Ran-Mar, Inc. V. Town of Berlin (2005-311)
2006 VT 117
[Filed 17-Nov-2006]
NOTICE: This opinion is subject to motions for reargument under
V.R.A.P. 40 as well as formal revision before publication in the Vermont
Reports. Readers are requested to notify the Reporter of Decisions,
Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801 of
any errors in order that corrections may be made before this opinion goes
to press.
2006 VT 117
No. 2005-311
Ran-Mar, Inc., R & G Properties II, Inc. Supreme Court
and R & G Properties III, Inc. On Appeal from
v. Washington Superior Court
Town of Berlin and Joadi Tracey, Treasurer May Term, 2006
and Collector of Current and Delinquent
Taxes of the Town of Berlin
Matthew I. Katz, J.
Kathleen B. O'Neill and Philip H. White of Wilson & White, P.C.,
Montpelier, for Plaintiffs-Appellants.
Marikate E. Kelley and Philip C. Woodward of Woodward & Kelley, PLLC, South
Burlington, for Defendants-Appellees.
PRESENT: Reiber, C.J., Dooley, Johnson, Skoglund and Burgess, JJ.
¶ 1. BURGESS, J. This case arises out of a group of tax sales by
the Town of Berlin to satisfy delinquent tax payments for properties owned
by three related corporate entities: Ran-Mar, Inc.; R & G Properties II,
Inc.; and R & G Properties III, Inc. (collectively, "taxpayers").
Taxpayers challenged the Town's actions, claiming that the Town exceeded
its statutory taxing authority under 32 V.S.A. 5254(a) by collecting
"interest" and "penalties" through the tax sales and by retaining the
excess proceeds from the tax sales during the redemption period. Taxpayers
also claimed that the Town's retention of the proceeds was an
unconstitutional taking. The superior court granted the Town's motion for
summary judgment. We affirm.
¶ 2. Taxpayers owned a number of properties in the Town of Berlin.
After the taxes on several of taxpayers' properties became delinquent, the
Town gave notice of tax sales on seven of the properties. The notices
stated that in order to prevent the tax sale taxpayers would have to pay
the Town the principal on the delinquent taxes, any accrued interest,
penalties, legal fees, and costs, before the date of the tax sale.
Taxpayers did not pay the amount due to the Town, and the tax sales were
conducted. Following the tax sales, taxpayers requested that the Town
provide an accounting of the sales and turn over to taxpayers the amount
collected in excess of the taxes, costs, and fees owed by taxpayers. The
Town responded that it intended to hold the proceeds of the tax sales until
the expiration of the one-year statutory redemption period. Taxpayers
brought suit in Washington Superior Court to set aside the tax sales and
challenge the Town's retention of the tax sale proceeds during the period
of redemption. (FN1) Taxpayers moved for judgment on the pleadings. The
Town moved for dismissal or, alternatively, for summary judgment. The
court granted the Town's motion for summary judgment, upholding the tax
sales and the Town's authority to hold the proceeds until the end of the
redemption period. This appeal followed.
¶ 3. Taxpayers argue that the tax sales were invalid because the
Town's notices demanded that taxpayers pay accrued interest and penalties
to prevent the tax sales. Taxpayers contend that the Town is not
authorized to collect interest or penalties through tax sales under 32
V.S.A. 5254(a), which provides: "When the tax with costs and fees is not
paid before the day of sale, the real property on which the taxes are due
shall be sold to pay such taxes, costs and fees." Taxpayers claim that the
language "taxes, costs and fees" does not include "interest" or "penalties"
as demanded by the Town. Taxpayers also argue that the Town had no right,
statutory or otherwise, to hold the excess proceeds of the tax sale during
the period of redemption and that to do so was an unconstitutional taking
of their property.
¶ 4. First, we address taxpayers' contention that the Town exceeded
32 V.S.A. 5254(a) by collecting interest on the delinquent tax principal
by way of tax sale. Taxpayers argue that the Town cannot collect interest
on delinquent taxes because interest is not specifically listed in
5254(a). The superior court held that interest is considered to be an
element of the tax obligation itself, and therefore did not need to be
specifically listed in the statute to be collectible through tax sale.
¶ 5. In construing a taxing statute, like all statutes, our
primary goal is to implement the intent and purpose of the Legislature. In
re Loyal Order of Moose, Inc. Lodge # 1090, 2005 VT 31, ¶ 8, 178 Vt. 510,
872 A.2d 345. If a statute's meaning is plain on its face, we enforce it
according to its terms. Id. "When the meaning of a statute is in doubt, we
determine its intent from a consideration of the whole and every part of
the statute, the subject matter, the effects and consequences, and the
reason and spirit of the law." Boutin v. Conway, 153 Vt. 558, 562, 572
A.2d 905, 907 (1990) (internal quotations omitted). We construe all parts
of the statutory scheme together, where possible, as a harmonious whole, In
re Estate of Cote, 2004 VT 17, 10, 176 Vt. 293, 848 A.2d 264, and "[w]e
will avoid a construction that would render the legislation ineffective or
irrational." In re Southview Assocs., 153 Vt. 171, 175, 569 A.2d 501, 503
(1989). Any remaining ambiguities are resolved against the taxing power
and in favor of the taxpayer. Loyal Order of Moose, 2005 VT 31, ¶ 8.
¶ 6. The Legislature authorized municipalities to collect interest
on overdue taxes through 32 V.S.A. § 5136. Viewing the statutory scheme as
a whole, we conclude that the Legislature intended interest authorized
under § 5136 to be included as an element of the obligation collectible by
tax sale under § 5254(a), or by other statutory means of property tax
collection. Section 5136 does not specify a method by which the interest
shall be collected, and no express mention of tax interest is made in most
of the sections governing property tax collection. See 32 V.S.A.
5221-27 (collection of taxes by action at law); id. 5251-63 (collection
of taxes by sale of real estate); id. 5140 (collection of taxes from the
estate of the deceased). Without some method to collect the interest, §
5136 would be rendered ineffective. The only statutory method of
collection that expressly uses the word "interest" is found in 32 V.S.A. §
5141, which authorizes collection of delinquent taxes from the earnings of
municipal employees. It would be an irrational result and contrary, we
believe, to the intent of the Legislature if towns could collect the
interest to which they are entitled under § 5136 only if the tax was owed
by municipal employees or voluntarily paid by the taxpayer. Cf. Boutin v.
Conway, 153 Vt. 558, 562, 572 A.2d 905, 907 (1990) (holding that a late
payment penalty was part of the tax due itself, and that refusal to issue a
driver's license based on failure to pay the penalty was valid, in part
because "a contrary interpretation would lead to the irrational result that
the commissioner would be unable to collect the penalty"). Thus, we
conclude that in order to give effect to the interest-collection provision
of § 5136, the Legislature intended interest authorized under § 5136 to be
included as an element of the obligation collectible by tax sale under §
5254(a), or by other statutory means of property tax collection.
¶ 7. Taxpayers cite Clace v. Fair for the proposition that
"[i]nterest and penalties are only incidental" to a delinquent tax and are
not inherent to collection of the tax itself. 129 Vt. 573, 574, 285 A.2d
705, 706 (1971). In Clace, this Court held that tax collectors were not
authorized to bring suit for penalties and interest when the principal tax
obligation, although delinquent, had already been paid to, and accepted by,
the town. Id. at 574, 285 A.2d at 705-06. We find Clace inapplicable for
several reasons. First, the assessment of interest in the present case was
not brought by an individual collector as a subsequent action after
satisfaction of the underlying taxes owed, as was the case in Clace. The
collection authority of towns is not constrained in the same manner as that
of an individual tax collector. See Id. at 574, 285 A.2d at 705
(construing 32 V.S.A. §§ 5221, 5222). Second, a post-Clace statutory
amendment raises doubt about Clace's continued validity and further
supports our conclusion that the Legislature intended to allow collection
of interest by tax sale or other collection means. Under current law,
"[t]he acceptance of full or partial payment of overdue taxes . . . shall
not preclude the town from collecting any unpaid balance of taxes and any
interest and collection fees accruing to the town, whether relating to the
collected or uncollected portion of taxes." 32 V.S.A. § 5142 (originally
enacted by 1985, No. 91). Thus, satisfaction of the tax obligation in this
case by means of a tax sale and subsequent redemption does not preclude
collection of interest and fees as in Clace.
¶ 8. We next address taxpayers' argument that the Town's demand of
"penalties" is not authorized by § 5254(a). The superior court determined
that the "penalties" listed in the notice from the Town was not actually a
penalty, but the eight percent collector's fee authorized by 32 V.S.A. §§
1674, 5258. "Fees" are explicitly collectible by tax sale under § 5254(a).
The Town's use of the term "penalties" to refer to the collector's fee does
not invalidate the tax sale, nor does it prevent the Town from collecting
the fee. (FN2) The purpose of the notice is to inform the taxpayer that
the property is to be sold, so that the taxpayer can prevent the sale by
paying the delinquent taxes. Chester Motors, Inc. v. Koledo, 146 Vt. 357,
358, 503 A.2d 551, 552 (1985). The notice was clear enough to inform
taxpayers of the sale, and of the amount properly due.
¶ 9. Finally, we address taxpayers' argument that the Town's
retention of the excess proceeds from the tax sale was unauthorized by
statute and amounted to an unconstitutional taking. (FN3) While noting
that Vermont's taxing statutes make no provision for the disposition of the
surplus proceeds during redemption, the superior court concluded that
taxpayers had no right to the proceeds during the redemption period and
that no taking had occurred. We agree.
¶ 10. Taxpayers who wish to redeem their property have one year from
the time of the tax sale to pay the town the amount owed plus additional
interest of one percent per month on the price paid by the buyer. 32
V.S.A. § 5260. During this one-year redemption period the taxpayer
maintains possession and use of the property and the purchaser does not
take title. Id. During this time there has been no transfer of the
property; the transaction is not yet completed.
¶ 11. The redemption statutes are silent concerning disposition of
the tax sale proceeds pending redemption. No taxpayer right to such
proceeds during that time is created by statute. There is no conveyance of
the land to anyone during redemption, so no proceeds appear due to the
taxpayer absent transfer of title. Until title is conveyed, the delinquent
taxpayer is not entitled to any proceeds because no property has been
forfeited until that time. (FN4)
¶ 12. For these reasons, taxpayers' argument that the retention of
the proceeds was an unconstitutional taking also fails. There is no
taking, actual or implicit, because the Town neither took property away
from taxpayers, nor deprived taxpayers of the economic use of their
property. Taxpayers had full use, possession and title of the property
throughout the redemption period. Taxpayers' argument that the Town
refused to "return" or "give back" the excess proceeds demonstrates the
inherent flaw in its takings argument. The proceeds from the sale,
incomplete until the passage of the redemption period, came from the buyer,
not taxpayers, so that nothing was taken or received from taxpayers for
the Town to return. At the end of the redemption period, if taxpayers had
failed to redeem the property and title had been conveyed, the excess
proceeds would have been turned over to them; otherwise, the proceeds would
have been returned to the buyer.
¶ 13. Taxpayers cite Bogie v. Town of Barnet, 129 Vt. 46, 270 A.2d
898 (1970), in support of their argument that the combination of the Town's
retention of the proceeds while charging interest at a rate of one percent
per month in order to redeem, is an unconstitutional taking. In Bogie we
held that a taking occurred when the Town of Barnet conducted a tax sale in
which the town bought the property for $848.67 and, after the redemption
period passed, sold the property for $5,314. Id. at 46-47, 49, 270 A.2d at
899, 900-01. The Town's actions here are not analogous to the Town of
Barnet's actions in Bogie. In Bogie, the town received a windfall by
acquiring the property at the tax sale and subsequently selling it and
retaining the excess proceeds for itself after the redemption period. Id.
at 48-49, 270 A.2d at 900. Here, the Town received no such windfall; the
additional interest that accrued during redemption is not retained by the
Town, but is paid over to the buyer as required by 32 V.S.A. § 5260.
Taxpayers characterize the Town's actions as denying them the money they
are due and charging interest on that money at the same time. This
argument again mischaracterizes the facts and the statutory redemption
scheme. Taxpayers are due nothing for nothing. The one percent per month
interest applies only if taxpayers redeem the property, and that interest
is then paid over to the tax sale buyer who has invested money for a chance
to purchase the property. It is the expectant buyer, not the Town, who
receives the one percent per month interest on the full amount the buyer
was required to commit for up to a year for the mere possibility of
acquiring the property. Unlike the situation in Bogie, where the property
was unredeemed and ultimately sold, here there was no conveyance to a
buyer, no loss to the taxpayer, and no windfall to the town. Bogie is
entirely inapposite to this case.
Affirmed.
FOR THE COURT:
_______________________________________
Associate Justice
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Consenting
¶ 14. DOOLEY, J., concurring. I concur in the majority opinion,
and write only to add that the Town can, and often should, return the
excess proceeds to the taxpayer when it receives them. It is undisputed
that the Town will receive no more money for the delinquent taxes, and
their collection costs, whether it retains the excess proceeds until the
redemption period ends or it distributes them when it receives them.
Further, it is undisputed that under our decision in Bogie v. Town of
Barnet, 129 Vt. 46, 270 A.2d 898 (1970), the economic benefit of the excess
proceeds must go to the taxpayer, whether or not the taxpayer redeems.
Finally, it is undisputed that if the taxpayer wants to redeem, it will
have to pay the purchaser the purchase price plus statutory interest to
make the purchaser whole. This must occur whether or not the excess
proceeds are distributed, although, if they are not, the taxpayer can use
them as part of the amount paid to the purchaser.
¶ 15. Under these circumstances, at least in the simple case as this
one was, the Town has no clear reason to retain the excess proceeds, and
there are reasons not to. It is likely that a taxpayer who is defaulting
on payment of taxes has other unpaid creditors who will draw the Town into
litigation to reach the excess proceeds. Returning the excess proceeds may
be sufficient to keep the taxpayer's business alive with commensurate
economic activity and jobs in the town.
¶ 16. In its brief, the Town responds that returning the excess
proceeds may be acceptable in simple cases, but that it isn't in the Town's
interest when there are mortgage or attaching creditor interests in the
real estate, and these persons have the power to redeem, or when there is a
risk of challenge to the tax sale. I agree that the Town should not return
the proceeds without the consent of the mortgagee, (FN5) but in many cases
the mortgagee is likely to give consent because the excess proceeds can be
used to pay the mortgage debt. I don't understand how distributing the
proceeds hurts the Town's position if the tax sale is declared invalid.
The taxpayer cannot regain clear title without restoring the purchase price
to the buyer after the invalid sale.
¶ 17. I understand the view put forward by the Town, and apparently
accepted by the majority, that it is unfair for the taxpayer to retain the
equity of redemption, possession of the land, and the proceeds of the sale
at the same time. While that view of fairness protects the legality of the
Town's action in holding the excess proceeds, it does not make that action
wise.
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Associate Justice
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Footnotes
FN1. Taxpayers state on appeal that they have since redeemed all properties
sold at the tax sales by paying the town the amount owed plus interest at
12% per annum on the tax sale price as provided for under 32 V.S.A. § 5260.
FN2. The better practice, however, is for towns to refer to the collector's
fee as a fee in their notices to taxpayers.
FN3. The term "excess proceeds" from a tax sale refers to the amount that
the buyer at the sale paid less the amount owed to the Town by the
taxpayer.
FN4. Justice Dooley opines in his concurrence that, under certain
circumstances, it may be wiser for towns to turn over the anticipated
surplus to the taxpayer in advance of finalizing the conveyance. This may
be correct, but absent any affirmative obligation to do so, it is properly
left for the town to determine the risks and benefits of paying the
taxpayer before title is conveyed.
FN5. The statute gives the right to redeem only to the owner and the
mortgagee. 32 V.S.A. § 5260. The Town notes, however, that notice of the
sale must also be given to each "lien holder of record," 32 V.S.A. §
5252(4), and that this must mean that the lien holders have a sufficient
interest to also give them the right to redeem. Since I am talking here
about what a town might do, rather than what it must do, I offer no opinion
on whether the Town's position is correct. At most, this position expands
the list of those from whom the Town could seek consent.