For the first time since 2011, Indiana has a vacancy on its Tax Court. With that vacancy, the state should revisit the court’s role in our judicial system. Does the court continue to serve the best interests of taxpayers and the state? Does it even comply with the Constitution? At a minimum, the state should reform the court to protect due process, but also should consider more fundamental changes to improve the quality and timeliness of tax decisions.
The Tax Court’s lack of appeal
Outside of property taxes, the Tax Court serves as the sole arbiter of almost every contested legal tax issue in the state. If a taxpayer disagrees with a tax bill for sales or income taxes, she can file a protest with the state’s Department of Revenue. If she disagrees with the department’s administrative decision, she may file a lawsuit in Tax Court. In those cases, the Tax Court acts as a trial court. For the first time, the litigants create a record and often introduce new evidence. For property taxes, in contrast, the Tax Court acts as an appellate court that reviews the record created by the Indiana Board of Tax Review.
After the Tax Court issues its final decision, the losing litigant can ask the Supreme Court for review — but that review is discretionary. In other words, outside of property taxes, no litigant has the right to have an appellate tribunal hear its appeal. Given the Supreme Court’s busy docket, for practical purposes, the Tax Court usually serves as the last (and only) word in almost all non-property tax cases.
That structure probably violates the Constitution, which mandates “in all cases an absolute right to one appeal.” The state provided a right of appeal until the 1990s, but now Indiana may have the only system in the country, state or federal, where a tax litigant has no right of appeal from an adverse decision.
An automatic right of appeal, ideally to the intermediate Court of Appeals, would increase confidence in the judicial system. A tax dispute should receive the same rigorous judicial review as any other case. Moreover, in practice, the Legislature has become a body of review for tax cases; in one recent short session, the Legislature acted to reverse numerous court decisions and clarify others. Routine appellate review would provide a much more predictable and stable framework for taxpayers.
One judge to rule them all?
Beyond appeals, Indiana should consider adding to the number of jurists who can decide tax cases. Under the current system, exactly one judge decides tax matters. As a result, one person usually serves as the only word on cases that themselves can be worth millions of dollars and that can serve as precedents with fiscal impacts totaling hundreds of millions of dollars. For many complex tax issues, therefore, one person effectively determines the law and sets policy for the state.
Many observers recognize that this system is less than ideal. In 2016, the Supreme Court created an “Ad Hoc Advisory Task Force” to study the Tax Court. The task force noted that the sole tax judge “works alone without peers to ask questions, share ideas, discuss legal issues or set benchmarks.” Any new tax court judge would face those same issues. Surveys have indicated strong support for adding judges who could hear tax disputes.
More judges would increase the pace of tax litigation and create slack in the system in case the lone tax court judge becomes unavailable — at least until ChatGPT takes over, judges are human beings whose productivity and availability ebbs and flows. Finally, from a structural standpoint, more than one jurist should have responsibility for providing guidance in a complex area of law that implicates hundreds of millions of dollars in commerce and state revenue.
Indiana could address this issue in many ways. One avenue, of course, would be to designate a small number of judges to hear tax cases — more than one, but still a small number. Alternately, the state could move tax disputes to the Commercial Court. Any such approach would preserve the Legislature’s underlying goal of providing expertise and consistency to tax disputes, but also allow the designated judges to discuss and exchange ideas and share the load, leading to better and more timely decisions for all litigants.
This structure — peer judges coupled with automatic appellate review — is the system used to adjudicate every other case in the state. Tax disputes deserve no less.•
Agarwal Strategies LLC