Judge strikes down law diverting local income tax funds from Carmel to Fishers 


A Marion County judge ruled March 18 that a state law that caps the amount of local income tax dollars Carmel can receive and sends any excess to Fishers is unconstitutional.

The law went into effect in 2020, initially for a three-year period, and as a result from 2021 to 2023 Fishers received $16.7 million that would have gone to Carmel if the cap hadn’t been in place. In 2023, the legislature extended the cap through 2026, which was projected to send an additional $40 million from Carmel to Fishers. The City of Carmel filed the lawsuit against the State of Indiana soon after the law was extended.

In his order, Judge John M.T. Chavis stated that the defendants failed to demonstrate why a special law was justified, as the distribution of local income tax dollars to the two municipalities had previously followed the general state formula for years.

In addition, he pointed to a section in the Indiana Constitution that states “where a general law can be made applicable, all laws shall be general, and of uniform operation throughout the state,” thus prohibiting special laws in situations where general laws are applicable. He stated that this section was added to the constitution nearly 175 years ago to “curb the legislature’s propensity” for passing statutes dealing with minute issues, such as individual divorces or particular alleys.

“Curing the evils of special legislation was the very reason why the Constitutional Convention of 1851 was convened,” Chavis stated in the ruling. “The Defendants have no cognizable interest in enforcing an unconstitutional law just as Fishers has no cognizable interest in receiving LIT funds under an unconstitutional law.”

Carmel Mayor Sue Finkam said she was thrilled with the ruling.

“This special law unfairly targeted only one city in the entire state – Carmel,” Finkam stated. “If we had not prevailed it would have resulted in approximately $56 million of revenues moving from Carmel to Fishers, dollars that would have deprived our residents of critical infrastructure needed for our city.”

Local income tax funds are used in Carmel to fund public safety, resident programming, street paving, sidewalk reconstruction and other initiatives.

“We strive to have cooperative relationships with neighboring cities,” Finkam stated. “However, when special laws are passed that overstep legal bounds and harm our community, we will act.”