provided by Indiana is not adequate, the Supreme Court has set forth minimal procedural requirements for adequacy, demanding only a "full hearing and judicial determination at which [a taxpayer] may raise any and all constitutional objections to the tax." Rosewell, 450 U.S. at 512-15, 101 S.Ct. 1221. The district court must look at the totality of all of the remedies available to a taxpayer to determine whether or not taxpayers have the opportunity to raise constitutional challenges. Colonial Pipeline Co. v. Collins, 921 F.2d 1237, 1245 (11th Cir.1991).

Under Indiana law, a taxpayer can seek review of a property tax assessment by the County Property Tax Assessment Board of Appeals (Ind.Code 6-1.1-15-1) and can appeal any finding to the Indiana Board of Tax Review (Ind.Code § 6-1.1-15-3). If a taxpayer remains unsatisfied after these administrative review processes, she may seek judicial review with the Indiana Tax Court. Ind.Code § 6-1.1-15-5. From there, all appeals go to the Indiana Supreme Court, and then, of course, a party may petition the United States Supreme Court for...