Lawsuit calls 2 Indiana tax statutes unconstitutional

Marilyn Odendahl for www.theindianalawyer.com

A Marion County resident, whose bank account of $155.44 was frozen by the Indiana Department of Revenue, is suing to prevent the state from taking assets for income tax debts without leaving the debtor something to pay for basic necessities like food and shelter.

David A. Niehoff, represented by Indiana Legal Services Inc., filed his complaint Oct. 4 in Marion Superior Court. According to the lawsuit, Niehoff owes $3,330.02 for past-due taxes but has been unable to satisfy the debt because of ongoing economic hardship. In April, Premiere Credit of North America LLC, the company contracted by Indiana to handle collections, placed a hold on his bank assets.

Niehoff argues the revenue department’s action violates Indiana Constitution, Article 1, Section 22, which exempts a “reasonable amount of property from seizure or sale for the payment of any debt … .” Indiana statute enables debtors to keep $400 but separate statutes – Indiana Code 34-55-10-14 and I.C. 6-8.1-8-3(a) – exclude exemptions for tax collection cases, which Niehoff contends is unconstitutional.

“By denying any exemption in tax lien cases, the state of Indiana is pushing financially strapped Hoosiers further into poverty,” said Jon Laramore, Indiana Legal Services executive director. “An exemption may allow someone to purchase food or medicine while they develop a plan to repay an outstanding tax debt.”

The case is David A. Niehoff v. Indiana Department of Revenue, Premiere Credit of North America, LLC, 49D11-1610-PL-035444. A typo in Odyssey misspells the plaintiff’s last name as Nichoff.

According to Indiana Legal Services, Niehoff is not alone. The legal service provider has seen this problem among low-income residents who get their money seized by the Department of Revenue and then have no means to provide for the bare minimum they need to live.

In addition, the seizure also freezes these bank accounts for 60 days, leaving low-income residents unbanked for at least two months.

Niehoff is asking for a refund of the $155.44 and that the pair of Indiana statutes that deny any exemption be declared unconstitutional. Marion Superior Court granted motions from both defendants giving them until Nov. 28 to respond.