Opinion ID: 852846
Heading Depth: 2
Heading Rank: 2

Heading: The Merits of Plaintiffs' Claims

Text: Failure to exhaust administrative remedies is a defect in subject matter jurisdiction. M-Plan, Inc. v. Ind. Comprehensive Health Ins. Ass'n, 809 N.E.2d 834, 837 (Ind.2004) (citing Austin Lakes Joint Venture v. Avon Utils., Inc., 648 N.E.2d 641, 644 (Ind.1995)). Accordingly, the trial court was without jurisdiction to entertain this claim, and a writ of prohibition is properly requested. State v. Allen Superior Court, 699 N.E.2d 1134, 1135 (Ind.1998). Plaintiffs request us to address the merits of their contentions, even if the trial court lacked jurisdiction. We agree we should do so. The issues have been fully briefed by the parties and by the intervenors, and a resolution of the merits of these contentions is in the public interest.
Both Section 22 and Section 23 of Article IV of the Indiana Constitution prohibit special legislation under some circumstances. Plaintiffs contend that the statutes providing for DLGF to assess industrial property and for private contractors to be hired to assess residential property are local or special legislation as that term is used in both sections. We agree that these laws are special for purposes of Article IV. The statutes authorizing the 2002 reassessments by their terms applied only in counties of population between 400,000 and 700,000, and Lake County is the only such county. To be sure, some statutes applicable only to areas with specified populations may be justifiable as special legislation, because the parameters rationally relate to the subject matter of the legislation. They may also be viewed as general legislation if the subject matter is one that is rationally related to population, such as the basic structure of local government. So, as we observed in City of South Bend v. Kimsey, 781 N.E.2d 683, 694 (Ind.2003), the Unigov statute, which applies only to counties with cities of the first class, and therefore only to counties with cities of certain size, may properly be viewed as a general law even if it applies in practice in only one place. By hooking the defining characteristic (in Unigov a city of the first class) to the justifying characteristic (rational desire for more expansive and encompassing form of metropolitan government), legislation applicable in only one county may over time become applicable in others. Here however, the apparent reasons for limiting the application of the statutes in question are not related to population. Rather, they plainly derive from the troubled history of property taxation in Lake County discussed below. Thus, the rationale for population-based statutes relating to the organization of local government do not apply here, and the law, applicable only in Lake County, is special legislation whether it describes Lake County by name, by population parameters, or by some other unique characteristic. Id. at 692.
Article IV, Section 22 provides a list of subjects as to which local or special laws are prohibited. Among these are laws providing for the assessment and collection of taxes.... The State argues that Section 22 does not apply to the statutes in question here because the Section is written in the conjunctive, prohibiting local laws that provide for the assessment and collection of taxes. Because there is no collection aspect to these laws, the State contends Section 22 is inapplicable. We do not agree. The constitutional debates make clear that lack of uniform assessment practices was one of the principal concerns underlying both Article X, Section 1, and Article IV, Section 22. See, e.g., Report of the Debates and Proceedings of the Convention for the Revision of the Constitution of the State of Indiana, Vol. II at 1290 (1850), where Douglass Maguire, a delegate from Marion County, finding great inequality in the assessment and taxation of property, called for checks upon county assessors through a Board of Equalization to value all real property on an equal basis. Although and is normally taken as conjunctive, it may be read as disjunctive if the context makes clear that is the legislative intent. See, e.g., State v. Myers, 146 Ind. 36, 38, 44 N.E. 801, 801-02 (1896); Brook v. State, 448 N.E.2d 1249, 1251 (Ind.Ct.App.1983). We think the history of Section 22 makes clear that it was addressed to local laws dealing with either assessment of property or collection of taxes, or both. Section 22 had no counterpart in the 1816 Constitution and appeared for the first time in the Indiana Constitution as a result of the 1851 Constitutional Convention. It was the product of widespread dissatisfaction with the large number of laws passed by the legislature in the early days of this State dealing with purely local subjects. Many of these imposed or authorized local taxes for specific projects, typically roads or schools. Others addressed a variety of other special and local interests, even granting divorces. To assess property is to value it. Merriam Webster's Collegiate Dictionary 69 (10th ed.1993). To assess a tax is to impose it. Id. Thus, as a matter of syntax, Section 22's reference to laws providing for the assessment and collection of taxes may be read to deal only with laws passed for the imposition or collection of taxes, and not the valuation of property for tax purposes. However, in State v. Hoovler, 668 N.E.2d 1229 (Ind.1996), we addressed a claim that Section 22 prohibited a statute raising the maximum local county option income tax rate to 1 .25% in Tippecanoe County from the 0.7% rate applicable statewide. The effect was to permit county authorities to adopt an additional 0.55% local income tax. After a review of the historical roots of Section 22, this Court held that this statute, though a local law, did not violate Section 22 because it did not authorize any new property valuations or changes in the system of tax gathering. Id. at 1233. The authorization of an increase in the rate of an existing tax was not the assessment and collection of a tax. Indeed, we specifically referred to a dictionary of the time, noting that assessment includes valuation of property... for purpose of taxation. Id. Hoovler thus made clear that local laws dealing with assessment of property for tax purposes were prohibited by Section 22. This is of course consistent with the history of Section 22, as variations in assessment procedures were the most frequently cited reasons for the need for constitutional limits on local legislation. Accordingly, we agree with plaintiffs that these provisions constitute special legislation providing for the assessment and collection of taxes, and therefore violate Article IV, Section 22 of the Indiana Constitution. For the reasons explained in Parts III and IV, however, the reassessments conducted under these statutes are not invalid by reason of this flaw in the statutes.
Plaintiffs contend these laws also violate Article IV, Section 23, which requires that where a general law can be made applicable, all laws shall be general, and of uniform operation throughout the State. As we held in Kimsey, under Section 23, a law limited to a given county is prohibited unless there are inherent characteristics of the affected locale that justify local legislation. Kimsey, 781 N.E.2d at 692. If the affected county reflects unique circumstances that rationally justify the legislation, then a general law is not applicable elsewhere and Section 23 is not violated. Id. The State points to the long and tortured history of property taxation in Lake County, described in Matonovich v. State Bd. of Tax Comm'rs, 705 N.E.2d 1093, 1095 (Ind. Tax Ct.1999) as an endemic problem with the uniformity of assessments within classes of property. As explained above, if some parts of a county significantly underassess properties compared to the assessed valuations placed on similar properties elsewhere, the effect is to shift tax burdens from the underassessed properties. Indeed, that was the complaint of the town of St. John, which is in Lake County, that led to the initial holding that the then-prevailing true tax value system of assessment did not produce a uniform and equal method of assessment in violation of Article X, Section 1 of the Indiana Constitution. Boehm v. Town of St. John, 675 N.E.2d 318, 324 (Ind.1996). Until 2001, the State Tax Board had the functions of both the Board of Tax Review and the DLGF. In 1998, the State Board had concluded, after public hearings, that widespread underassessment in various units of Lake County required ordering a countywide reassessment, and had employed a private contractor to reassess all property in Lake County. Though noting the State Board's finding that there was a widespread recognition that an assessment problem exists in Lake County, the Tax Court concluded that the Board had no authority to employ a private firm to perform the reassessment. Matonovich, 705 N.E.2d at 1098. In response to that decision, the General Assembly promptly granted the Board the authority the Tax Court found lacking by enacting the statutes Plaintiffs challenge in this case. We thus have administrative findings, judicial findings, and legislative action all pointing to a unique circumstance created by uneven assessment practices in various parts of Lake County. And, as Plaintiffs point out, a few huge industrial complexes in Lake County constitute significant percentages of all taxable property in some taxing districts, a situation not faced in any other county, and requiring great care in valuing such a dominant asset of unique kind and character for which there is no ready market comparable to that for residential housing. We are directed to no comparable set of circumstances in any other county producing such widespread tax inequities and unusual issues of valuation. These conditions readily justify local legislation to deal with a reassessment problem of a scale and complexity not found elsewhere in the state.
Plaintiffs contend without much explanation that these statutes violate Article X, Section 1 of the Indiana Constitution. That section requires a uniform and equal rate of property assessment and taxation. We have held that the system of property taxation must be based on a system that causes each taxpayer's property wealth bear its proportion of the overall property tax burden. Town of St. John, 675 N.E.2d at 324. There is no basis to conclude that the statutes in question produce a disproportionate assessment. Different procedures to accomplish a reassessment based on the same substantive rules of valuation do not violate that provision. Indeed, this Court has held that the goal of statewide uniformity and proportionality trumps a local government's authority to value property. Zoercher v. Agler, 202 Ind. 214, 225-26, 172 N.E. 186, 190-91 (1930). The end result  a uniform and equal rate of assessment  is required, but there is no requirement of uniform procedures to arrive at that rate. To the contrary, the power of local authorities to implement tax laws is purely statutory in nature. The only constitutional constraint under Article X, Section 1 is upon the State itself, which must provide a uniform and equal rate of assessment, but may provide whatever procedures are appropriate consistent with the other provisions of the Constitution. For the same reason that these statutes do not violate Article IV, Section 23, they also do not violate Article I, Section 23, which requires that legislative classifications be reasonably related to inherent characteristics that define the class. Plaintiffs do not elaborate on these claims and we are left to surmise what the classification may be. Taking the complaint at face value, the class appears to be Lake County taxpayers compared to those in all other counties. As explained above, given the long history of systematic underassessment in parts of Lake County, there is abundant reason to provide for reassessment of property in that county by means different from those applied in other counties. The statutes thus satisfy the first prong of the requirements of Article I, Section 23. The separate treatment of Lake County is reasonably related to its distinguishing characteristics. Collins v. Day, 644 N.E.2d 72, 80 (Ind.1994). Plaintiffs also advance an argument, not clearly tied to any specific constitutional provision, the substance of which is that local assessors would recognize the adverse effect that lowering valuations of industrial properties would have on some residential properties. This is compounded, plaintiffs say, by the fact that this reassessment was performed by two different agencies, private contractors for residential properties and DLGF for industrial property. They claim a constitutional right to have locally elected officials perform the assessments. There are several things wrong with this claim. First, valuations, whether made by local authorities or by others, are as of March 1 of a given year. Any shift in valuations caused by tax bills in the future is a matter for future reassessments. Second, this argument boils down to a claim that these plaintiffs have a right to preferential treatment under the property tax laws. That is precisely the contention rejected by other taxpayers, including the residents of St. John, who felt disadvantaged by selective underassessments in parts of Lake County and claimed those disparities violated their rights to uniform and equal taxation. Without a showing that the substantive results reached by the reassessments are incorrect, we will not indulge the assumption that local officials would arrive at a different result. Finally, there is nothing in the Constitution that guarantees an assessment by locally elected officials. The clerk of the circuit court, auditor, recorder, treasurer, sheriff, coroner, and surveyor are required by Article VI, Section 2 to be elected, in each county. There is no such requirement as to assessors. Indeed, at some points in the history of this state the disparities created by local assessors responding to local election pressures created demand for a statewide equalization board to eliminate the resulting unfairness. Justin E. Walsh, The Centennial History of the Indiana General Assembly 1816-1978, 102-04 (1987). Plaintiffs' claim that these statutes violate Article I, Section 21 against taking of property without compensation is frivolous. It is well established that taxation is not a taking within the meaning of this provision. Hutchins v. Town of Fremont, 194 Ind. 74, 83, 142 N.E. 3, 6 (1924); Bd. of Comm'rs of Jackson v. State, 147 Ind. 476, 492, 46 N.E. 908, 912 (1897); 5A Ind. Law Encyclopedia, Constitutional Law § 446, at 427 (1984). The properties remain in the hands of the owners, and their use is unaffected by the reassessment. Finally, Plaintiffs advance a number of arguments questioning the wisdom of the legislation, but raise no constitutional issue. For example, they claim that local authorities should be given the opportunity to perform the assessments. They also question the lack of taxpayer awareness of the effect of reassessment based on the fact that many homes are mortgaged and the mortgagees, as escrow agents, receive the tax notices. These claims present no legal issue. The policy arguments must be directed to the General Assembly, not this Court. Plaintiffs' other claims, such as the unconstitutionality of the homestead tax credit, were not presented to the trial court and are not available on appeal.