Cities have leeway in forgiving tax payments: Supreme Court

[Eugene]

Source: Reuters

By James Vicini

WASHINGTON | Mon Jun 4, 2012 1:08pm EDT

(Reuters) - The Supreme Court ruled on Monday that a city did not violate the Constitution when it forgave some future property tax obligations for certain taxpayers, but refused to refund payments made by other taxpayers for the same assessments.

In a case that impacts tax policy, taxpayers and local governments, the high court ruled by a 6-3 vote that authorities in Indianapolis had a rational basis for making the distinction and had not violated the Constitution's Equal Protection Clause in their handling of a special sewer tax levied in 2004.

Property owners who paid the $9,278 tax up front were upset when the Indianapolis Board of Public Works in 2005 decided to forgive the obligations of those who chose to pay in monthly installments, with interest, over 10, 15 or 30 years.

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Read more: http://www.reuters.com/article/2012/06/04/us-tax-refund-city-idUSBRE8530QV20120604

[naaman fletcher]

1. awful ruling

Obviously, I will never pay up front a tax that can be paid in the future, in case the government forgives it.

[NutmegYankee]

2. Look who dissented - Chief Justice John Roberts and Justices Antonin Scalia and Samuel Alito

I'm not saying your wrong or republican at all, as I agree that this ruling was wrong. I just find it odd that those three were the only dissenters. I guess the broken clock theory is correct...

[naaman fletcher]

3. It happens every now and then

The other example I can think of is the big eminent domain case 3-4 years ago.

[rox63]

4. Was Thomas out sick or something?

He's always in lockstep with those three?

[kirby]

5. Might be legal, but...

What a shit way to treat your citizens, especially those who were trying to pay up front without taking on debt.
It is amazing that they would not refund the different between the $9,278 paid in 2004 and the new $2,500 cost that was implemented in 2005.

[happyslug]

6. Actual Opinion

Last edited Tue Jun 5, 2012, 01:04 AM - Edit history (1)

http://www.supremecourt.gov/opinions/11pdf/11-161.pdf

The actual vote was:
BREYER, J., delivered the opinion of the Court, in which KENNEDY,
THOMAS, GINSBURG, SOTOMAYOR, and KAGAN, JJ., joined.

ROBERTS, C. J., filed a dissenting opinion, in which SCALIA and ALITO, JJ., joined.



Please note this decision involves areas of Indianapolis that previously had Septic systems that were then connected to a Sewerage system. Under Indiana State Law, such home owners had to pay for the new sewer. Each landowner paid about $9000 for the improvement. Under Indiana State Law, such home owners could pay it all at once, or in 10, 20 or 30 years monthly payments. Some homeowners opt of paying it at once, others for 10, 20 and 30 year periods (a lien was put on the home owner's property till the fee was paid in full).

The next year, Indianapolis changed its laws as to sewerage system. It first abolished any outstanding liens and forgave any outstanding balance due. This lead to a huge disparity between those people who paid in full, and those that agree to pay in 10, 20 and 30 year payments. Those that had agreed to pay over 30 year period paid only about $309 for the new sewer (the fee paid for the year after the sewer was installed and the adoption of the new fee system) while the property owners that had paid the entire $9000 up front had paid $9000.

Under the new system adopted by Indianapolis no refunds were permitted, thus the people who paid $9000 up front, had paid $9000, while others who had agree to pay over 10, 20, and 30 years had paid 30 times less.

The people who had paid up front sued under the concept that this was a violation of the Equal Protection Clause of the 14th amendment. The people who paid $9000 upfront said the that since they had paid $9000 while other ended up paying only $309 for the same service (installation of the new sewerage system) they were being treated unequally in violation of the Equal Protection Clause of the 14th Amendment.

The major rules that the Court has long recognized the following:

As long as the City’s distinction has a rational basis, that distinction does not violate the Equal Protection Clause. This Court has long held that “a classification neither involving fundamental rights nor proceeding along suspect lines . . . cannot run afoul of the Equal Protection Clause if there is a rational relationship between the disparity of treatment and some legitimate governmental purpose.” ..... We have made clear in analogous contexts that, where “ordinary commercial transactions” are at issue, rational basis review requires deference to reasonable underlying legislative judgments.... And we have repeatedly pointed out that “{l}egislatures have especially broad latitude in creating classifications and distinctions in tax statutes.” .....

Indianapolis’ classification involves neither a “ fundamental right” nor a “suspect” classification. Its subject matter is local, economic, social, and commercial. It is a tax classification. And no one here claims that Indianapolis has discriminated against out-of-state commerce or new
residents....Hence, this case falls directly within the scope of our precedents holding such a law constitutionally valid if “there is a plausible policy reason for the classification, the legislative facts on which the classification is apparently based rationally may have been considered to be true by the governmental decision maker, and the relationship of the classification to its goal is not so attenuated as to render the distinction arbitrary or irrational.” ..... And it falls within the scope of our precedents holding that there is such a plausible reason if “there is any reasonably conceivable state of facts that could pro­vide a rational basis for the classification.” .....

Moreover, analogous precedent warns us that we are not to “pronounc[e]” this classification “unconstitutional unless in the light of the facts made known or generally assumed it is of such a character as to preclude the assumption that it rests upon some rational basis within
the knowledge and experience of the legislators.” ..... Further, because the classification is presumed constitutional, the“ ‘burden is on the one attacking the legislative arrangement to negative every conceivable basis which might support it.’” ......

In our view, Indianapolis’ classification has a rational basis. Ordinarily, administrative considerations can justify a tax-related distinction....(tax exemption for businesses with fewer than eight em­ployees rational in light of the “[a]dministrative conven­ience and expense” involved); 0 (comparing administrative cost of taxing deposits in local banks versus those elsewhere). And the City’s decision to stop collecting outstanding Barrett Law debts finds rational support in related administrative concerns. The City had decided to switch to the STEP system. After that change, to continue Barrett Law unpaid-debt collection could have proved complex and expensive. It would have meant maintaining an administrative system that for years to come would have had to collect debts arising out of 20-plus different construction projects built over the course of a decade, involving monthly payments as low as $25 per household, with the possible need to maintain credibility by tracking down defaulting debt­ors and bringing legal action. The City, for example,would have had to maintain its Barrett Law operation within the City Controller’s Office, keep files on old, small, installment-plan debts, and (a City official says) possibly spend hundreds of thousands of dollars keeping computer­ized debt-tracking systems current. See Brief for Interna­tional City/County Management Association et al. as
Amici Curiae 13, n. 12 (citing Affidavit of Charles White ¶13, Record in Cox, Doc. No. 57–3). Unlike the collection system prior to abandonment, the City would not have added any new Barrett Law installment-plan debtors. And that fact means that it would have had to spread the fixed administrative costs of collection over an ever-declining number of debtors, thereby continuously increas­ing the per-debtor cost of collection.

Consistent with these facts, the Director of the City’s Department of Public Works later explained that the City decided to forgive outstanding debt in part because “{t}he administrative costs to service and process remaining balances on Barrett Law accounts long past the transition to the STEP program would not benefit the taxpayers” and would defeat the purpose of the transition. App. 76. The four other members of the City’s Board of Public Works have said the same......
.
The City had decided to switch to the STEP system. After that change, to continue Barrett Law unpaid-debt collection could have proved complex and expensive. It would have meant maintaining an administrative system that for years to come would have had to collect debts arising out of 20-plus different construction projects built over the course of a decade, involving monthly payments as low as $25 per household, with the possible need to maintain credibility by tracking down defaulting debt­ors and bringing legal action. The City, for example, would have had to maintain its Barrett Law operation within the City Controller’s Office, keep files on old, small, installment-plan debts, and (a City official says) possibly spend hundreds of thousands of dollars keeping computerized debt-tracking systems current. .... Unlike the collection system prior to abandonment, the City would not have added any new Barrett Law installment-plan debtors. And that fact means that it would have had to spread the fixed administrative costs of collection over an ever­ declining number of debtors, thereby continuously increasing the per-debtor cost of collection.

Consistent with these facts, the Director of the City’s Department of Public Works later explained that the City decided to forgive outstanding debt in part because “{t}he administrative costs to service and process remaining balances on Barrett Law accounts long past the transitionto the STEP program would not benefit the taxpayers” and would defeat the purpose of the transition. App. 76. The four other members of the City’s Board of Public Works have said the same. The rationality of the City’s distinction draws further support from the nature of the line-drawing choices that confronted it. To have added refunds to forgiveness would have meant adding yet further administrative costs, namely the cost of processing refunds. At the same time, to have tried to limit the City’s costs and lost revenues by limiting forgiveness (or refund) rules to Brisbane/Manning homeowners alone would have led those involved in other Barrett Law projects to have justifiably complained about unfairness. Yet to have granted refunds (as well as providing forgiveness) to all those involved in all Barrett Law projects (there were more than 40 projects) or in all open projects (there were more than 20) would have involved even greater administrative burden. The City could not just “cut . . . checks,” post, at 4 (ROBERTS, C. J.,
dissenting), without taking funding from other programs or finding additional revenue. If, instead, the City had tried to keep the amount of revenue it lost constant (a rational goal) but spread it evenly among the apparently thousands of homeowners involved in any of the Barrett Laws projects, the result would have been yet smaller individual payments, even more likely to have been too small to justify the administrative expense.

Finally, the rationality of the distinction draws support from the fact that the line that the City drew— distinguishing past payments from future obligations—is a line well known to the law. Sometimes such a line takes
the form of an amnesty program, involving, say, mortgage payments, taxes, or parking tickets. E.g., 26 U. S. C. §108(a)(1)(E) (2006 ed., Supp. IV) (federal income tax provision allowing homeowners to omit from gross income newly forgiven home mortgage debt); United States v. Martin, 523 F. 3d 281, 284 (CA4 2008) (tax amnesty program whereby State newly forgave penalties and liabilities ties if taxpayer satisfied debt); Horn v. Chicago, 860 F. 2d 700, 704, n. 9 (CA7 1988) (city parking ticket amnesty program whereby outstanding tickets could be newly settled for a fraction of amount specified). This kind of line is consistent with the distinction that the law often makes between actions previously taken and those yet to come....

Basically the Court accepted that Indianapolis did what it did for what it considered good business practice and as such constitutional. The dissent makes a big deal about the huge difference between those that paid up front the entire $9000 and those that agreed to pay in installments and had those installments cancelled. The majority ruled that was rational way to handle the difference and the courts should NOT interfere with such rational decisions (Unless it affects a protected class of people or someone from out of state, neither class of people was involved in this case).

[elleng]

7. Thanks. The rational basis, for those interested:

City had a legitimate interest in reducing administrative costs, providing financial hardship relief to homeowners transitioning from Barrett to STEP methods of paying, and preserving its limited resources. HENCE, the City had a 'rational basis' for the distinction, and had not violated the Equal Protection Clause.

[happyslug]

8. Sorry about adding my comments and the quoted text AFTER you have posted

Took me a while to copy and paste what I thought was the important part of the opinion, that the court ruled what Indianapolis did was "Rational" as that term is defined under previous decisions of the US Supreme Court in regards to the 14th Amendment.

[elleng]

9. Glad you did!

Took me a while to 'translate' from PDF.

Rational basis test is a judicial standard of review that examines whether a legislature had a reasonable and not an Arbitrary basis for enacting a particular statute.

Courts employ various standards of review to assess whether legislative acts violate constitutionally protected interests. The U.S. Supreme Court has articulated the rational basis test for those cases where a plaintiff alleges that the legislature has made an arbitrary or irrational decision.