States are not entitled to windfalls in tax disputes, Supreme Court rules
The Supreme Court decided unanimously on Thursday that states that seize and sell private property to recover unpaid taxes violate the Constitution’s revenue clause if they withhold more than what taxpayers owed.
The case involved a 94-year-old woman in Minnesota who had stopped paying property taxes on her condominium after moving into an assisted living facility.
By the time Hennepin County seized the property, the woman, Geraldine Tyler, owed about $2,000 in taxes and an additional $13,000 in penalties and interest. The county sold the apartment at auction for $40,000, and it kept not only the $15,000 everyone agreed owed, but also the remaining $25,000.
Keeping the full value of a confiscated property, even when debts owed amounted to a small portion of it, is permitted by Minnesota law.
The county argued that Minnesota law was rooted in historical practice and encouraged homeowners to take steps to protect their property.
Chief Justice John G. Roberts Jr. wrote for the court saying that “history and precedent say otherwise”.
“The county had the power to sell Tyler’s house to recover the unpaid property taxes,” he wrote, but, he added, “it could not use the tax debt to seize more property than was due.” “
The county’s action, the chief justice wrote, was a classic violation of the incorporation clause, which says property cannot be “taken for public use, without any compensation.”
History backed that view, Chief Justice Roberts wrote.
“The principle that a government should not take from a taxpayer more than it owes,” he wrote, “has its origins in Runnymeade in 1215, where King John swore in the Magna Carta that when his sheriff or bailiff came to collect any debts from to collect a dead man, they could remove property ’till the debt which is clear shall be fully paid to us; and the residue will be left to the executors to fulfill the will of the deceased.’”
The chief justice added that “our precedents have also recognized the principle that a taxpayer is entitled to the surplus over and above the debt owed.”
Minnesota’s approach is a relative outlier, he wrote. “Thirty-six states and the federal government are demanding that the home equity be returned to taxpayers,” he wrote.
The Constitution prohibits the practices in the other states, Chief Justice Roberts wrote in his opinion on Tyler v. Hennepin County, no. 22-166.
“The inclusion clause,” he wrote, citing an earlier decision, “was intended to prevent the government from merely forcing some people to bear public burdens which, in fairness and justice, should be borne by the public as a whole.” ‘ A taxpayer who loses her $40,000 home to the state to meet a $15,000 tax debt has contributed much more to the public budget than she owed. The taxpayer must give to Caesar what is Caesar’s, but no more.”
Christina Martin, an attorney with the Pacific Legal Foundation who represents Ms. Tyler, called the decision “a major win for property rights in the United States.”
“The court ruling,” she said in a statement, “makes it clear that home equity theft is not only unjust but also unconstitutional.”
Judge Neil M. Gorsuch, joined by Judge Ketanji Brown Jackson, issued a concurring opinion examining another possible reason for a ruling in Mrs. Tyler’s favor: the Eighth Amendment’s ban on “excessive fines.”
“Economic penalties imposed to deter willful non-compliance with the law are fines by another name,” Judge Gorsuch wrote. “And the constitution has something to say about it: they can’t be outrageous.”