Armour v. City of Indianapolis

In this case, the Supreme Court will determine whether the City of Indianapolis (“City”) violated the Equal Protection Clause when it eliminated the debts of taxpayers who elected to pay a special assessment in installments but refused to refund taxpayers who paid the full amount in a single payment. Respondent, the City, argues that its decision to eliminate future payment obligations of taxpayers without refunding past payments has a rational basis and therefore does not violate the Equal Protection Clause. Petitioner Christine Armour and other taxpayers assert that where the state has made a decision to treat a class of property equally, it must also treat the owners of all property that fit within that class roughly equally for tax purposes. They reject the idea that the City’s decision to forgive the debts of only the taxpayers who paid in installments does not have a rational basis, and contend that the City’s financial interests, which they see as the true basis for the City’s decision, cannot justify the distinction it drew between taxpayers.

Rational Basis Argument

The City notes that rational basis review determines whether a government’s actions were in violation of the Equal Protection Clause. It further states that rational basis only requires that the challenged classification promote a legitimate state interest to be constitutional, and that the burden is up to the party challenging the legislation to overcome a strong presumption that the classification is valid. According to the City, this type of review is particularly deferential when the government action at issue relates to taxation.

In reviewing the circumstances of the classification in this case, the City contends that it was reasonable for the City to eliminate any outstanding debt from the unpopular Barrett Law financing method. It argues that doing so allows a clean break from the previously used method and avoids confusion regarding whether a transition from one financing regime to another has taken place. This way, the City asserts, the transition has a lesser financial impact on lower- and middle-income residents, for they would not be subjected to any double payments arising out of the old and new financing methods. Moreover, it states that the elimination of prospective payment obligations makes administrative sense, for the City would otherwise be collecting Barrett payments for up to thirty years. In the City’s view, simplifying the transition process serves an important purpose of ensuring a smooth regulatory transition.

While the City asserts that its decision is valid under rational review, Armour argues that there is not a sufficient link between the differential treatment and rational goals. She contends that where a state has placed a group of property in the same class, its varying treatment of property owners that fall within that class violates the Equal Protection Clause. Armour observes that the City assessed an equal share of the project’s cost onto its taxpayers and the taxpayers chose whether to pay that cost in a one-time or multiple payments. Due to the City’s forgiveness of outstanding debt, Armour contends that those who made the single full payment were taxed up to 30 times as much as others who were similarly situated to them. According to Armour, this grossly compromised the taxpayers’ reasonable expectations and put citizens who have already paid the full amount at a significant financial disadvantage.

She rejects the City’s assertion that its decision to refund only taxpayers who chose to pay the assessment in installments eased the financial burden on lower- and middle-income citizens, stating that this only supports the abandonment of the Barnett financing method and does not explain the City’s decision to treat similarly situated taxpayers differently. Armour adds that if the City wanted to ease the burden on lower- and middle-income taxpayers, it could have given refunds to or forgiven the debts of homeowners who had actually had lower incomes, instead of discriminating based on method of payment.

She argues that the City’s administrative convenience argument also fails because it only explains why the City forgave outstanding debt, not why it withheld the same relief to taxpayers who already paid the full amount. The administrative burden, according to Armour, is not nearly great enough to justify the immense disparity in treatment. Armour contends that it is common sense that it is more costly to pay refunds than to deny them. Armour adds that allowing administrative convenience to justify disparate treatment in taxation would allow governments to freely implement arbitrary tax programs.

Burden of Providing Refunds

The City argues that the taxpayers who have already paid the payment in full are not similarly situated to those who have opted to pay in installments because they do not have outstanding balances. The key difference, it contends, is timing. The City notes that if it is required to provide refunds to these taxpayers, it essentially means that to make decisions affecting prospective obligations, the government needs to make retroactive changes as well. The City argues that there is a clear line between prospective and retroactive changes and that there is a legitimate interest in not revisiting past transactions. The City also notes that deciding how far back the government should go in time when issuing a refund would be even more arbitrary of a determination than deciding not to give out any refunds. The City adds that it is rational to draw a distinction between taxpayers who owe money and those who paid in full, analogizing that litigants can benefit from new constitutional rules when their cases are pending, but not once there is a final judgment. Furthermore, the City emphasizes that it would be extremely costly and difficult for the City to issue refunds.

Noting that the issue in this case centers on the City’s providing financial relief to some taxpayers but not others, Armour asserts that the only legitimate reason that the City has put forward is preserving its own financial resources. She argues that the Supreme Court has previously held that a goal of saving resources alone cannot justify differing treatment towards similarly situated citizens if the classification is not rationally related to other legitimate purposes. Armour states that if conserving or raising financial resources could function as justifications for discriminatory tax programs, it would allow any and all arbitrary taxes to be constitutionally valid.

The Court’s Decision in Allegheny Pittsburgh Coal Co. v. County Commission

Armour points out that in Allegheny Pittsburgh Coal Co. v. County Commission of Webster County, the Supreme Court held that a state cannot deny “rough equality” in taxation to property owners in a class once the state determines that all property within that class should be given equal tax treatment. Armour argues that the Allegheny Pittsburgh decision controls in this case because Indiana law provides that all property within a class should be taxed equally. Armour contends that the City demonstrated its commitment to equality through the Barrett Law that required the costs for sewage projects be allocated equally, and through the Septic Tank Elimination Program that required all homeowners using the sewer system to pay the same flat fee. Armour asserts that like in Allegheny Pittsburgh, taxpayers here who paid the full amount of the assessment are forced to pay substantially more than other owners of property in the same class.

The City maintains that Allegheny Pittsburgh is distinguishable from this case. The City contends that unlike Allegheny Pittsburgh, where the petitioners were challenging the property assessments themselves, here, Armour is only challenging the City’s decision not to refund payments to a group of taxpayers. Armour contends that although Allegheny Pittsburgh held that assessments must be imposed equally, neither the United States Constitution nor state law requires the City to provide refunds for prior tax payments. Further, Armour argues that the decision in Allegheny Pittsburgh was limited to the facts of that case.