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.  


                                       _______________________________________
                                       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.

