Taxpayers Win One in Ohio, Lose One in Indiana

June 5, 2012

Our Center for Legal Reform authors reports and court briefs to promote simple, neutral, transparent, and stable tax policies. Two of our cases had decisions handed down in the past week.

Taxpayers in Warren County, Ohio will see refunds from “impact fees” paid under protest, after the Ohio Supreme Court last Thursday unanimously struck them down. The Court agreed with our amicus brief (jointly authored with Ohio’s 1851 Center for Constitutional Law), concluding that because the revenue was used for general government spending benefiting the entire community, these “fees” were actually taxes. Because Warren County is not empowered to collect such taxes, they were invalidated. The case is Drees Co. v. Hamilton Township.

Taxpayers lost one in the U.S. Supreme Court yesterday, however, in Armour v. City of Indianapolis. Surprising most observers, the Court ruled 6-3 that taxpayers who paid a canceled tax are not entitled to refunds. (We submitted an amicus brief urging the Court to rule otherwise.) The majority opinion, authored by Justice Stephen Breyer, found that the City can refund some taxpayers but not others if it can assert a conceivable administrative concern. A past decision that went the other way, Allegheny Pittsburgh Coal v. Webster County Commission (which involved gross disparities in tax treatment), was waved aside. The opinion unfortunately gives states wide latitude to adopt unequal tax refund policies, even where there is a strong perception of unfairness and arbitrariness.

Chief Justice Roberts authored a dissenting opinion for himself, Justice Antonin Scalia, and Justice Samuel Alito. They rejected the City’s administrative concerns, noting that the City already has records of how much each taxpayer would be refunded. They note, however, that the Court declined to adopt the City’s rationale that paying out refunds would be “fiscally challenging.”

It may be interesting to know that Justices Anthony Kennedy and Clarence Thomas were in the majority. Kennedy, as the senior justice in the majority, presumably assigned the case to Breyer to write in the knowledge that Breyer would produce such a deferential opinion. Thomas’s rationale is more circumspect, given that he characteristically stayed silent during oral argument. Sharp observers had noted that Justice Thomas had expressed discomfort in a 1992 case, Nordlinger v. Hahn, with federal judicial involvement in state tax equal protection claims that had been endorsed in Allegheny Pittsburgh Coal.

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