Perspectives: Tax time: Three tribunals tackle tussles

“Taxes are what we pay for a civilized society ….”

 Compangnia General de Tabacos de Filipinas v. Collector of Internal Revenue, 275 U.S. 87 (1927) (Holmes, J. dissenting)

Paying taxes may, as indicated in the famous observation by eminent Supreme Court Justice Oliver Wendell Holmes, be necessary, but individuals and organizations try mightily to minimize those obligations.

The concern resonates loudly at this time of the year as Minnesotans prepare to pay their second-half property taxes due in the middle of this month, Oct. 17 to be precise.

A quintet of recent rulings by Minnesota courts, a couple by the Supreme Court, a pair by the Tax Court, and another by the 8th Circuit, addressed a number of diverse taxation-related matters.

Two of the tussles, concurrently decided by the state Supreme Court, reversed decisions of the Tax Court, which weighed in with two rulings adverse to taxpayers, while the 8th Circuit Court of Appeals permitted taxpayers to proceed with an unusual challenge to an arrangement between teachers and the Anoka School District.

Educational exemption

A request by a childhood education center in Red Wing for exemption from property taxes under the Minnesota Constitution and a parallel state statute was granted by the Minnesota Supreme Court in Under the Rainbow Education Center v. County of Goodhue, 978 N.W.2d 893 (Minn. Aug. 24, 2022).

The facility sought exemption as a seminary falling within the provision of Article X, § 1, of the state constitution, which bars property taxes for “academies, colleges, universities, [and] all seminaries of learning,” which is paralleled in Minn. Stat. § 272.02, subd. 5. The claimant cited its licensure, facilities, programming and rating by government administered “best practices” program indicative of its status under the “seminaries of learning” provision. That characterization had, in prior decisions, been limited to secondary and post-secondary institutions, not an early childhood education facility.

The Tax Court denied the facility’s request for summary judgment and granted it for the county.

But the Supreme Court reversed, holding that the entity is entitled to tax exemption under the “seminaries” clauses of both the Minnesota Constitution and statute. The “controlling standard” is that an institution qualifies for exemption if it has an “educational purpose, provides a broad general education and does so in a thorough and comprehensive manner.” The uncontroverted evidence satisfied each of these elements and, therefore, entitled the facility to the tax exemption it sought.

Expert evidence

Another tax-related reversal occurred pertaining to the use by Hennepin County of an expert report in a property tax case containing nonpublic data about comparable rental property in order to establish the market value of the taxpayer’s office tower in G&I IX, OIC, LLC v. Hennepin County, 979 N.W.2d 52 (Minn. Aug. 24, 2022).

The issue was whether property tax assessment data, classified as nonpublic under the Government Data Practices Act, Minn. Stat. § 13.51, can be used as evidence at a public tax trial when the data is contained within an “assessor’s record,” which constitutes an expert appraisal report that is prepared for litigation.

The Tax Court, interpreting the applicable tax statute, held that the Data Practices Act prohibited the county from disclosing the nonpublic data within the report prepared by its expert appraiser. Rather, the court held that the county could not use the data without first obtaining court approval based upon a “balancing test” used for discovery of public government data, pursuant to the Act.

The Supreme Court, unanimously reversed in a decision written by Justice Margaret Chutich, holding that the applicable statute was “ambiguous,” but case law and other statutes regarding real estate tax assessments “supports” the county’s position that its expert’s appraisal report is admissible at trial, a conclusion which is bolstered by other “fairness” considerations. In contrast, precluding the evidence at trial “could lead to additional unfairness” by barring use of nonpublic data at trial regardless of “how critical for the government’s defense of its assessment.”

Further, the tax court has authority to “protect” nonpublic data of both taxpayers and third parties by protective orders during discovery in a trial. Therefore, based upon the critical language of the statutes and … two [prior] decisions, the data may be used at trial.

In her decision, Justice Chutich explained that Minn. Stat. § 27A.03, allows an “assessor’s record” containing public data about comparable income producing properties to be added into evidence in a property tax dispute. A concurrence by Justice Paul Thissen, joined by Justice G. Barry Anderson, opined that the majority decision “does not settle the issue … [but] adds to the confusion,” and warrants the Legislature to “step up … and devise a better solution” to the conflict posed by access to nonpublic data for public tax related litigation.

Recusal ruling

Hennepin County prevailed in other litigation before the Tax Court, which did not reach the Supreme Court in Johnson v. County of Hennepin, 2022 WL 3589619 (Minn. Tax Ct. Aug. 22, 2022)(unpublished).

One case was an effort by pro se claimants seeking to vacate an earlier order dismissing their petition challenging the property tax valuation, accompanied by a motion for recusal of the assigned judge. Their attempt was rejected by the court on grounds that they did not submit an accompanying affidavit, nor any facts supporting judicial disqualification under the Code of Judicial Conduct.

While claiming that the prior order was “jurisdictionally null” and “void,” the claimants also did not identify any specific procedural or substantive grounds for their motion to vacate the prior dismissal order.

Therefore, the petition was properly denied and the efforts to vacate the order and remove the judge were rejected.

Another valuation challenge in northwestern Minnesota also failed in Wagner v. County of Norman, 2022 WL 4015332 (Minn. Tax Ct. Sept. 9, 2022)(unpublished). A petition was filed by owners of a single-family residence in Ada, the county seat in Norman County, to lower its assessed market value. The claim was rejected after trial due to insufficient evidence of comparable market values to overcome the “prima facie” validity of the assessed value.

Standing suit

The 8th U.S. Circuit Court of Appeals also weighed in on a tax-related case from Minnesota in Huizenga v. Ind. Sch. District No. 11, 44 F.4th 806 (8th Cir. Aug. 11, 2022).

The case was a challenge by three residents in Anoka County of provisions in a collective bargaining agreement entered into between the union representing teachers and the Anoka School District to allow the educators to have up to 100 days of paid leave per school year to work for the union, coupled with a reimbursement plan for the union for hiring substitute teachers, but not for the salaries and benefits they receive. The claimants asserted that the arrangement violates freedom of speech under the First Amendment because it subsidizes union activities, along with claims under the state constitution, and the Public Employee Labor Relations Act (PELRA), Minn. Stat. § 179A.01 et seq.

U.S. District Court Judge Nancy Brasel in Minnesota refused to grant injunctive relief on grounds that the taxpayers lacked standing. But the court of appeals reversed and remanded the case.

The First Amendment claim, grounded on the decision four years ago by the district court in Janus v. AFSCME, 138 S.Ct. 2448 (2018), is not maintainable because the argument lacked “supporting” authority.

But the taxpayers could pursue a claim that they have standing under a parallel of the doctrine of Flats v. Cohen, 392 U.S. 83 (1968) a Supreme Court decision that allows taxpayers to pursue certain legal claims relating to inappropriate and unauthorized expenditure of public funds. That principle was limited to Establishment Clause claims under the First Amendment, does not extend to the issues in this case. However, the taxpayers may assert a parallel version of “municipal taxpayer standing,” which is comparable to the relationship between a “stockholder and a private business.” Under that rubric, the case may proceed, warranting remand to Judge Brasel for consideration of equitable relief.

These five cases reflect the variations that arise in tax-related litigation before diverse tribunals and the different outcomes that they yield.

PERSPECTIVES POINTERS

Standards for taxpayer ‘standing’ under Flast v. Cohen

• Logical connection between taxpayer status and contested issues.
• Challenge measure exceeds specific constitutional limitation upon exercise of taxing and spending powers.
• Challenge not simply based on claim that measure is beyond legislative-delegated powers.

Marshall H. Tanick is an attorney with the Twin Cities law firm of Meyer Njus Tanick.

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