The Supreme Court takes bureaucratic hassle into account when making tax refund decisions.
The Court ruled in a 6-3 decision on Monday that Indianapolis does not have to refund sewer project costs assessed to residents who ended up paying more than their neighbors due to a change in the City’s financing plans, because the City had a rational basis for distinguishing between property owners who had already paid their share of project costs and those who had not, reports The Washington Post.
The rational basis, in this case, is that it would be an expensive administrative nightmare to rectify the situation.
For decades, Indianapolis funded sewer projects using Indiana’s Barrett Law, which permitted cities to apportion a public improvement project’s costs equally among all abutting lots. Under that system, a city would create an initial assessment, dividing the total estimated cost by the number of lots and making any necessary adjustments. Upon a project’s completion, the city would issue a final lot-by-lot assessment.
Lot owners could elect to pay the assessment in a lump sum or over time in installments.
After the City completed the Brisbane/Manning Sanitary Sewers Project, it sent affected homeowners formal notice of their payment obligations. Of the 180 affected homeowners, 38 elected to pay the lump sum, $9,278, up front.
The following year, the City abandoned Barrett Law financing and adopted the Septic Tank Elimination Program (STEP), which financed projects in part through bonds, thereby lowering individual owner’s sewer-connection costs. By that point, some people had paid as little as $309, and more than a quarter of affected properties had paid less than $1,000, reports The Washington Post.
Homeowners who had paid the Brisbane/Manning Project lump sum received no refund, while homeowners who had elected to pay in installments were under no obligation to make further payments.
The 38 homeowners who paid the lump sum asked the City for a refund, but the City denied the request. Thirty-one of these homeowners sued claiming, in relevant part, that the City’s refusal was an Equal Protection violation, reports CNN. The Supreme Court disagreed, finding that administrative considerations can justify a tax-related distinction, therefore Indianapolis had a rational basis for its decision.
Chief Justice John Roberts, joined by Justices Antonin Scalia and Samuel Alito, dissented, finding that such a “gross disparity” in tax levels could not be justified in a state system that demanded that “taxation … be equal and uniform.”
- Armour v. Indianapolis (FindLaw’s CaseLaw)
- Refusal to Refund Sewer Assessments is Not Equal Protection Violation, Supreme Court Holds (Journal of Accountancy)
- Credit Bids and Cramdown Provisions: Court Rules in RadLAX (FindLaw’s Supreme Court Blog)