States Are Not Entitled to Windfalls in Tax Disputes, Supreme Court Rules

Supreme Court The verdict was delivered unanimously on Thursday States that seize and sell private property to collect unpaid taxes violate the Constitution’s Powers Clause if they keep more than the taxpayers owe.

The case involved a 94-year-old woman in Minnesota who stopped paying property taxes on her condominium after moving into an assisted living center.

By the time Hennepin County seized the property, the woman, Geraldine Tyler, owed $2,000 in back taxes and $13,000 in penalties and interest. The county sold the condo at auction for $40,000, and kept not only the $15,000 that everyone agreed was owed, but also the remaining $25,000.

Retaining the full value of a foreclosed property, even when the outstanding debt is a small portion of it, is authorized by Minnesota law.

The county argued that the Minnesota law was rooted in historical practice and encouraged homeowners to take steps to protect their property.

Writing for the court, Chief Justice John G. Roberts Jr. said “history and precedent say otherwise.”

“The county had the option to sell Tyler’s home to recover unpaid property taxes,” he wrote, but, he added, “this tax debt would exceed the amount owed. cannot be used to confiscate more property.”

The county’s action, the chief justice wrote, was a classic violation of the Takings Clause, which states that property “may not be taken for public use, only without compensation.”

History supports this view, Chief Justice Roberts wrote.

“The principle that the government cannot take more than what is owed to taxpayers,” he wrote, “can be traced back at least as far as Runnymeade in 1215, where King John swore in the Magna Carta that When his sheriff or bailiff came to collect a debt due to him from a dead person, he could remove the property until the debt that was clear was paid in full, and the residue to the deceased. It shall be left to the executors to carry out the will.”

“Our precedents have also recognized the principle that a taxpayer is entitled to an amount in excess of the debt due,” the chief justice added.

Minnesota’s approach is a relative outlier, he wrote. “Thirty-six states and the federal government require that the additional cost be returned to taxpayers,” he wrote.

The Constitution prohibits practices in other states, Chief Justice Roberts wrote in his opinion in the case, Tyler v. Hennepin County, No. 22-166.

“The takings clause,” he wrote, citing an earlier ruling, “was designed to prevent the government from forcing a mere few to bear public burdens which, in all fairness and justice, would be the whole.” But the people should bear it.’ A taxpayer who forfeits his $40,000 home to the state to settle a $15,000 tax debt has contributed far more to the public finances than he owes. The taxpayer must give to Caesar what is Caesar’s, but no more.

Christina Martin, an attorney with the Pacific Legal Foundation, which represents Ms. Tyler, called the ruling “a major victory for property rights in the United States.”

“The court’s decision,” he said in a statement, “makes clear that home equity theft is not only unfair, but unconstitutional.”

Justice Neil M. Gorsuch, joined by Justice Katenji Brown-Jackson, issued a concurring opinion that explored another possible basis for ruling in Ms. Tyler’s favor: the Eighth Amendment’s prohibition of “excessive fines.”

“Economic penalties imposed to deter willful noncompliance with the law are fines by any other name,” Justice Gorsuch wrote. “And the Constitution has something to say about them: They cannot be excessive.”

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