State Board of Tax Commissioners v. Ispat Inland, Inc.

ATTORNEYS FOR APPELLANT ATTORNEYS FOR APPELLEE

STEVE CARTER FRANCINA A. DLOUHY

Attorney General of Indiana JAMES H. HAM, III

Baker & Daniels

NANDITA G. SHEPHERD Indianapolis, IN

Deputy Attorney General of Indiana

Office of the Attorney General ATTORNEY FOR AMICUS CURIAE
Indianapolis, IN
MARK J. COLUCCI

BRIAN P. POPP Kroger Gardis & Regas, LLP

Laszlo & Popp, LLP Indianapolis, IN
Merrillville, IN
.

CHARLES C. MEEKER

Parker, Poe, Adams, & Bernstein, LLP
Raleigh, NC

IN THE

SUPREME COURT OF INDIANA

STATE BOARD OF TAX COMMISSIONERS, )
ET AL.
)
)
Appellants (Respondents below), ) Supreme Court Cause No.
) 49S10-0206-TA-349
v. )
)
ISPAT INLAND, INC. )
)
Appellee (Petitioner below). )

____________________________________________________________________________
__

APPEAL FROM THE INDIANA TAX COURT
The Honorable Thomas G. Fisher, Judge
Cause No. 49T10-0107-TA-74

March 6, 2003

SHEPARD, Chief Justice

A taxpayer protested because the local assessor outsourced a personal
property audit to a third party contractor. It sought relief in the
Indiana Tax Court. The Tax Court rejected a challenge to its subject
matter jurisdiction and enjoined the county from proceeding with the
audits.

Applying standard principles of statutory construction and
administrative law, we hold that the Tax Court does not have subject matter
jurisdiction to enjoin an audit being pursued by the assessor’s contractor.
We therefore reverse.

Facts and Procedural History

Ispat Inland, Inc. (“Ispat”) owns and manages Inland Steel Company, an
integrated steel mill in Lake County that Ispat purchased in 1998. Ispat
filed a business personal property return in June 2000, reporting the
tangible personal property located at the mill.

The Lake County Board of Commissioners (“County”) contracted with a
North Carolina accounting firm, Tax Management Associates, Inc. (“TMA”), to
perform various “audits to verify the accuracy of taxpayers’ listings of
personal property for the ad valorem taxation.” Pursuant to its contract
with TMA, the County specifically sought to have TMA conduct an audit of
Ispat’s business personal property tax returns. The County wanted to audit
Ispat’s return because it was concerned that Ispat “appear[ed] to have
allocated less than forty 40% of the purchase price [of Inland steel] to
machinery and equipment while [m]achinery and equipment of large
manufacturers typically compromise sixty percent (60%) to seventy-five
percent (75%) of a business’ assets”. (Resp’t State Board of Tax Commr’s
Br. at 3.)

In early February 2001, the Lake County Assessor’s office (“Assessor”)
called Ispat and requested that it contact TMA employee Tom Tucker.
Counsel for Ispat called Tucker, who stated he had a copy of Ispat’s 2000
personal property return and wanted to schedule an audit. Several days
after their phone conversation, Tucker sent Ispat’s counsel a list of
requested audit items.

Ispat’s counsel then wrote the Assessor questioning whether the
Assessor possessed authority to disclose confidential information to TMA
and its representative Tucker. The Assessor’s later reply recognized that
auditors like TMA were not referenced in the confidentiality statute, but
said the Assessor and TMA would treat all of Ispat’s information in a
confidential manner.[1]

Ispat continued to object. The Assessor sought and obtained guidance
from the State Board of Tax Commissioners (“State Board”) [2] on the
ability to contract with third parties and to disclose confidential
information to them. A senior administrative law judge with the State
Board opined that local government officials were allowed to contract with
third parties to conduct their official duties and could disclose
confidential information to those third parties in relation to the
contracted job. The Assessor then contacted Ispat and again demanded to
schedule an audit with TMA.

Ispat filed a petition with the State Board requesting that it
“interpret the property tax laws” under Ind. Code § 6-1.1-35-1 (1998)[3]
and instruct the Assessor that (1) his office could not conduct an audit of
Ispat’s 2000 personal property return because the statute of limitations to
change the assessment had expired; (2) the confidentiality statue precluded
the Assessor from disclosing Ispat’s confidential information to TMA or
TMA’s employees; and (3) he may not delegate his official duties regarding
business personal property taxes to contractors such as TMA. Ispat Inland,
Inc. v. State Bd. of Tax Comm’rs, 757 N.E.2d 1078, 1081-82 (Ind. Tax Ct.
2001). Ispat and Lake County each filed a brief with the State Board.

The Board thereafter issued its “Decision of the State Board of Tax
Commissioners.” It declared that the Assessor could hire contractors to
assist with audits. It reasoned that the “practical reality [is] that
local assessing officials lack sufficient expertise among their paid, full-
time staff to perform some auditing and similar tasks pertaining to
personal property assessment.” (Pet’r Injunction Ex.1 at 9-10.)

Ispat filed a tax appeal in the Tax Court. It sought to enjoin the
Assessor from disclosing Ispat’s confidential information to TMA and from
delegating his personal property authority to TMA. Conversely, the State
Board moved to dismiss the case for lack of subject matter jurisdiction.
The Tax Court concluded it had subject matter jurisdiction to hear the
appeal because Ispat’s appeal arises under Indiana tax law, the State Board
reached a final determination, and Ispat met the requirements for the
issuance of a permanent injunction. Ispat, 757 N.E.2d at 1083, 1086. Lake
County, the Assessor and the Board sought review here, which we granted
pursuant to Ind. Appellate Rule 63(A). [4] The matter arrives here,
without any disputed facts, as a pure question of law. We review these de
novo.

Subject Matter Jurisdiction

Courts that have subject matter jurisdiction of an action and which
have obtained jurisdiction of the parties have the power to hear and
determine such cases. State ex. rel. Public Service Comm’n. v. Marion
Circuit Court, 230 Ind. 277, 100 N.E.2d 888 (1951). Subject matter
jurisdiction is the power of the court to hear and decide a particular
class of cases. See Snelson v. State, 16 Ind. 29 (1861)[5]. If a court
does not have subject matter jurisdiction, any judgment that it renders is
void. Hoang v. Jamestown Homes, Inc., 768 N.E.2d 1029, 1032 (Ind. Ct. App.
2002).

Jurisdiction of the Tax Court

The statute creating the Indiana Tax Court grants it exclusive
jurisdiction over any case that arises under the tax laws of [Indiana] and
that is an initial appeal of “a final determination made by” the State
Board. Ind. Code § 33-3-5-2(a) (1996). We have defended the exclusivity
of its jurisdiction against encroachment, saying, for example: “[T]here is
no need to allow taxpayers to circumvent the exclusive jurisdiction of the
Tax Court over original tax appeals. With the removal of the requirement
that a tax be paid before it can be challenged in court, the adequacy of
the current administrative scheme is not open to question.” State v.
Sproles, 672 N.E.2d 1353, 1361-62 (Ind. 1996).

On the other hand, the legislature has been quite explicit in
providing that “[I]f a taxpayer fails to comply with any statutory
requirement for the initiation of an original tax appeal, the Tax Court
does not have jurisdiction to hear the appeal.” I.C. § 33-3-5-11(a), See
State Bd. of Tax Comm’rs v. Mixmill Mfg. Co., 702 N.E.2d 701, 702 (Ind.
1998).

Generally, two jurisdictional requirements must exist for the Tax
Court enabling statute to apply. First, the case must arise under the tax
laws of Indiana. Ind. Code § 33-3-5-2(a) (1996). Second, the case must be
an initial appeal of a final determination made by the appropriate agency,
the State Board in this case. Id.

This Court has interpreted the “arising under” jurisdictional language
in a broad manner. Sproles, 672 N.E.2d at 1357. In the present case, the
parties do not dispute that the case arises under the Indiana tax laws, as
the nucleus of the case is based on tax law. While the first
jurisdictional requirement is met, a dispute over tax law does not alone
grant jurisdiction. The central issue in this case is whether the State
Board issued a final determination.

Was this a Final Determination?

A final determination of the State Board for purposes of Tax Court
jurisdiction is an order that determines the rights of, or imposes
obligations on, the parties as a consummation of the administrative
process. Mills v. State Bd. of Tax Comm’rs, 639 N.E.2d 698, 701 (Ind. Tax
Ct. 1994). Pursuant to the State Board’s procedural rules, a final
determination is any action of the Board of Tax Commissioners or the
appeals division that is (1) designed as such by the Board of Tax
Commissioners or appeals division, (2) the final step in the administrative
process before resort may be made to the judiciary, or (3) deemed final
under I.C. § 6-1.1-15-4[6] and I.C. § 6-1.1-15-5[7]. We conclude that a
“final determination” in this setting is akin to a “final judgment” issued
by a court, which Ind. Appellate Rule 2(H)(1) defines as one that “disposes
of all claims as to all parties.”

The Tax Court used a very liberal interpretation, concluding that the
Board issued a final determination because no other administrative
proceeding occurred, the decision was signed by three of the Board’s
commissioners, and the decision determined the rights of and imposed
obligations on the parties. Ispat, 757 N.E.2d at 1083-84. It said that a
final determination is “an order that determines the rights of or imposes
obligations on the parties as a consummation of the administrative
process.” Ispat, 757 N.E.2d at 1083.

Ispat contends that the Board’s decision was a final determination as
opposed to, say, an advisory opinion, because the dispute involved a real
situation instead of a hypothetical one. (Pet’r Ispat Inland Br. at 10-
13.) The State Board is regularly engaged in providing guidance to local
officials at varying levels of formality from oral advice to published
manuals. While an advisory opinion may often be generated by less than
hypothetical situations, we have not found specific language that states an
advisory opinion may only address hypothetical situations. Nor have we
found any language that automatically transforms an advisory opinion into a
final determination.

On the other hand, Ispat argues that there are alternative methods to
reach a final determination and the Tax Court has used nontraditional paths
to reach a final determination in the past.[8] While there have been said
instances, we see no need to apply a nontraditional standard in the present
case, as the facts do not support a need for deviation. In effect, Ispat
argues that the Indiana Code should provide for “interlocutory appeals.”
It is not the law at the moment. A final determination requires the
completion of a two-part test, and Ispat has not satisfied the
requirements.

This is not to say that the taxpayer was without an alternative means
to obtain a final determination. Theoretically, Ispat had the option of
refusing the demand for an audit, in which case the machinery of the tax
system would produce appealable final determinations.[9]

The legislature’s declaration that the Tax Court may not hear an
appeal if the taxpayer “fails to comply with any statutory requirement for
the initiation of an original tax appeal,” Ind. Code § 33-3-5-11(a),
expresses a standard tenet of administrative law. Under Indiana law, if a
party is required by the Administrative Orders and Procedures Act to
exhaust its administrative remedies before an agency prior to obtaining
judicial review of the agency decision, courts are completely ousted of
subject matter jurisdiction to hear the case at all. Austin Lakes Joint
Venture v. Avon Utilities, Inc., 648 N.E.2d 641, 644 (Ind. 1995). A party
is not entitled to judicial relief for an alleged or threatened injury
until the prescribed administrative remedy has been exhausted. Id. (citing
Wilson v. Board of Indiana Employment Sec. Div., 270 Ind. 302, 305, 385
N.E.2d 438, 441 (Ind. 1979)).

In Sproles, 672 N.E.2d at 1358, we observed that the exhaustion
doctrine serves multiple objectives:

Premature litigation may be avoided, an adequate record for judicial
review may be compiled, and agencies retain the opportunity and
autonomy to correct their own errors. Even if the ground of complaint
is the unconstitutionality of the statute, which may be beyond the
agency’s power to resolve, exhaustion may still be required because
administrative action may resolve the case on other grounds without
confronting broader legal issues.

In a few exceptional instances, however, a party may gain judicial
review without satisfying the prerequisite. The leap is sometimes justified
where pursuit of administrative remedies would be futile, where strict
compliance would cause irreparable harm, and where the applicable statute
is alleged to be void on its face. Bellamy v. Gillis, 722 N.E.2d 905 (Ind.
Ct. App. 2000). We are not persuaded that any of these exceptions apply
here.

Conclusion

We reverse the ruling of the Tax Court and direct that the State
Board’s motion to dismiss be granted.

DICKSON, SULLIVAN, BOEHM, and RUCKER, JJ., concur.
-----------------------
[1] A number of the items Tucker requested for the audit were considered
confidential under Ind. Code § 6-1.1-35-9 (2000): “[a]ll information which
is related to earnings, income, profits, losses, or expenditures” that is
given to or acquired by an assessing official or employee is confidential.
See also Ind. Admin. Code tit. 50, r. 4.2-15-11 (a) (1996).
[2] As of January 1, 2002, the State Board’s tasks were divided into two
new agencies: The Department of Local Government Finance, which has the
authority to collect taxes (See Ind. Code Ann. §§ 6-1.1-30-1.1, 14 (West
2002)), and the Indiana Board of Tax Review, which shall review property
tax appeals (See Ind. Code Ann. §§ 6-1.5- 4-1 (West 2002)).

[3] The duties of the State Board include to: “(1) interpret the property
tax laws of this state; [and to] (2) instruct property tax officials about
their taxation and assessment duties and ensure that the county assessors,
township assessors, and assessing officials are in compliance with section
1.1 of this chapter [.]” I.C. § 6-1.1-35-1 (1998).
[4] Petitioner and Respondent raise a statute of limitations issue. The
Tax Court did not need to address this issue, in light of its decision on
other points. Thus, it does not constitute part of our review of the Tax
Court’s decision.
[5] Snelson was overruled in part, but not for this particular proposition.
[6] Ind. Code Ann. § 6-1.1-15-4 (West 2000) establishes the state board
procedure for petition for review.
[7] Ind. Code Ann. § 6-1.1-15-5 (West 2000) addresses rehearing; judicial
review; procedure.
[8] Ispat argues that alternative means exist under Miller v. Gibson Co.
Solid Waste Management Dist., 622 N.E.2d 248 (Ind. Tax Ct. 1993) (Tax Court
determined the issue was final and it interpreted the language as final
rather than foreclosing judicial review), Matonovich v. State Bd. of Tax
Comm’rs, 705 N.E.2d 1093 (Ind. Tax Ct. 1999) (The Tax Court stated that an
order requiring a county-wide reassessment of real property under I.C. § 6-
1.1-4-9 is a final, appealable determination.)
[9] Or, see, for example, Tippecanoe County v. Indiana Manufacturers
Ass’n., ____ N.E.2d ____ (Ind. 2003), decided today.