Smith v . Ayotte, et a l . CV-04-321-JD 02/17/05 P UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

Phillip Smith et a l .

v. N o . 04-321-JD Opinio n N o .

Kelly Ayotte et a l .

O R D E R

The defendants, Attorney General Kelly Ayotte and members of the New Hampshire Board of Tax and Land Appeals (collectively, the “state defendants”) and the towns of Hollis and Hudson, New Hampshire (collectively, the “town defendants”) have moved to dismiss this action challenging certain aspects of the New Hampshire property taxation statute embodied in Revised Statutes Annotated (“RSA”) § 74:17. Both the state defendants and the town defendants argue that the action is barred by the Tax Injunction Act,

(“the TIA”). The town defendants have moved to dismiss on the additional ground that the complaint fails to state a claim against them on which relief can be granted. The plaintiffs, who own land in the towns of Hollis and Hudson, have filed an objection to both motions.1

1 The plaintiffs have also requested oral argument on the motions to dismiss. In support of their request, the plaintiffs state only that “oral argument would assist this Court in considering all the issues raised by the Defendants, particularly those concerning the [TIA]. The oral exchange of arguments between counsel could clarify how these issues relate to those claims, RSA § 74:17, and the facts alleged in the complaint.” Standard of Review

The defendants frame their motions to dismiss on the basis

of the TIA as challenges to this court’s subject matter

jurisdiction. See, e.g., Tomaiolo v . Mallinoff,

, 6

(1st Cir. 2002). Where, as here, a defendant questions subject

matter jurisdiction without submitting any evidentiary materials,

the court accepts all of the plaintiffs’ well-pleaded factual

allegations as true and draws all reasonable inferences from them

in the plaintiffs’ favor. Deniz v . Municipality of Guaynabo,

4 2 , 144 (1st Cir. 2002); Valentin v . Hosp. Bella Vista,

5 8 , 363 (1st Cir. 2001). The same standard governs the

town defendants’ motion to dismiss for failure to state a claim.

See, e.g., Torres-Viera v . Laboy-Alvarado,

(1st

Cir. 2002). Such a motion cannot be granted “[i]f the facts

contained in the complaint, viewed in this favorable light,

justify recovery under any applicable legal theory . . . .” SEC v . SG Ltd.,

2 , 46 (1st Cir. 2001) (citing Conley v .

Gibson,

1 , 45-46 (1957)).

This statement fails to “outline[] the reasons why oral argument may provide assistance to the court” in any meaningful way. C f . L.R. 7.1(d). The request for oral argument is therefore denied.

2 Background

New Hampshire charges the selectmen of each town with the

responsibility to conduct an annual inventory of “all the estate

liable to be taxed” there. RSA 74:1. To assist in this

endeavor, the selectman may distribute “inventory blanks” to the

owners of such property requiring them to describe it and provide

“[o]ther information needed by the assessing officials to assess

the taxable property . . . at its true value.”2 RSA 74:4. The

selectmen also “may make personal application to any inhabitant

of the town . . . for an account of the polls and ratable estate

for which they [sic] are liable to be taxed.” RSA 74:15.

The selectmen must then assess all taxable property at its

market value, considering “all evidence that may be submitted to

them relative to the value of the property, the value of which

cannot be determined by personal examination.” RSA 75:1. Each

year, the selectmen must “consider adjusting assessments” for certain classes of property, including those which “[t]hey know

or believe have had a material physical change” or “have

undergone other changes affecting value.” RSA 75:8, I I . They

must also reappraise all property within the town at least every

five years. RSA 75:8-a.

Although no doubt unpopular, as are most tax laws, the

2 Municipalities may elect not to require their citizens to file inventories. RSA 74:4-a.

3 foregoing provisions have not generated any controversy here.

This action challenges RSA 74:17, which states: I. If the selectmen or assessing officials are unable to obtain consent to enter property for the purpose of obtaining information necessary to complete the inventory under this chapter or appraisal under RSA 7 5 , they may obtain an administrative inspection warrant under RSA 595-B.

I I . Any person who refuses to grant consent to the selectmen or assessing officials for the purposes in paragraph I shall lose the right to appeal any matter pertaining to the property tax for which such person is liable and the right to appeal any exemptions for which such person may be entitled but has not yet received.

RSA 595-B, in turn, authorizes the issuance of an inspection

warrant “only upon a showing of probable cause supported by

affidavit.” RSA 595-B:2, I . Probable cause “shall be deemed to

exist” if “legislative or administrative standards for conducting

a routine or area inspection . . . are satisfied with respect to

a particular place . . . or there is probable cause to believe

that a condition of nonconformity exists with respect to the particular place . . . .” RSA 595-B:2, I I . It is a misdemeanor

knowingly to refuse to permit an inspection lawfully authorized

by an administrative warrant. RSA 595-B:8.

Plaintiff Phillip Smith and his wife, Gina, own their home

in Hollis. In March 2002, Mrs. Smith was visited there by an

inspector hired by the town who “requested to come inside and

4 perform a search” as part of the town’s reassessment process.3

Compl. ¶ 2 1 . Although Mrs. Smith “answered questions the

inspector had about the home and allowed him to make exterior

measurements,” she refused him entrance. Id.

Mr. Smith later sought an abatement of his home’s assessed

value from the Hollis Board of Selectmen on the ground that his

land, but not his house, had been overvalued. See RSA 76:16. This brought another inspector to the Smiths’ home to inspect the

interior; M r . Smith refused him entrance. The inspector replied

that M r . Smith “could expect his abatement request to ‘fall on

deaf ears.’” Compl. ¶ 2 3 . M r . Smith subsequently received a

letter from the Hollis tax assessor’s office notifying him that

the request had indeed been denied “‘due to [his] refusal to

allow entry’” to the inspector. Id. ¶ 2 4 .

Mr. Smith then wrote a letter to the state Board of Tax and

Land Appeals (“the BTLA”), which hears appeals of local abatement decisions. See RSA 76:16-a. The letter explained that Hollis

had denied M r . Smith’s abatement request because he had turned

away the inspector and inquired “whether his appeal to the BTLA

would also be rejected due to his failure to allow an inspection

of his home.” Compl. ¶ 2 5 . M r . Smith received a written

3 Department of Revenue regulations set forth detailed criteria governing the use of private contractors by municipalities to perform assessments. N.H. Code Admin. R. Rev 603 (1997).

5 response from the BTLA directing him to RSA 74:17 and quoting the

statutory provision in full. Id. ¶ 2 6 . The next time the BTLA

heard from M r . Smith, it appears, was this lawsuit.

Plaintiff Anthony Stanizzi and his wife, Christine, also own

a home in Hollis where they were visited by inspectors working

for the town. Like the Smiths, M r . Stanizzi rebuffed the

inspectors’ requests to enter his house during two separate

visits. One of the inspectors responded “that the town had

authority to obtain a warrant to enter his home if he refused to

consent to an interior inspection” and, further, that the refusal

would cost M r . Stanizzi his right to appeal his assessment.

Compl. ¶ 2 8 . Undaunted, M r . Stanizzi subsequently applied to the

board of selectmen for an abatement, bringing another inspector

to his house several months later. M r . Stanizzi also refused to

allow this inspector into his home, despite another admonition

that “his abatement application would probably be denied and that he would lose his right to appeal” as a result. Id. ¶ 3 0 .

Mr. Stanizzi later received a letter from the assessor’s

office that the board of selectmen had agreed with the

inspector’s recommendation that they deny M r . Stanizzi’s

abatement request due to his refusal to allow an inspection of

his property. Compl. ¶ 3 1 . M r . Stanizzi responded by writing to

the BTLA, just as M r . Smith had. He received the same response

and, like M r . Smith, rejoined with this lawsuit.

6 The remaining plaintiffs, Tony and Alicia Lekas, are a

married couple who make their home in Hudson, on property owned

by M r . Lekas. They have received word from the local assessor’s

office that an inspector will visit the property this summer “and

attempt to conduct an interior inspection.” Compl. ¶ 3 5 .

Although the Lekases “want to cooperate with the town during this

process . . . they do not want to be required to let a stranger

hired by the town into their home.” Id. ¶ 3 6 .

Through this action, the plaintiffs seek declaratory and

injunctive relief against the continued application of RSA 74:17,

as well as nominal damages against their respective towns, and

attorneys’ fees. Their complaint presses two theories in support

of this relief. First, the plaintiffs contend that RSA 74:17 and

RSA 595-B operate in conjunction to violate the Fourth Amendment

by allowing the “search” of a home with a warrant procured with

“less than traditional probable cause, i.e., without cause to believe the law is being broken” and by coercing consent to

search with the prospect of such a warrant. Compl. ¶¶ 42-46.

Second, the plaintiffs claim that RSA 74:17, I I , places an

“unconstitutional condition” on their right to refuse to submit

to a warrantless search by costing them their right to seek and

appeal an abatement decision if they do s o . Id. ¶¶ 50-51. Given

that RSA 75:8-a requires each town to reassess the property there

at least once every five years, the plaintiffs allege that these

violations will reoccur over time.

7 Discussion

The TIA provides that “district courts shall not enjoin,

suspend, or restrain the assessment, levy or collection of any

tax under State law where a plain, speedy and efficient remedy

may be had in the courts of such State.”

. The

Act operates to divest the court of subject matter jurisdiction

over all actions within its statutory ambit. See, e.g.,

California v . Grace Brethren Church,

(1982);

Cumberland Farms, Inc. v . Tax Assessor,

(1st

Cir. 1997). “It is well settled that allegations of deprivations

of constitutional rights do not render the Act inapplicable.”

Schneider Transport, Inc. v . Cattanach,

2 8 , 131 (7th

Cir. 1981). Here, the parties disagree over the proper scope to

be given the TIA in light of a recent Supreme Court decision

interpreting i t , Hibbs v . Winn, 124 S . C t . 2276 (2004).

In Hibbs, the Supreme Court determined that the TIA did not bar an action for declaratory and injunctive relief, on the basis

of the Establishment Clause, against an Arizona law providing a

tax credit for donations to special statutory organizations which

could then disburse the funds as scholarships for students

attending religious schools. 124 S . C t . at 2282. The defendant

had secured dismissal of the case under the TIA, arguing that “a

federal injunction would restrain the ‘assessment’ of taxes

‘under State law.’” Id. at 2282-83. Following reversal by the

Ninth Circuit on the ground that “a federal action challenging

8 the granting of a state tax credit is not prohibited by the

[TIA],” the Supreme Court granted certiorari “in view of the

division of opinion on whether the TIA bars constitutional

challenges to state tax credits in federal court.” Id. at 2283.

The Court began its analysis by interpreting the term

“assessment” as found in the TIA, rejecting the defendant’s

argument that “‘assessment,’ by itself, signified the entire plan

or scheme fixed upon for charging or taxing.” Id. at 2286

(internal quotation marks and brackets omitted). Instead, the

Court reasoned that “in § 1341 and tax law generally, an

assessment is closely tied to the collection of a tax, i.e., the

assessment is the official recording of liability that triggers

levy and collection efforts.” Id. at 2285-86. The Court

therefore concluded that “assessment” must be read as “related

. . . to the term’s collection-propelling function.” Id.

Hibbs also addressed “whether the Act was intended to insulate state tax laws from constitutional challenge in lower

federal courts even when the suit would have no negative impact

on tax collection.” Id. at 2282. To answer this question, the

Court first examined the TIA’s legislative history, discerning

“two closely related, state-revenue-protective objectives”:

(1) to prevent foreign corporations from circumventing state

refund proceedings, “which generally required taxpayers to pay

first and litigate later,” by invoking federal diversity

jurisdiction, and (2) “to stop taxpayers, with the aid of a

9 federal injunction, from withholding large sums, thereby

disrupting state government finances.” Id. at 2287.

The Court also harmonized its prior jurisprudence holding

that the TIA barred federal challenges to state tax laws as

uniformly “involv[ing] plaintiffs who mounted federal litigation

to avoid paying state taxes (or to gain a refund of such taxes).

Federal-court relief, therefore, would have operated to reduce

the flow of state tax revenue.” Id. at 2288. Rebuffing the

defendant’s suggestion that both the TIA and prior decisions

invoking it prevented “federal-court interference with all

aspects of state tax administration,” id. (internal quotation

marks omitted), the Court noted that it had “interpreted and

applied the TIA only in cases Congress wrote the Act to address,

i.e., cases in which state taxpayers seek federal-court orders

enabling them to avoid paying state taxes.” Id. at 2289.

The plaintiffs read Hibbs to limit the reach of the TIA to actions through which the plaintiff “is seeking to avoid paying

taxes.” Resp. at 7 . Characterizing their desired remedy as

stopping the alleged Fourth Amendment violations attendant to RSA

74:17, rather than relief from property taxes, the plaintiffs

argue that this suit does not implicate the concerns behind the

TIA because “no tax liability will be avoided either during or

after the litigation.” Id. at 8 .

This argument ignores the effect that the relief sought in

this lawsuit would have on the assessment of property taxes in

10 New Hampshire by emphasizing that the plaintiffs have paid their

property taxes and do not seek to have them refunded. Although

certain language in Hibbs could be taken to suggest that the

applicability of the TIA turns on whether the plaintiff himself

seeks federal judicial relief against state taxation, this court

does not read the case as so narrowing the scope of the Act.

Instead, consistent with the lone federal appellate court yet to

consider the effect of Hibbs on the TIA, this court believes that

“the dispositive question in determining whether the Act’s

jurisdictional bar applies is whether ‘[f]ederal court relief

. . . would have operated to reduce the flow of state tax

revenue.’” May Trucking C o . v . O r . Dep’t of Transp.,

(9th Cir. 2004) (quoting Hibbs, 124 S . C t . at 2288).

This reading of Hibbs prevails over the plaintiffs’ for a

number of reasons. First, it recognizes that the case arose as a

challenge to the constitutionality of tax credits given to others and therefore could not have relieved the plaintiffs of any tax

liability as a logical matter. In such an action, the fact that

the plaintiff will not avoid state taxation as a result of the

suit necessarily follows from the fact that nobody will; tax

revenues will increase if the plaintiff prevails. This court,

like the Ninth Circuit in May Trucking, therefore understands

Hibbs to turn on the fact that “the suit would have [had] no

negative impact on tax collection,” 124 S . C t . at 2282, rather

than on the corollary truism that the suit would not have had a

11 negative impact on tax collection from the plaintiffs. Second, the Court in Hibbs vehemently denied effecting the sea change in TIA jurisprudence that the plaintiffs’ reading would necessarily entail. To the contrary, the Hibbs majority viewed its decision as “[c]onsistent with the decades-long understanding prevailing on this issue,” i.e., that the TIA erected no barrier against constitutional challenges to tax credits bestowed by state law. Id. at 2291-92. The Court read its prior TIA cases as dependent on the fact that “[f]ederal- court relief . . . would have operated to reduce the flow of state tax revenue,” id. at 2288-89, and lower court decisions to turn on “the distinction between taxpayer claims that would reduce state revenues and third-party claims that would enlarge state receipts . . . .” Id. at 2290.

Significantly, the Court expressed no disagreement with existing federal appellate cases finding suits barred by the TIA despite the fact that they did not challenge the plaintiffs’ state tax liability, c f . id. at 2290 n . 1 1 , but rather the allegedly unconstitutional actions of state tax officials. See, e.g., Chippewa Trading C o . v . Cox,

3 8 , 541-42 (6th Cir.) (affirming dismissal of suit challenging forfeiture of untaxed cigarettes with allegedly inadequate notice) 4 , cert.

4 The Sixth Circuit issued its opinion in Chippewa Trading after Hibbs was argued, but before it was decided. Although the court in Chippewa Trading relied on principles of federal-state comity in dismissing the suit, Hibbs suggests that such decisions

12 denied, 125 S . C t . 500 (2004); Brooks v . Nance,

(10th Cir. 1986) (holding that TIA barred suit alleging

unconstitutional seizure of untaxed cigarettes); Comenout v .

Washington,

7 4 , 578 (9th Cir. 1983) (holding that TIA

barred unlawful arrest and assault claims arising out of state

tax officials’ raid on illegal retail operation). These

decisions held that the TIA precluded the claims in question

because they would interfere with states’ efforts to enforce

their tax laws, which would necessarily reduce their tax

revenues. This court reads Hibbs as consistent with these and

like lower court cases which preceded it. 5 See Linn v . Andover

Newton Theological Sch., Inc.,

, 8 n.9 (1st Cir. 1989)

(“we will not lightly presume that the Court intended to

overrule, sub silentio, a view held by virtually every circuit to

have considered the issue”).

Third, the dissenters in Hibbs parted company with the majority primarily for accepting “the premise that the TIA’s sole

are nevertheless useful in understanding the TIA, which is driven by similar principles. 124 S . C t . at 2289 n.9; see also Fair Assessment in Real Estate Ass’n, Inc. v . McNary,

0 0 , 109-110 (1981). 5 The plaintiffs do not cite to a single lower court case supporting their position. But see Felton v . Icon Props.,

, at *4 (E.D. L a . Oct. 2 2 , 2004) (reading Hibbs as “applying the TIA only where a state taxpayer seeks a federal- court order enabling him to avoid paying taxes” and therefore supporting federal jurisdiction over due process challenge to local tax forfeiture procedure).

13 purpose is to prevent district court orders that would decrease

the moneys in state fiscs.” 124 S . C t . at 2297-2300 (Kennedy,

J., dissenting). The majority opinion did not accuse the dissent

of misunderstanding it in this regard. C f .

(disagreeing with dissent’s interpretation of TIA’s legislative

and jurisprudential history). This further suggests that the TIA

“did not apply to the action brought by the plaintiffs in [Hibbs]

because that action, if successful, ‘would result in the state’s

receiving more funds that could be used for the public benefit,’”

rather than simply because the plaintiffs themselves were not

seeking relief against state taxation. May Trucking,

(quoting Hibbs, 124 S . C t . at 2283).

In accordance with its understanding of Hibbs, then, this

court must determine whether the relief sought in this action

would staunch the flow of state tax revenue.6 The plaintiffs

request judgment “declaring unconstitutional [RSA] 74:17 on its face” and permanently enjoining the defendants from applying it

“to Plaintiffs and those similarly situated.” Compl. at 1 3 .

Examining the role RSA 74:17 plays within the state taxation

framework makes clear that striking down the section would

“enjoin, suspend, or restrain” the “assessment” of taxes within

the meaning of that term as elucidated by Hibbs.

6 “State taxation, for § 1341 purposes, includes local taxation.” Hibbs, 124 S . C t . at 2285 n.1.

14 RSA 74:17 enables local tax officials to resort to the

state’s administrative warrant process only if they cannot “obtain consent to enter property for the purposes of obtaining information necessary to complete” an inventory or appraisal. (Emphasis added.) Similarly, a taxpayer loses his or her appeal rights only if he or she refuses consent to the officials “to enter property for the purposes in paragraph I . . . .” RSA 74:17, II (emphasis added). The values arrived at as a result of the appraisal process become part of the inventory, which in turn provides the basis for the assessment of property taxes. RSA 74:11; see also 16 Peter J. Loughlin, New Hampshire Practice: Municipal Law and Taxation § 22.01, at 252 (1993) (“real estate in New Hampshire is required to be taxed, and that tax is assessed by the selectmen or assessors in accordance with their appraisal of the property”) (footnotes omitted).

Thus, while RSA 74:17 does not itself authorize “the official recording of liability that triggers levy and collection efforts,” Hibbs, 124 S . C t . at 2286, the statute provides a means by which tax officials can obtain information necessary to fix that liability.7 Striking down RSA 74:17 would therefore

7 Hibbs itself noted that “[i]n the property-tax setting, [assessment] usually refers to the process by which the taxing authority assigns a taxable value to real or personal property. To calculate the amount of property taxes owed, the tax assessor multiplies the assessed value by the appropriate tax rate.” 124 S . C t . at 2285 n.3 (citations omitted).

15 “restrain” the assessment of taxes under state law insofar as it

would eliminate the only procedure available to complete

inventories or appraisals of property held by taxpayers who do

not voluntarily submit to inspections. This, in turn, would

reduce the flow of state tax revenue in contravention of the TIA

by creating a class of property that could not be assessed at its

actual value o r , in some cases, inventoried in the first place.8

Indeed, the plaintiffs do not dispute that real property

often undergoes renovations over time which tend to increase its

value. See, e.g., Vickerry Realty Trust v . City of Nashua,

(1976). Depriving taxation officials of the

ability to learn of those renovations through the inspection

process would therefore lead to a systematic undervaluation of

properties and a concomitant reduction in tax revenue. See

Blangeres v . Burlington N., Inc.,

2 7 , 328 (9th Cir.

1989) (affirming that TIA barred federal injunction against disclosure of corporation’s records which would render states

“unable to obtain the information necessary for assessment” of

taxes against its employees).

The plaintiffs rejoin that their success in this lawsuit

will not foreclose all inspections but simply condition their

exercise upon “demonstrating probable cause that a law has been

8 RSA 74:1 itself suggests that property should be valued on the basis of “personal examination” where possible.

16 broken” to obtain an administrative warrant. Resp. at 8 .

Assuming, as the plaintiffs assert, that New Hampshire law lacks

such a requirement,9 engrafting one onto the statutory scheme

would surely hamstring official efforts to appraise property at

its actual value. Since Camara v . Mun. Court,

(1967), the Supreme Court has recognized the incompatibility of

the so-called “traditional probable cause” showing with “code

enforcement inspection programs” in which local officials enter

private property to check its compliance with health and safety

regulations.

; see also Marshall v . Barlow’s, Inc.,

0 7 , 320-21 (1978). Although Camara held that the

Fourth Amendment’s warrant requirement generally applied to such

inspections, it rejected the notion “that warrants should issue

only when the inspector possesses probable cause to believe that

a particular dwelling contains violations of the minimum

standards prescribed by the code being enforced.”

. The Court opined that this standard would frustrate the

purposes of code enforcement, reasoning that, inter alia, an

inspector could not as a practical matter decide to examine

certain premises based on his or her knowledge of the conditions

there because many such conditions are simply not observable from

outside the dwelling.

.

9 The court expresses no view on the merits of this or any of the plaintiffs’ claims. See infra.

17 Likewise, local tax officials often cannot know whether a

residence has undergone renovations which have increased its

value without entering the residence itself.10 This would make

it exceedingly difficult to show probable cause that a homeowner

has violated state tax law by, for example, failing to include on

an inventory blank “information needed by the assessing officials

to assess all the taxable property of the person . . . at its

true value” in the form of recent renovations in accordance with

RSA 74:4, III(b). Imposing a traditional probable cause

requirement onto RSA 74:17 would therefore have consequences

similar in kind, if not necessarily degree, to eliminating the

statute altogether. Local officials would, out of simple

ignorance, lack the ability to consider value-added renovations

in their appraisals, which would in turn result in lower

assessments and less tax revenue.

The plaintiffs also argue that their claim for relief from

10 It is true that the procurement of a building permit for a particular structure serves to notify local officials of construction that would presumably increase the value of the property. See 16 Loughlin, supra, § 11.05, at 185. The use of a building permit program in any particular municipality, however, is optional. RSA 155:A-2, IV. Furthermore, even those towns that issue building permits can require them of only “any person who intends to erect or remodel any building,” RSA 676:11, which may exclude certain types of construction that nevertheless add value to a residence. Thus, the building permit system available under New Hampshire law does not amount to an effective substitute for the inspection procedures of RSA 74:17.

18 RSA 74:17, I I , “has nothing to do with avoiding tax liability”

because they are not challenging the statute’s effect on their

current property assessments but rather its “confronting them

with the choice of either submitting to a warrantless and

unconstitutional search of their homes or losing their right to

appeal.” Resp. 8-9. Again, however, whether striking down RSA 74:17, I I , would restrain the assessment of state taxes depends

on the effect such relief would have on the flow of tax revenue

in toto, not merely from the plaintiffs themselves.

Allowing a taxpayer to prevent an inspection of his or her

home absent a warrant during the appraisal process and then to

challenge the result of that process through abatement

proceedings would adversely impact property tax receipts. In

considering whether “good cause” exists to grant an abatement

under RSA 76:16, the selectmen and, on appeal, the BTLA or the Superior Court, must determine whether the taxpayer’s property

has been assessed at a higher percentage of fair market value

than the percentage at which property is generally assessed in

the town. Porter v . Town of Sanbornton,

(2003). For the reasons already stated, correctly ascertaining

fair market value would prove difficult in cases where the

taxpayer has refused to allow any appraiser to inspect the

property on behalf of the municipality, which would tend to

19 result in higher abatements and lower tax revenues.11

Because the act of assessment places a lien on the

taxpayer’s property as a matter of New Hampshire law, RSA 80:19,

the pendency of abatement proceedings does not directly affect a

municipality’s ability to pursue collection of the tax at issue.

That fact, however, does not require the conclusion that

eliminating RSA 74:17, I I , would not restrain the assessment of

taxes within the meaning of the TIA. In recently holding that

the TIA barred a federal-court challenge to local procedures used

in hearing appeals from tax assessments, the Third Circuit

rejected the plaintiffs’ argument that the fact they paid their

taxes prior to appealing the assessments meant that the challenge

did not implicate the state’s ability to collect taxes. Gass v .

County of Allegheny,

3 4 , 136-37 (3d C i r . ) , cert.

denied, 125 S . C t . 497 (2004). Here, as in Gass, “[t]he appeal

process is directed to the . . . ultimate goal and responsibility

of determining the proper amount of tax to assess–-a power of

‘assessment’ that explicitly falls within the ambit of the Tax

11 New Hampshire generally accepts two methods of determining the market value of non-income producing property, such as a house used as a primary residence: the comparable sales approach and the reproduction cost less depreciation approach. See 16 Loughlin, supra, §§ 21.02–-21.05. Either approach requires knowledge of the salient aspects of the subject property, which can be definitively ascertained only through inspection. Id.

20 Injunction Act.”12 Id. at 136-37; see also Tomaiolo,

(“the procedure by which a state taxpayer may obtain a refund

of an allegedly illegally collected tax is no less a part of the

smooth functioning of the state’s tax system than the collection

of the taxes in the first place”).

Furthermore, RSA 74:17, I I , gives local officials the

statutory authority to procure consent to inspect property as

part of the inventory or appraisal process by forfeiting the

appeal rights of any taxpayer who refuses i t . Stripping

officials of that authority would undoubtedly result in the

giving of consent in fewer instances; indeed, that is the premise

of the plaintiffs’ constitutional challenge. This, in turn,

would result in the inspection of fewer residences, particularly

if the elimination of RSA 74:17, I I , is coupled with the

plaintiffs’ requested insertion of a “traditional probable cause”

requirement into RSA 74:17, I . As already discussed, fewer

residential inspections necessarily translate into lower

appraisals and less property tax revenue. The court therefore

concludes that striking down RSA 74:17, I I , would restrain the

12 The plaintiffs suggest that Gass conflicts with Hibbs in that the Third Circuit’s decision “appears to rest implicitly on the assumption that any federal judicial interference with tax administration is forbidden.” Resp. at 9 n.8. To the contrary, this court reads Gass as consistent with both the definition of assessment in Hibbs as related to its collection-propelling function and the Court’s recognition that applying the TIA depends on whether the remedy sought would reduce tax revenues.

21 assessment of state taxes within the meaning of the TIA.

Finally, the plaintiffs suggest that New Hampshire law fails

to provide them with “a plain, speedy and efficient remedy” for

the wrongs they allege in this action. Although they concede

that “they could have brought their constitutional claims . . .

in an action for declaratory and injunctive relief in state court” they dismiss this fact as “irrelevant” because “the

relevant inquiry under the TIA is what remedy would be available

to a plaintiff in New Hampshire who seeks a refund of his tax (or

to otherwise avoid tax liability).” Resp. at 11-12. Because RSA

74:17, I I , has cut the plaintiffs off from the state abatement

procedures, they contend that they lack any such remedy.

“[A] state court remedy is ‘plain, speedy, and efficient’

only if it ‘provides the taxpayer with a full hearing and

judicial determination at which she may raise any and all constitutional objections to the tax.’” Grace Brethren,

(quoting Rosewell v . LaSalle Nat’l Bank,

(1981) (further internal quotation marks omitted)). By the

plaintiffs’ own admission, New Hampshire law allows them to mount

their Fourth Amendment challenges to RSA 74:17 through a

declaratory judgment action. See, e.g., McCann v . Silva,

4 0 , 543 (D.N.H. 1978) (ruling that plaintiff’s ability to

commence declaratory judgment suit to challenge requirement of

filing tax inventory on grounds it violated constitutional right

22 to privacy necessitated dismissal of claim under T I A ) ; Davy v .

Dover,

, 2-3 (1971) (considering “petition for

declaratory judgment brought to test the validity” of local

housing ordinance permitting procurement of warrant to inspect

property upon owner’s refusal). The plaintiffs do not suggest

that such an action is anything but plain, speedy, and efficient. Instead, the plaintiffs rely on Hibbs for the proposition

that the availability of declaratory relief in state court does

not satisfy the TIA where it exists independently of a statutory

abatement process. But Hibbs did not create such a rule, and the

plaintiffs have provided no other authority for i t . In the

passage from Hibbs on which the plaintiffs rely, the Court noted

that “[t]he remedy inspected in our decisions was not one

designed for the universe of plaintiffs who sue the State.

Rather, it was a remedy tailor-made for taxpayers.” 124 S . C t . at 2289. Read in context, however, this statement simply

explains further the Court’s conclusion that it had never read

the Act as “totally immuniz[ing] from lower federal-court review

all aspects of state tax administration.” Id. at 2288-89.

If this view were correct, the Court reasoned, its prior TIA

cases would have considered the general availability of state

court relief from “tax administration,” rather than the

sufficiency of state tax refund procedures. The fact that the

Court’s TIA jurisprudence had been confined to the latter, then,

23 indicated that it had never construed the Act to apply to a suit

imperiling tax refunds instead of tax revenues. Id. at 2289.

Thus, the language in question does not bear the plaintiffs’

construction, i.e., that only state refund proceedings qualify as

“a plain, speedy and efficient remedy” under the TIA.13 The New

Hampshire declaratory judgment procedure clearly provides such a

remedy for the plaintiffs’ alleged constitutional violations.

See Ludwin v . City of Cambridge,

(1st Cir.

1979) (holding that state declaratory judgment action furnished

adequate remedy to challenge assessment where plaintiff could not

commence state refund proceeding due to inability to pay t a x ) ;

accord Folio v . City of Clarksburg,

(4th

Cir. 1998) (rejecting argument that state law provided inadequate

remedy despite arguably “tenuous” nature of plaintiffs’ ability

to raise constitutional claims as defense to collection action,

given availability of declaratory judgment procedure). Accordingly, the court concludes that this action falls

within the scope of the TIA insofar as it seeks to enjoin,

suspend, or restrain the assessment of property taxes under state

law, depriving this court of subject matter jurisdiction. The

13 Furthermore, because Hibbs held that a constitutional challenge to a state tax credit could not result in relief that would restrain the assessment of state taxes within the meaning of the TIA, the Court did not reach the question of whether the “special discretionary action” available to attack the credit under state law provided an appropriate remedy. 24 plaintiffs are therefore left to pursue this suit in state court if they so choose. In that regard, the court notes that nothing in this order should be construed as expressing an opinion on the merits of any of the plaintiffs’ claims.

Conclusion For the foregoing reasons, the state defendants’ motion to dismiss (document n o . 7 ) and the town defendants’ motion to dismiss (document n o . 13) are granted on the basis of lack of subject matter jurisdiction. The town defendants’ motion to dismiss for failure to state a claim is moot. As noted, the plaintiffs’ request for oral argument on the motions (document n o . 17) has been denied. The clerk of court shall enter judgment accordingly and close the case.

SO ORDERED.

Joseph A. DiClerico, Jr. United States District Judge

February 1 7 , 2005 cc: Scott G. Bullock, Esquire Robert W . Gall, Esquire Donald E . Gardner, Esquire William H . Mellor, Esquire Daniel J. Mullen, Esquire Curtis E . Payne, Esquire

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