STATE OF INDIANA DEPARTMENT OF REVENUE v. Adams

762 N.E.2d 728, 2002 Ind. LEXIS 122, 2002 WL 207443

• Court: Indiana Supreme Court
• Decided: February 8, 2002
• Docket: 49S10-0011-TA-628
• Status: Published

Opinions

ON PETITION FOR REVIEW

SULLIVAN, Justice.

This is the first of two cases we decide today involving Dante Adams's difficulties with state revenue and criminal authorities after cocaine was discovered first in his safe deposit box and later in his home. This case presents the question of whether the cocaine found in an unconstitutional search of the safe deposit box by eriminal authorities can be used by revenue authorities to make a tax assessment. We conclude that although the exclusionary rule bars the use of the cocaine as evidence in criminal proceedings, the exclusionary rule does not apply to tax assessment proceedings.

Background

On August 7, 1997, employees of an Indianapolis bank informed a police officer that an odor of marijuana emanated from a safe deposit box leased to Defendant Dante Adams. The officer obtained a search warrant based on this tip. The police then searched the safe deposit box and found cocaine. Defendant was charged with Dealing in Cocaine and Possession of Cocaine. Defendant then filed a motion to suppress the cocaine, arguing that the information on which the warrant was based was stale. At a suppression hearing, the officer testified that the informants had waited weeks to tell the police about the smell. The trial court concluded that the information in the warrant was stale and granted the motion to suppress on March 18, 1998. The State voluntarily withdrew the charges against Defendant on March 24.

On March 23-a day before the criminal charges were dropped-the Indiana Department of Revenue ("the Department") issued an assessment pursuant to the Controlled Substance Excise Tax ("CSET")¹ against Defendant. Adams sought to have the cocaine suppressed in the CSET proceedings. The Department declined, but the Tax Court reversed and held that the exclusionary rule applied to CSET assessments. It therefore ordered the cocaine to be suppressed and vacated the CSET assessment. See Adams v. Dep't of Revenue, 730 N.E.2d 840, 848-44 (Ind. Tax Ct.2000). We granted review and now reverse the Tax Court.

Discussion

Both parties concede that the search of the safe deposit box violated Adams's federal constitutional right to be free from unreasonable searches and seizures. Adams contends that the State could not assess the CSET because the cocaine on which the assessment was based was discovered during an illegal search. We therefore must determine whether the cocaine should be suppressed in the CSET proceedings under the federal exclusionary rule.

In a companion case today,² we conclude that a later, separate search of Adams's home was unconstitutional. For purposes of a criminal ease, this conclusion ends the inquiry, as illegally obtained evidence may not be used in criminal proceedings. See Mapp v. Oho, 367 U.S. 643, 81 S.Ct. 1684, 6 LEd.2d 1081 (1961). However, "[the fact that evidence was seized in violation of the Fourth Amendment does not mean that it will be suppressed for every purpose in every proceeding." Tirado v. Comm'r of Internal Revenue, 689 F.2d 307, 310 (2d Cir.1982), cert. denied, 460 U.S. 1014, 103 S.Ct. 1256, 75 LEd.2d 484 (1983). In this case, we must determine whether the fruits of a different search-that of the safe deposit box-should have been excluded in the tax collection proceedings. We are operating not only in a different context (tax versus criminal) but are analyzing different searches (the search of the safe deposit box versus the search of Adams's home). Therefore, our conclusion in the companion case that the State could not introduce in a eriminal proceeding evidence obtained from an illegal search of Adams's home does not affect our analysis in this case as to whether the illegal search of the safe deposit box should lead to exclusion of evidence in the CSET proceeding.

The United States Supreme Court has held that the exclusionary rule is not constitutionally mandated, but is "a judicially created means of deterring illegal searches and seizures." Pernsylvania Bd. of Probation & Parole v. Scott, 524 U.S. 357, 363, 118 S.Ct. 2014, 141 L.Ed.2d 344 (1998). See also Elkins v. United States, 364 U.S. 206, 217, 80 S.Ct. 1437, 4 L.Ed.2d 1669 (1960) ("The rule is calculated to prevent, not to repair. Its purpose is to deter .... by removing the incentive to disregard it.").³ Because the exclusionary rule is a Jjudicially-created prophylactic device, the rule applies only "to those areas where its remedial objectives are thought most efficaciously served." United States v. Calandra, 414 U.S. 338, 348, 94 S.Ct. 613, 38 LEd.2d 561 (1978). The Court has concluded that the rule is most effective when "its deterrence benefits outweigh its 'substantial social costs."" Scott, 524 U.S. at 363, 118 S.Ct. 2014 (quoting United States v. Leon, 468 U.S. 897, 907, 104 S.Ct. 3405, 82 LEd2d 677 (1984)). See also I.N.S. v. Lopez-Mendoza, 468 U.S. 1032, 104 S.Ct. 3479, 82 LEd.2d 778 (1984); United States v. Janis, 428 U.S. 433, 96 S.Ct. 3021, 49 L.Ed.2d 1046 (1976).

Our analysis of both the deterrence produced and the costs incurred in the context of CSET assessments leads us to conclude that the exclusionary rule should not apply.

As the facts of this case show, both police and revenue officers are involved in enforcing the CSET: Police investigations uncover illegal narcotics, while the Department's revenue officers must collect CSET assessments on those narcotics. We do not believe that applying the exclusionary rule in CSET assessment proceedings will serve to deter either police or revenue officers from making illegal searches or seizures.

The police will not be significantly deterred by the prospect of the exelusion of evidence in CSET proceedings because their primary concern is eriminal prosecutions, where the exclusionary rule already applies. "Where evidence is obtained in an allegedly illegal search in furtherance of a criminal investigation, it is generally unlikely that application of the exclusionary rule to bar the evidence in a secondary civil proceeding will deter future Fourth Amendment violations." Wolf v. Comm'r of Internal Revenue, 13 F.3d 189, 194 (6th Cir.1983) (declining to apply the exelusion-ary rule to tax collection proceedings after evidence was illegally seized in narcotics investigation). The Supreme Court has concluded that government agents will be deterred when the conduct at issue falls "within the offending officer's zone of primary interest." Janis, 428 U.S. at 458, 96 S.Ct. 3021. See also Scott, 524 U.S. at 364, 118 S.Ct. 2014. The police's primary concern is the enforcement of the State's criminal laws, not its tax code.⁴ The CSET is simply not so interrelated with "the often competitive enterprise of ferreting out crime" to warrant an extension of the exclusionary rule. United States v. Leon, 468 U.S. 897, 978, 104 S.Ct. 3405, 82 L.Ed.2d 677 (1984).

We acknowledge some deterrence of revenue officers if the exclusionary rule is applied to CSET proceedings but we think these circumstances will be infrequent. In the companion case, we hold that CSET levies will generally be reasonable for Fourth Amendment purposes. Adams v. State, 762 N.E.2d at 743. The companion case invalidates searches by revenue officers only where the officers rely solely on a jeopardy warrant issued under Indiana Code § 6-7-3-18's provisions that allow the Department to issue jeopardy warrants without any standards or showing of exigency. Id. However, most jeopardy warrants are not issued under that code section. Instead, they are issued under Ind.Code § 6-8.1-5-8. Id. As such, the Department will be able to issue jeopardy warrants and levy on CSET assessments in most cireumstances without violating the Fourth Amendment. Because levies by the Department will only violate the Fourth Amendment in certain narrow circumstances, application of the rule will not produce any significant deterrence to unlawful conduct by revenue officers.

As to the costs, we believe that application of the exclusionary rule in CSET proceedings will serve to undermine several important State interests. First, application of the exclusionary rule will frustrate the State's ability to exercise its power to tax, which is a "power of the highest essential order." Bryant v. State, 660 N.E.2d 290, 310 (Ind.1995) (DeBruler, J., concurring in part and dissenting in part). This power undergirds all other governmental activity and without it the State could not function. Application of the exclusionary rule would inevitably enable some taxpayers to avoid paying their taxes: "Because the exclusionary rule precludes consideration of reliable, probative evidence, it imposes significant costs: It undeniably detracts from the truthfinding process and allows many .... to escape the consequences of their actions." Scott, 524 U.S. at 364, 118 S.Ct. 2014. This cost of lost evidence is even greater in CSET assessments than it is in criminal cases. If we were to suppress the drugs at issue in CSET proceedings, the tax cannot be assessed. Conversely, the prosecution of a criminal can often continue despite the suppression of evidence because the State will have other evidence on which it can obtain a conviction.

Second, we note that the Supreme Court cited the cost of lost evidence when it refused to apply the exclusionary rule to federal tax proceedings. See United States v. Janis, 428 U.S. 438, 96 S.Ct. 3021, 49 LEd.2d 1046 (1976). In Janis, state law enforcement officers conducted an illegal search and the IRS attempted to introduce evidence stemming from the search in federal civil tax proceedings. Even though the Court relied heavily on this inter-sovereign aspect of the case, it also concluded that the costs of exclusion would be high because "the enforcement of admittedly valid laws would be hampered by so extending the exclusionary rule, and, as is nearly always the case with the rule, concededly relevant and reliable evidence would be rendered unavailable." Id. at 447, 96 S.Ct. 8021.

Third, the Supreme Court has often analyzed the cost of the exclusionary rule in terms of the toll it could take on the proceedings in which it is invoked. See Seott, 524 U.S. at 364, 118 S.Ct. 2014. ("Application of the exclusionary rule would both hinder the functioning of state parole systems and alter the traditionally flexible, administrative nature of parole revocation proceedings."); Lopes-Mendo-2a, 468 U.S. at 1048, 104 S.Ct. 3479 (refusing to apply exclusionary rule to deportation proceedings in part because "[tlhe prospect of even occasional invocation of the exclusionary rule might significantly change and complicate the [informal] character of proceedings."). The Department collects the CSET in an administrative manner similar to the parole revocation hearings in Scott or the immigration proceedings in Lopez-Mendoza See Ind. Code § 6-7-8-13. As in those contexts, incorporation of the exclusionary rule would require complicated legal determinations that would frustrate the purpose of such expedited proceedings.

Our conclusion is consistent with those reached by most of the courts that have addressed this issue. See Wolf v. Comm'r of Internal Revenue, 13 F.3d 189, 194 (6th Cir.1993); Tirado v. Comm'r of Internal Revenue, 689 F.2d 307, 314 (2d Cir.1982); Kivela v. Dep't. of Treasury, 449 Mich. 220, 536 N.W.2d 498 (1995). But cf. Vara v. Sharp, 880 SW.2d 844 (Tex.App.1994). The Supreme Court has applied the rule in only one context outside of its general use in criminal trials. In One 1958 Plymouth Sedan v. Pennsylvania, the Court concluded that the exclusionary rule applied to civil forfeiture proceedings because such proceedings are "quasi-criminal" in nature. 380 U.S. 693, 700, 85 S.Ct. 1246, 14 L.Ed.2d 170 (1965). While the CSET has some quasi-criminal aspects in that it taxes narcotics, it is not quasi-criminal in the same sense as civil forfeiture because it does not stem from the State's regulatory power, which is typically more coercive than the State's power to tax. That is to say, because the CSET is part of the State's power of the purse, not its power of the sword, it is less punitive than civil forfeiture and One 1958 Plymouth Sedam's reasoning does not necessarily apply.

In reaching its conclusion that the exclusionary rule applies to the CSET, the Court of Appeals expressed concerns that

{I]f there were no Fourth Amendment protections when evidence was illegally obtained, the State would have the opportunity to take a second bite at the same apple: assuming evidence was illegally obtained and a criminal prosecution could not result, then IDR could still assess the CSET on all evidence that was illegally obtained. There must be some protection against this practice.

Adams v. State, 726 N.E.2d 390, 395 (Ind.Ct.App.2000).

Of course, this practice is possible in any of the civil contexts in which the United States Supreme Court has refused to apply the rule. Pennsylvania Bd. of Probation & Parole v. Scott, 524 U.S. 357, 118 S.Ct. 2014, 141 L.Ed.2d 844 (1998) (allowing introduction of illegally obtained evidence at parole hearings), I.N.S. v. Lopez-Mendoza, 468 U.S. 1032, 104 S.Ct. 3479, 82 L.Ed.2d 778 (1984) (deportation hearings); United States v. Janis, 428 U.S. 433, 96 S.Ct. 3021, 49 LEd.2d 1046 (1975) (tax hearings); United States v. Calandra, 414 U.S. 338, 94 S.Ct. 613, 38 L.Ed.2d 561 (1973) (grand jury investigations). Moreover, the exclusionary rule will apply if police collude with revenue officials to subvert a taxpayer's Fourth Amendment rights. See Kivela v. Dep't. of Treasury, 449 Mich. 220, 226, 536 N.W.2d 498, 500 (1995). ("Unless there is collusion between the agency that performed the illegal search and the agency seeking to admit the incriminating evidence, the evidence is admissible."). There is no evidence in the record that suggests that revenue officers were involved in the search of Adam's safe deposit box, which is the only search at issue here.

Because we conclude that the costs of applying the exelusionary rule to the CSET outweigh its limited benefits in this context, we decline to apply the rule to the evidence seized from Adams's safe deposit box.

Conclusion

We reverse the Tax Court and remand for proceedings consistent with this opin-10n.

SHEPARD, C.J., and RUCKER, J., concur. BOEHM, J. dissents with separate opinion in which DICKSON, J., coneurs.

1 . Ind.Code § 6-7-3-13 (1998). The CSET is a tax on the possession of certain narcotics. We discuss the tax and the procedures for collecting it in greater detail infra.

2 . Adams v. State, No. 49S04-0011-CR-627, 762 N.E.2d 737, 2002 WL 207501 (Ind. Feb.8, 2002).

3 . Adams does not argue that the Indiana Constitution mandates an exclusionary rule that is distinct from that imposed under federal case law. Therefore we need not address whether values other than deterrence might motivate the suppression of evidence under an Indiana exclusionary rule.

4 . As the Sixth Circuit put it in Wolf:

The primary interest of law enforcement agents is the apprehension, incapacitation, punishment, and (formerly, at least) rehabilitation of criminals, as well as the possible deterrence of future criminals through the imposition of criminal sanctions. By contrast, such an agent may have little interest in subsequent civil proceedings. Where civil proceedings are brought, for example, to tax ill-gotten gains, such proceedings do little more than subject criminals to the same taxes that govern all citizens. Excluding illegally seized evidence from proceedings to enforce tax and regulatory regimes is unlikely to deter law enforcement officials from violating a suspect's Fourth Amendment rights.

Wolf, 13 F.3d at 194 (footnote omitted). The facts of this case support this analysis, as the officers found the drugs in August of 1997 (R. at 140) but the Department did not issue a CSET assessment until March of 1998, when the evidence was suppressed in the criminal proceedings.