Trial court, not Tax Court, to hear case involving both annexation, tax law

An Indiana trial court has jurisdiction to hear a dispute between Allen County fire departments that is grounded in both annexation and tax law as the facts of the case do not require the interpretation of “substantive tax law,” the Indiana Court of Appeals has ruled.

Beginning in December 1987, the city of Fort Wayne began a series of 15 annexations formerly located within the jurisdiction of the Southwest Allen County Fire Protection District. Once the annexations were in effect, the Fort Wayne Fire Department began providing fire protection services to the annexed territories, though it continued working collaboratively with SWFD.

However, even after the annexations took effect, neither the city nor Fort Wayne Fire received any distribution of property tax revenue related to fire services in the annexed areas. Instead, Auditor Tera Klutz continued to distribute those revenues to SWFD.

The city sent a letter to SWFD and Klutz informing them that pursuant to Indiana Code 36-8-11-16 and -22, the tax proceeds from the annexed areas should be redirected to the municipal fire protection funds. However, based upon a 1988 unofficial advisory letter from the Office of the Indiana Attorney General, Klutz believed that SWFD was grandfathered in to receive the revenue from the annexed districts. Specifically, the unofficial letter advised the city could not tax the annexed areas in order to avoid double taxation.

The city filed a complaint for declaratory and other relief against SWFD and the auditor in May 2016, seeking a declaration that the municipality is entitled to the challenged property tax revenues. However, Allen Superior Judge Craig J. Bobay granted a motion to dismiss the city’s complaint last December, finding the issues raised should be resolved by the Department of Local Government Finance and the Indiana Tax Court.

The city challenged that decision in oral arguments before the Indiana Court of Appeals in late July, with attorney James Fenton telling the court the city’s complaint was grounded in annexation, not tax, law, thus giving the trial court jurisdiction to decide the case. The appellate panel unanimously agreed in a Thursday opinion, with Judge Patricia Riley writing the facts of the case do not require consideration of “substantive tax law.”

“No calculation to determine a specific tax assessment must be made, and no interpretation of tax laws is required,” Riley wrote. “Rather, the City’s dispute merely centers on the intended recipient of taxes already assessed and collected, pursuant to I.C. section 36-8-11-22. This is not ‘quintessentially (a) tax matter.’”

“Although annexation invariably affects the allocation of tax revenue among units of government within the annexed area, it does not automatically follow than an action for a declaratory judgment with respect to an annexation statue arises under Indiana tax law and involves a dispute as to the interpretation of a tax law,” Riley continued. “…A trial court is not ousted of its jurisdiction to interpret I.C. section 36-8-11-22, an annexation statute, merely because the Auditor and DLGF have exclusive responsibility for calculating the allocation of tax revenue within the Annexed Territories.”

The Allen Superior Court’s dismissal of the city’s complaint was reversed, and the case of City of Fort Wayne v. Southwest Allen County Fire Protection District and Tera K. Klutz, in her official capacity as Auditor of Allen County, Indiana, 02A05-1612-PL-2883, was remanded for further proceedings under the trial court’s jurisdiction.