788 F.3d 650
6th Cir.2015Background
- In 2005 Henderson, KY enacted a new occupational license tax requiring businesses to pay 1% of prior-year net profits, reported on an "occupational license return" tied to IRS returns and deadlines.
- The ordinance created a Board of Occupational License Appeals (procedures unspecified) and prescribed both civil remedies and a criminal misdemeanor for willful failure to file to evade tax.
- Transition problems arose for fiscal-year filers because the prior tax used calendar-year gross receipts; the city chose to rely on 2006 federal returns for fiscal-year filers, effectively not taxing a portion of their 2005 profits while calendar-year filers were taxed on all of 2005.
- James Phillips, a Henderson CPA and calendar-year filer, publicly protested the ordinance, refused to file the occupational return for 2006 (taxing 2005 profits), was criminally prosecuted and convicted by a jury, and later had that conviction reversed by the Kentucky Court of Appeals.
- Phillips sued the city and officials in federal court asserting (1) procedural due process violations for denial of hearing/process (including the board) and (2) an equal protection violation based on differential treatment of fiscal-year vs. calendar-year filers. The district court dismissed the due process claim and granted summary judgment for defendants on equal protection; the Sixth Circuit affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Procedural due process: Did city deprive Phillips of a protected liberty or property interest by not providing board/process before enforcement? | Phillips: ordinance created a board and therefore a right to a hearing; denial of that hearing is a due process deprivation. | City: Phillips suffered no deprivation — no payment collected, no civil suit, no license revocation, criminal conviction reversed; mere absence of process alone is not a protected interest. | Court: No cognizable due process claim; no property/liberty deprivation and process itself is not a protected interest (Olim). |
| Scope of board and relevance to criminal prosecution | Phillips: even if board limited, he had an interest in petitioning it before misdemeanor prosecution. | City: Board authority is civil (not criminal); county attorneys control prosecutions; state-law noncompliance doesn't automatically create a federal due process violation. | Court: Board did not control criminal prosecutions; failure to use board does not constitute federal due process violation. |
| Equal protection: Was differential treatment between fiscal-year and calendar-year filers unconstitutional? | Phillips: City irrationally exempted fiscal-year filers for part of 2005 while taxing calendar-year filers fully; arbitrary discrimination. | City: Decision was based on administrative convenience and limited fiscal-year filers; rational basis suffices. | Court: Rational-basis review satisfied; administrative convenience is a legitimate purpose (Armour); equal protection claim fails. |
| Burden of proof and judicial review standard | Phillips: City could have enforced equally with little hassle; lack of formal decision-making record shows arbitrary treatment. | City: Court must accept any plausible rational justification; evidence shows administrative cost/time justification. | Court: Cannot substitute its judgment; any plausible justification suffices under rational basis; plaintiff's speculation insufficient. |
Key Cases Cited
- Olim v. Wakinekona, 461 U.S. 238 (1983) (expectation of process alone does not create a protected liberty or property interest)
- Armour v. City of Indianapolis, 132 S. Ct. 2073 (2012) (administrative convenience can justify tax-related distinctions under rational-basis review)
- Heller v. Doe, 509 U.S. 312 (1993) (rational-basis standard allows courts to accept any plausible justification)
- Sickles v. Campbell County, 501 F.3d 726 (6th Cir. 2007) (setting framework for due process analysis)
- DePiero v. City of Macedonia, 180 F.3d 770 (6th Cir. 1999) (failure to follow state law does not automatically amount to federal due process violation)
- Levin v. Childers, 101 F.3d 44 (6th Cir. 1996) (rejecting view that right to hearing itself generates protected liberty interest)