Ind. taxpayers lose high court fight over refunds

June 4, 2012 - 10:55 AM

WASHINGTON (AP) — The Supreme Court has turned down homeowners in Indianapolis who sought tax refunds when the city changed its plan for paying for a new sewer line.

In a 6-3 ruling Monday, the court upheld the city's decision to refuse to refund taxes that some homeowners paid up front while it forgave the remaining taxes for people who paid on an installment plan.

Those who paid in full complained that the disparate treatment violated the Constitution's Equal Protection Clause.

But Justice Stephen Breyer said in his majority opinion that Indianapolis acted properly in changing the payment system because it wanted to reduce the administrative headaches of debt collection.

In dissent, Chief Justice John Roberts said the court was wrong to endorse such a gross disparity in tax treatment.

The sewer project connected about 180 homes to the city's sewage system. In 2004, 38 owners decided to pay the $9,278 assessment up front. Property owners also had the option of paying in monthly installments over 10, 20 or 30 years, with interest.

The very next year, the city changed its mind about how to pay for new sewage projects, reasoning that the old method discouraged people from abandoning septic systems for the healthier city sewage lines. By that point, some people had paid as little as $309, and more than a quarter of affected properties had paid less than $1,000.

Under the new financing scheme, the outstanding payments were forgiven, but the city denied refunds to those who paid in full.

Thirty-one homeowners sued for the refund and won in lower state courts. The Indiana Supreme Court, however, upheld the city's decision as rational.

Breyer's opinion likewise supported the city. "In our view, Indianapolis' classification has a rational basis," he said.

Roberts, though, said the court should not let stand a decision that ended up charging some homeowners 30 times more than others. "The equal protection violation is plain," he said, in an opinion joined by Justices Samuel Alito and Antonin Scalia.

The case is Armour v. Indianapolis, 11-161.