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Supreme Court Rules That Cities Have The Ability To Forgive Future Tax Payments Without Violating Equal Protection

In a case that could impact the future tax policy of municipal governments, the U.S. Supreme Court ruled today that the city of Indianapolis did not violate the Equal Protection Clause of the 14th Amendment to the U.S. Constitution when it decided to forgive future property tax obligations for certain taxpayers, but refused to the refund the payments made by other taxpayers for the same assessments.

In the case of Armour v. City of Indianapolis, the high court ruled by a 6-3 vote that authorities in Indianapolis had not violated the Constitution in their handling of a special sewer tax originally levied in 2004.  Property owners who paid the tax in one lump sum became upset when the city decided to forgive the obligations of those who chose to pay the tax in monthly installments, with interest, over a period of years.  Citing the high administrative costs of the previous policy, the city decided that homeowners would instead pay a reduced flat fee to connect to the sewer line, with the city making up the difference through bonds.  The property owners who had paid in full sued the city when it refused their demands for a refund.

Writing for the majority, Associate Justice Stephen Breyer held that it was acceptable for the city to draw a line between past tax payments and future tax obligations.  “Distinguishing past payments from future obligations is a line well known to the law,” said Breyer.  “Sometimes such a line takes the form of an amnesty program, involving, say, mortgage payments, taxes or parking tickets.  Even if petitioners have found a superior system, the Constitution does not require the city to draw the perfect line nor even to draw a line superior to some other line it might have drawn.  It requires only that the line actually drawn be a rational line.”  Breyer also noted that the tax classification did not involve a fundamental right or a suspect classification, nor did the city discriminate against out-of-state commerce or new residents.

In his dissent, Chief Justice John Roberts said the court was wrong to endorse such a gross disparity in tax treatment, which caused some citizens to pay 10 to 30 times more than their neighbors for the same benefit.  “The equal protection violation is plain,” he said, in an opinion joined by Justices Samuel Alito and Antonin Scalia.