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Administrative Convenience Justifies Inequality in Tax Forgiveness Program

The U.S. Supreme Court held in Armour v. City of Indianapolis, 132 S.Ct. 2073 (June 4, 2012), that a city’s refusal to refund s

September 5, 2012

The U.S. Supreme Court held in Armour v. City of Indianapolis, 132 S.Ct. 2073 (June 4, 2012), that a city’s refusal to refund sewer taxes prepaid by some homeowners while relieving taxes paid by other homeowners who elected to pay the tax by installment did not violate the Equal Protection Clause. Applying a rational basis standard, the Court upheld the tax forgiveness scheme because it was rationally related to the city’s legitimate interest of avoiding the administrative costs associated with issuing refunds.

The opinion reflects the difficulty of applying the Equal Protection Clause. The Court provided that laws treating similarly situated taxpayers differently are constitutional as long as there is a “plausible policy reason for the classification . . . and the relationship of the classification to its goal is not so attenuated so as to render the distinction arbitrary or irrational.” The Court noted that the only instance where it has found a rational basis lacking in this context is where a state law requiring equal assessment was “dramatically violated” by gross disparity in assessments. Here, the sewer project financing assessments were equally distributed, as required by state law. Whether the tax should be forgiven and how such a tax forgiveness program should be implemented are separate questions which are not addressed by state law.

The dissent, written by Chief Justice John Roberts, viewed the majority opinion as an expansion of the administrative convenience concept. Chief Justice Roberts viewed the Court’s prior decisions addressing administrative convenience as being limited to allowing a legislature to consider administrative concerns when creating classes of taxable entities that may be taxed differently. However, the dissent viewed the taxpayers in Armour as being in the same class pursuant to Indiana’s tax scheme that had specifically provided that the costs of sewer projects were to be equally allocated. Further, the dissent took exception to the majority’s conclusion that the case did not involve a gross disparity of treatment, pointing to the fact that homeowners who were refused refunds paid 10 to 30 times the tax that installment homeowners paid. The dissent called into question whether there was even an administrative burden at all. The dissent noted that the city had already produced records showing the exact amount of refunds due to each lump sum payor and that the total cost of issuing the refunds would be $300,000 (out of a $900 million budget).

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