Tax

A property tax policy that has created horrific results in several states is being fixed by lawmakers in Montana who were spurred into action by the story of a 78-year-old electrician who lost his $140,000 home because he fell behind on his property taxes.

It is the Pacific Legal Foundation that has fought the battle several times.

Last month, in a rare move, a court reopened a case even after it had been rejected by the U.S. Supreme Court.

At issue are policies and practices that give governments the authority to confiscate property for failure to pay property taxes. In some instances, governments are allowed to confiscate an entire property, sell it and keep all the money, even if the taxes owed were only a fraction.

Christina Martin of the Pacific Legal wrote recently of a solution implemented in Montana, where electrician Gary Guidotti had his home seized by Cascade County because he fell behind on a bill of $1,125.

Martin called the practice “unfair and unconstitutional.”

“But I’m happy to report that Pacific Legal Foundation efforts have helped Montana’s legislature finally change course. Yesterday Senate Bill 253 became law,” she said. “The new law protects homeowners’ equity by requiring homes be sold to the highest bidder. Now the extra profits must be returned to the former owner after deducting taxes, interest, penalties, and costs.”

The impetus for the Montana bill came last year, she said, when she spoke to the United Property Owners of Montana about the dispute.

“I shared about PLF client Uri Rafaeli, who lost his Michigan house valued at more than $60,000 because he accidentally underpaid his property taxes by $8.41. Oakland County, Michigan, sold his house and kept every penny. I warned the audience that even though most states require that the government keep only what it is owed and return the surplus profits to the former owner, Montana law authorized government to take everything and give the windfall to investors.”

Afterward, state Sen. Cary Smith promised to make a fix a priority for lawmakers.

“Other states with similar laws, like Nebraska, Oregon, and Arizona, should follow Montana’s example,” Martin wrote. “Not only is it the right thing to do, it is the fiscally responsible thing to do. Many courts, including the state supreme courts of New Hampshire, Vermont, and Mississippi, have held that similar attempts by local government violated the constitutional requirement that government pay just compensation when it takes private property for a public use.”

Martin said Michigan’s Supreme Court may soon do the same in Rafaeli’s case.

“And when that happens, counties will have to pay just compensation to thousands of former owners.”

It was U.S. District Judge Paul Maloney in Michigan who reopened a lawsuit by Wayside Church, which charges the government kept $189,250 that belongs to the church.

The church was behind $16,750 on its taxes, and Van Buren County confiscated a $206,000 property, sold it and kept all the money.

The county also was accused of selling Henderson Hodgens’ childhood farm and home for $47,750 to pay a $5,900 debt. And, according to the complaint, it sold Myron Stahl’s property, where he was building his retirement home, for $68,750 to pay a $25,000 debt.

The trial court dismissed the lawsuit, concluding the Takings Clause does not protect taxpayers and that Michigan’s law does not recognize that right. The U.S. 6th Circuit Court of Appeals did the same thing, and the Supreme Court declined to intervene at the time.

But a few months later, the Supreme Court agreed to reconsider Williamson County in Knick v. Township of Scott, the Pacific Legal said.

In the case, a local government demanded a resident consider her property public land and provide access. The resident insisted that the government pay her for the loss in value of her property because it’s no longer private.

Note: Read our discussion guidelines before commenting.