Opinion ID: 2011365
Heading Depth: 1
Heading Rank: 4

Heading: Pre-Tax Court Case Law on Exhaustion of Remedies

Text: The Tax Court's enabling statute clearly dictates that any taxpayer who pursues the protest, refund or injunction remedy may seek judicial review only in the Tax Court. [14] However, the statute fails to speak explicitly to the issue before us today: whether the administrative process and Tax Court can be bypassed altogether by filing an action in a circuit court as Sproles has done here. To answer this question, we turn to prior Indiana cases addressing the exhaustion of remedies requirement in the tax setting. As explained below, a lengthy body of decisional law dating back to 1971 has consistently held that administrative remedies must be exhausted before a taxpayer may seek judicial review. Put concisely, these cases hold that taxpayers' means of challenging the legality of a state tax are limited to those granted by statute. These statutory remedies have historically contained two components: 1) administrative review of the tax appeal within the Department; and 2) judicial review of the Department's decision. The relevant statutes have also provided that exhausting the administrative component is a prerequisite to judicial review. The Legislature transferred jurisdiction over tax cases from the circuit courts to the Tax Court in 1986, but the exhaustion requirement was unchanged. In light of the policy underlying the creation of the Tax Courtto ensure uniformity in construction and application of the tax lawsthe enabling statute's failure to declare more explicitly that statutory remedies are exclusive does not imply a remedy in a court of general jurisdiction. And once taxpayers are forced into the administrative paths, the only court for review of the issue is the Tax Court. It is well-established by our cases that, as a general matter, administrative remedies must be exhausted before an aggrieved party may seek recourse in the courts. See, e.g., Austin Lakes Joint Venture v. Avon Util., 648 N.E.2d 641 (Ind.1995); Martin v. Monroe County Plan Com'n, 660 N.E.2d 1073 (Ind.Ct.App.1996). The rationale underlying this policy, of course, is that administrative bodies have specialized expertise and thus are better suited to adjudicate the dispute in the first instance. In addition, if as here broader constitutional issues are reached, administrative action may resolve the case on other grounds without confronting broader legal issues. Because the right to appeal from a letter of findings has existed by statute for just three years, each of the Indiana decisions addressing the exhaustion question in challenges to the legality of a tax deals exclusively with the refund statute (IND.CODE § 6-8.1-9-1) and its predecessors. Where relevant, we note revisions to this statute, which often occurred in reaction to specific court decisions. In sum, although various provisions of the tax laws have been tweaked over the years, none of these changes affects the ultimate requirement of exhaustion of statutory remedies. At one point taxpayers did have the remedy Sproles seeks to invoke. In Dept. of Treasury v. Ridgely, 211 Ind. 9, 4 N.E.2d 557 (1936), we held that the refund statute was not a taxpayer's sole recourse to challenge the legality of a tax. In that case, the taxpayer sought an injunction to restrain collection of the gross income tax. In holding that an injunction could issue, this Court relied on several 19th century Indiana decisions and also noted that the statute (then codified at § 64-2612) did not declare the refund procedure to be an exclusive remedy. 4 N.E.2d at 559-60. In addition, we reasoned that the statute did not deprive the Court of equity jurisdiction because legal remedies there were found to be inadequate. Id. at 560. In Dept. of Treasury v. J.P. Michael Co., 105 Ind.App. 255, 11 N.E.2d 512 (1937), the Appellate Court relied on Ridgely to hold that a declaratory judgment was available to challenge the legality of a tax. However, Ridgely was overruled legislatively in 1937 when § 64-2612 was supplemented by § 64-2614 to read: No injunction to restrain or delay the collection of any tax ... shall be issued by any court[.] 1937 Ind. Acts, ch. 117, § 14(d)(repealed and renumbered at IND.CODE § 6-2-1-19 in 1971 without substantive change). The judicial power to enjoin state tax collection was not restored until fifty years later when the Legislature gave the Tax Court this authority. IND.CODE § 33-3-5-11 (1993). In State Ex Rel. Ind. Dept. of State Rev. v. Marion Cir. Ct., 255 Ind. 501, 265 N.E.2d 241 (1971), we held unanimously that trial courts indeed lacked subject-matter jurisdiction to issue injunctions in tax cases. There, the taxpayer sought to enjoin collection of a corporate income tax. 265 N.E.2d at 242. Citing the prohibition on injunctions the Legislature added to the refund statute in 1937, we held that [i]t is clear that the remedy thus provided by the Legislature [paying the tax and requesting a refund] is and is intended to be the sole and exclusive remedy available to question the legality of the imposition of a tax under the Indiana Gross Income Tax Law. Id. at 243 (emphasis added). We thus affirmed in Marion Circuit Court that the Legislature meant what it said when it prohibited courts from creating judicial exceptions on equitable grounds to the administrative refund process. In 1980, the refund statute was again revised, and § 6-8.1-9-1 replaced § 6-2-1-19, which was repealed. In the then-existing version of § 6-8.1-9-1(d), the Legislature provided that circuit courts may not enjoin, restrain or delay the collection of any of the listed taxes, regardless of the facts or legal theory on which the suit requesting that relief is brought. The only relief that a court may grant is to allow a refund of taxes[.] 1980 Ind. Acts, P.L. 61, § 1 (amended by 1985 Ind. Acts, P.L. 291, § 12) (emphasis added); see also IND.CODE ANN. § 6-8.1-9-1, Hist. Note (West 1989). Even though this language was deleted in 1986 to allow the Tax Court to enjoin tax collections, the 1980-85 version of § 6-8.1-9-1(d) codified our holding in Marion Circuit Court, and reaffirmed the legislative intent that the administrative process be the taxpayer's sole and exclusive remedy. [15] In the meantime, two Court of Appeals cases did permit declaratory relief actions without resort to then-existing statutory remedies. In Mathis v. Cooperative Vendors, Inc., 170 Ind.App. 659, 354 N.E.2d 269 (1976), several cigarette vendors and distributors sued to enjoin application of the sales tax to retail cigarette sales. The plaintiffs had unsuccessfully protested their tax assessments under the 1971 analog (then codified at § 6-2-1-17) to the current protest scheme. See IND.CODE § 6-8.1-5-1 (1993). The court held that the refund statute applied only to taxpayers, that the cigarette distributors were tax collection agents for the state and not taxpayers, and that the distributors, accordingly, could sue for equitable relief without paying the tax first. However, the cigarette distributors in Mathis lost on the merits because the sales tax there was construed to apply to cigarette sales. A similar result on the jurisdictional issue was reached in State v. Indianapolis Airport Authority, 173 Ind.App. 55, 362 N.E.2d 200 (1977). [16] These cases stand for the proposition that plaintiff's are not required to exhaust remedies they do not have. These decisions do not suggest that a taxpayer who has a statutory remedy may circumvent it as Sproles seeks to do here. In sum, Ridgely was quickly overruled by legislation, and Marion Circuit Court spawned an unbroken line of case law holding that taxpayers must pursue all administrative remedies before seeking judicial review. As explained below, these precedents govern the subclass of legal challenges at issue hereconstitutional attacks on a listed tax.