ATTORNEYS FOR APPELLANT ATTORNEYS FOR APPELLEE
THOMAS H. BUSCH THOMAS M. ATHERTON
DAVID W. LUHMAN OFFER KORIN
Hoffman, Luhman & Busch, P.C. G. JOHN CENTO
Lafayette, IN Katz & Korin, P.C.
Indianapolis, IN
MARK J. COLUCCI
Kroger, Gardis, & Regas, LLP
Indianapolis, IN
ATTORNEY FOR AMICUS CURIAE
BRIAN P. POPP
Laszlo & Popp, P.C.
Merrillville, IN
IN THE
SUPREME COURT OF INDIANA
TIPPECANOE COUNTY, et al., )
)
Appellants (Defendants), ) Supreme Court Cause No.
) 79S02-0202-CV-118
)
v. ) Court of Appeals Cause No.
) 79A02-0201-CV-56
INDIANA MANUFACTURER’S ASSOCIATION, )
et al., )
)
Appellees (Plaintiffs). )
____________________________________________________________________________
__
APPEAL FROM THE TIPPECANOE SUPERIOR COURT
The Honorable Donald C. Johnson, Judge
Cause No. 79D01-0104-CP-220
March 6, 2003
SHEPARD, Chief Justice
Certain taxpayers challenged Tippecanoe County’s authority to hire a
firm on a commission basis to audit personal property returns. The trial
court held that the County lacked authority to take this action, that the
arrangement violated confidentiality statutes, and that the contingency fee
was impermissible. We reverse.
Facts and Procedural History
Indiana businesses self-report their taxable personal property
annually. Such property is a substantial part of the tax base; In
Tippecanoe County, it constitutes over thirty percent of total assessed
property value.
Personal property returns are subject to audit, but by the year 2000,
Tippecanoe County had not scrutinized any of these returns for seventeen
years due to lack of staff expertise. In January 2000, the State Board of
Tax Commissioners[1] notified county assessors that it had reduced its
personal property auditing efforts, and encouraged local officials to
undertake their own programs using either staff or outside firms.[2]
Tax Management Associates, Inc. (TMA) specializes in this service.
The County hired TMA to audit 1999 and 2000 returns that reflected personal
property greater than $50,000, for a fee of thirty-five percent of
collections resulting from the audits. This fee covered TMA’s expenses,
including traveling to other states to examine accounting records as
necessary.
Taxpayers selected for audit received letters signed by the county
assessor, advising them that TMA staff would be in touch to schedule audits
and asking for cooperation in providing relevant records. Certain
Taxpayers asked the Tippecanoe Superior Court to enjoin this procedure. On
cross-motions for summary judgment, the trial court gave the Taxpayers
judgment in their favor on all claims. We accepted jurisdiction of the
resulting appeal under Indiana Appellate Rule 56(A).
Arriving here without any facts in dispute, this appeal presents only
questions of law, which we review de novo. Carie v. PSI Energy, Inc., 715
N.E.2d 853 (Ind. 1999). We read statutes as a whole to determine
legislative intent. See Superior Const. Co. v. Carr, 564 N.E.2d 281 (Ind.
1990).
I. County’s Authority to Hire Contractors: Dillon Rule Abolished
There was a time when municipal law in most of the country was
dominated by the Dillon Rule, which was:
[A] municipal corporation possesses, and can exercise, the following
powers, and no others: First, those granted in express words; second,
those necessarily or fairly implied in, or incident to, the powers
expressly granted; third, those essential to the declared objects and
purposes of the corporation – not simply convenient, but
indispensable. Any fair, reasonable doubt concerning the existence of
power is resolved by the courts against the corporation, and the power
is denied.
Dillon, Municipal Corporations (1st ed. 1872) (emphasis in original).
Indiana embraced Judge Dillon’s views on this narrow approach to
implied powers, with its presumption against existence of powers not
explicitly granted by statute, virtually from the publication of his
treatise until well into modern times. See Higert v. City of Greencastle,
43 Ind. 574 (1873); Pittsburgh, C., C. & St. L. Ry. Co. v. Town of Crown
Point, 146 Ind. 421, 45 N.E. 587 (1896); City of South Bend v. Krovitch,
149 Ind. App. 438, 273 N.E.2d 288 (1971).[3]
Indeed, this Court sometimes cited Judge Dillon’s treatise in voiding
various arrangements local officials used to audit or collect taxes. See,
e.g.. City of Ft. Wayne v. Lehr, 88 Ind. 62, 65 (1882) (city cannot employ
deputy to collect taxes); Miller v. Embree, 88 Ind. 133 (1882) (county
cannot pay attorney to assist treasurer in collections). The legislature
thereafter wrote new statutes to sanction such arrangements. [4]
The legal regimes of municipal law today are completely different.
In 1971, our General Assembly reversed the Dillon Rule when it adopted the
Powers of Cities Act. Acts 1971, P.L. 250. In 1980, it put a stake
through the heart of the Dillon Rule by adopting the Home Rule Act, Ind.
Code §§ 36-1-3-1 to -9 (Burns 1981), which remains in effect today.
Under the Home Rule Act, “[t]he policy of the state is to grant
[counties, municipalities and townships] all the powers that they need for
the effective operation of government as to local affairs.” Ind. Code Ann.
§ 36-1-3-2 (West 1997); see also Ind. Code Ann. § 36-1-2-23 (West 1997).
Such entities possess, in addition to powers granted by statute, “all other
powers necessary or desirable in the conduct of [their] affairs, even
though not granted by statute.” Ind. Code Ann. § 36-1-3-4(b)(2) (West
1997) (emphasis added).
The traditional presumption regarding implied power has been
reversed, so that now “[a]ny doubt as to the existence of a power of a
[county, township, or municipality] shall be resolved in favor of its
existence.” Ind. Code Ann. § 36-1-3-3(b) (West 1997). The most
significant limitation is that these entities must comply with any
statutory provisions requiring that a power be exercised in a specific
manner. See Ind. Code Ann. § 36-1-3-6(a) (West 1997). [5]
Taxpayers therefore take too “Dillonish” an approach when they argue
that Ind. Code Ann. § 6-1.1-3-14 (West 2000)[6] gives township assessors
exclusive power to audit personal property tax returns. (Appellees’ Br. at
9.) A statute imposing responsibility on township assessors to review
personal property tax returns does not diminish the presumed power of other
local officials who share responsibility for personal property taxation to
conduct audits.
Moreover, Taxpayers’ argument ignores Ind. Code Ann. § 6-1.1-36-12
(West 2000), which explicitly recognizes a county’s auditing authority, as
well as the power to delegate that authority:
If a board of county commissioners enters into a contract for the
discovery of property which has been omitted from assessment, the
investigation and collection expenses shall be deducted from the gross
amount of taxes collected on the omitted property which is so
discovered. The remainder of the taxes collected on the omitted
property shall be distributed to the appropriate taxing units.
Taxpayers interpret this section to mean that TMA may only audit for
omitted, not undervalued, property. (Appellees’ Br. at 12.) Again, this
is too Dillonish a reading. The express statutory power to contract out
audits for omitted personal property does not preclude the implied power to
do the same for undervalued property.
Moreover, public policy favors the power to audit for undervalued
property. Prior to the trial court’s ruling in favor of the Taxpayers, TMA
had discovered $61 million in omissions and/or under-valuations by seventy-
four taxpayers. (Pet. Trans. Exh. A.) This translated into over $3.6
million in additional tax assessments for the forty-two taxpayers billed
before the trial court’s ruling halted the process. (Id.)
II. Does It Breach Confidentiality ?
Taxpayers’ second claim relies on Indiana Code Ann. § 6-1.1-35-9
(West 2000), which says in relevant part:
(a) All information which is related to earnings, income, profits,
losses, or expenditures and which is either given by a person to
an assessing official, a member of a county property tax
assessment board of appeals, a county assessor, or one (1) of
their employees or acquired by an assessing official, a member
of a county property tax assessment board of appeals, a county
assessor, or one (1) of their employees in the performance of
his duties is confidential. The assessed valuation of tangible
property is a matter of public record and is thus not
confidential. Confidential information may be disclosed only in
a manner which is authorized under subsection (b), (c), or (d).
(b) Confidential information may be disclosed to an official or
employee of:
1) this state or another state;
2) the United States; or
3) an agency or subdivision of this state, another state, or
the United States;
if the information is required in the performance of his
official duties.
Taxpayers argue that this statute precludes disclosure to TMA of
their personal property tax returns and the charts of accounts, trial
balances, and other records needed to audit those returns. (Appellees’ Br.
at 20-36.) Again, we find this too narrow a reading, as it would
effectively foreclose local officials from exercising their implicit
auditing power in a manner specifically contemplated by the legislature in
Ind. Code § 6-1.1-36-12.
Furthermore, Article 1.1 (“Property Taxes”) refers to “employing”
such third parties as technical advisors and professional appraisal firms.
See Ind. Code Ann. § 6-1.1-4-16 (West 2000) (county and township assessors
may “employ” technical advisors to determine real property values); § 6-1.1-
33-4 (division of tax review may “employ” professional appraisal firms to
assist in making test checks of property valuations). We therefore
conclude that in the overall context of Article 1.1, and viewed against the
backdrop of our home rule scheme, disclosure of such information to a firm
retained by a county to audit property tax returns does not violate the
confidentiality statute.
Taxpayers also assert that they should not be required to disclose
confidential information to firms such as TMA because those firms are not
subject to the same sanctions for improper disclosure as governmental
employees. (Appellees’ Br. at 29-31.) Under Indiana Code Ann. § 5-14-3-10
(West 2000), however, TMA employees could commit class A misdemeanors by
violating the confidentiality of records reviewed during the course of
Indiana personal property tax audits.
III. The Commission Arrangement
Taxpayers invoke public policy and state and federal constitutional
due process provisions in arguing that TMA is not sufficiently impartial to
perform an essentially judicial function because of its percentage fee
arrangement.[7] (See Appellees’ Br. at 36-49.)
The Appellate Court elegantly addressed this public policy argument a
century ago:
It is not only the policy, but the spirit, of the law that all
property, both real and personal, which is subject to taxation, shall
bear its proportionate share of the public burden, and public policy
demands that every taxpayer contribute his just proportion to the
expenses of government. . . . [I]f the law authorizes any method of
discovering such property so it may be taxed, the efforts of public
officers in securing that result should be encouraged and upheld.
Though a percentage of the amount thus collected and covered into the
public treasury is paid for ferreting out and discovering the
property, still the public is benefited, and the burden of taxation is
equalized to the amount remaining in the treasury after such payment;
otherwise such property would wholly escape taxation, and nothing
would be taken from the burden of the honest property owner who
returns all of his property to be taxed.
Fleener v. Litsey, 30 Ind. App. at 404-05, 66 N.E. at 84.
As to the constitutional arguments, we conclude that TMA’s role was
not sufficiently judicial in nature to render the commission arrangement
impermissible. Tippecanoe County officials selected which returns to
audit, i.e., all those showing over $50,000 of personal property. The
county assessor retained and exercised the responsibility and authority to
make all significant judgment calls concerning potential adjustments noted
by TMA, such as whether a piece of equipment reported by a taxpayer as a
“special tool” qualified under guidelines provided by the State Board of
Tax Commissioners.
All notices to taxpayers came from the county assessor. At the time
of this case, taxpayers could appeal assessment revisions to their local
property tax assessment board of appeals, then to the State Board of Tax
Commissioners, and then to the Indiana Tax Court. Ind. Code Ann. § 6-1.1-
15-1 (West 2000) (appeal to county board); § 6-1.1-15-3 (review by state
board of tax commissioners); § 6-1.1-15-5 (appeal to tax court).
The central decisions affecting Taxpayers are sufficiently within the
hands of local officials that the commission arrangement does not violate
due process.
Conclusion
We reverse the trial court and direct summary judgment in favor of
the County.
DICKSON, SULLIVAN, BOEHM, and RUCKER, JJ., concur.
-----------------------
[1] Effective January 1, 2002, the Board’s responsibilities were divided
between two newly-created agencies: the Department of Local Government
Finance, which has tax collection authority (See Ind. Code Ann. §§ 6-1.1-30-
1.1, 14 (Burns 2001)), and the Indiana Board of Tax Review, which will
review property tax appeals (See Ind. Code Ann. §§ 6-1.5-1-3, 4-1 (Burns
2001)).
[2] People engaged for this purpose are sometimes called “tax ferrets.” See
Fleener v. Litsey, 30 Ind. App. 399, 404, 66 N.E. 82, 84 (1903).
[3] In Krovitch, Judge Robertson said that local autonomy was in “a state
of practical non-existence.” 149 Ind. App. at 444, 273 N.E.2d at 291.
[4] Though our Court has voided some specific arrangements for tax
collection, we also acknowledged that it became lawful in 1891 for a tax
officer to employ anyone to discover omitted tax property. See City of
Richmond v. Dickinson, 155 Ind. 345, 58 N.E. 260, 262 (Ind. 1900) (Section
147 of the general tax law of 1881 was quite specific about who could
perform the audits. “No person other than the official provided for in this
law shall be employed by the county commissioners to discover omitted
property.” However, the amendment of 1891, which repealed the 1881 law,
did not include this sentence. Thus, it became lawful for the official
(i.e., the auditor) to engage assistants for gathering information about
the omitted property.)
[5] In its 2002 session, the General Assembly enacted explicit legislation
to allow counties to hire outside firms to audit personal property records
without violating confidentiality statutes, but prohibiting fees based on a
percentage of collections. See P.L. 178-2002 §§ 37-39. We recently said:
[A]n amendment changing a prior statute indicates a legislative
intention that the meaning of the statute has changed. Such an
amendment raises the presumption that the legislature intended to
change the law unless it clearly appears that the amendment was passed
in order to express the original intent more clearly.
United Nat’l Ins. Co. v. DePrizio, 705 N.E.2d 455, 460 (Ind. 1999)
(citations omitted). It is unclear whether the legislature viewed the
amendment as clarifying earlier provisions or changing substantive law. In
any event, the contracts and tax years in this case all pre-date the new
law. We then interpret the relevant statutes as they existed at the time
this case arose.
[6] “The township assessor shall examine and verify the accuracy of each
personal property return filed with him by a taxpayer. If appropriate, the
assessor shall compare a return with the books of the taxpayer and with
personal property owned, held, possessed, controlled, or occupied by the
taxpayer.”
[7] This arrangement complies with Ind. Code § 6-1.1-36-12, which requires
that “tax ferret” fees for discovering omitted property come out of
collections generated. Contingent fees are therefore not only within the
contemplation of the statute, they are the only means of compensation
allowed for at least some of the additional assessments arising out of
TMA’s auditing efforts.