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Tuesday, November 15, 2011

Sewer Tax Discrimination Case to be Decided by Supreme Court

The U.S. Supreme Court will hear the appeal of a tax discrimination case against the City of Indianapolis in Armour, et al., v. Indianapolis, et al.  This case grows out of sewer tax assessments on residents of the Northern Estates subdivision.   When the City made plans for a new sanitary sewer project, it provided homeowners with the option of paying the taxes up-front or by way of an installment plan over a period of years.  Owners of 31 parcels opted to pay the entire amount up-front, while the remaining subdivision owners chose to pay the sewer tax in installments.

Subsequently, the City Council adopted a new plan to finance the sewer project that would impose a flat fee per dwelling to connect to the sewer system.  In adopting the new plan, the City abandoned the existing tax assessment system and decided to forgive all assessment amounts that remained due from the homeowners.  As a result, the owners of 142 parcels in the Northern Estates Subdivision no longer needed to pay any more installments of the assessments.  The 31 owners who had paid the sewer assessments up-front requested that the City refund those assessments, and when the City refused, the homeowners brought suit. 

The Indiana Supreme Court ruled in favor of the City, holding that the City did not violate the Equal Protection Clause because forgiving only the outstanding assessment balances was rationally related to a legitimate governmental interest.  The Indiana Court accepted the City's justifications for the new financing plan, including that (1) the original financing plan imposed financial hardships on middle- and low-income property owners who were in need of sanitary sewers due to failing septic systems and (2) the owners who had paid the sewer assessments up-front were financially better off so the two groups of owners (those who paid up-front and those who opted for the installment plan) were not on equal legal footing and did not need to be treated equally.

This case should be of interest to municipalities in setting taxing and other assessment rates that might differ between classes of people or properties.   

UPDATE 2/29/2012:  The Supreme Court heard oral argument in this case today.  A copy of the transcript can be found here.


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