The N.C. Court of Appeals rejected an attempt by Henderson County officials to collect back taxes, penalties, and interest from a widow after they failed to assess property taxes on her house for a decade.
The decision by the state’s second highest court might not be the last word in the matter, however, because the N.C. Supreme Court must take the case if the county appeals the ruling.
Tyleta Morgan and her now-deceased husband have owned 85 acres of land in Henderson County since 1971. In 1991, the land was classified as “forestry” under the Forestry Management Program, resulting in a lower property tax valuation.
In 1986, the Morgans started to build a house on the property. They obtained all appropriate permits from the county, and building inspectors visited the site. In 1992, when the house was 80 percent complete, the Morgans listed the house on their tax form. The local tax assessor reappraised property in the county in 1999 and 2003, which included a visit to the property. Despite this, the county still did not actually assess property tax on the house.
In 2004, county officials finally discovered their mistake and sent Morgan a tax bill for taxes due from 1995 through 2003, including penalty and interest. The bill totaled $8,533.61.
Morgan paid the taxes and appealed the county’s ruling. After the Henderson County Board of Equalization and Review ruled against her, she took her case to the N.C. Property Tax Commission.
The central argument in Morgan’s case is the interpretation of N.C. Gen. Stat. § 105-394, which states:
“Immaterial irregularities in the listing, appraisal, or assessment of property for taxation or in the levy or collection of the property tax or in any other proceeding or requirement of this Subchapter shall not invalidate the tax imposed upon any property or any process of listing, appraisal, assessment, levy, collection, or any other proceeding under this Subchapter.”
The statue gives several examples of “immaterial irregularities”, including: “the failure to list, appraise, or assess any property for taxation or to levy any tax within the time prescribed by law.”
Upon review, the Property Tax Commission concluded that “the action of the Tax Assessor, under the facts and circumstances at issue … [is not] an immaterial irregularity since his action in the matter does not constitute a clerical or administrative error.”
In reaching this determination, the commission distinguished the case from In re Appeal of Dickey, in which the Court of Appeals held that a clerical or administrative error does not excuse tax liability. The commission held that Henderson County’s omissions did not fall into this category.
“Mrs. Morgan presented, and the Commission found, substantial evidence tending to show the County was provided multiple opportunities to assess the property, but failed to do so,” Judge John Tyson wrote for the Court of Appeals.
“This evidence supports the Commission’s conclusion that the action of the County Tax Assessor’s Office was neither a ‘clerical or administrative error.’”
The appeals court majority also noted that even if the court was incorrect, state law and prior precedents do not allow the imposition of penalties and interest in cases of immaterial irregularities.
Judge Martha Geer dissented from the majority holding.
“The majority holds that a failure to list property cannot constitute an ‘immaterial irregularity’ under N.C. Gen. Stat. § 105-394 unless the failure was due to a clerical or administrative error. I believe that the majority has inserted language into the statute,” she wrote. “I would hold that the plain language of the statute without alteration and this Court’s opinion in In re Appeal of Dickey require reversal of the Property Tax Commission.”
In her view, Henderson County’s failure to assess the property indeed did amount to an immaterial irregularity. As to whether that outcome would be fair, Geer viewed that as a matter for the legislature, not the courts, to decide.
“…It may well be troubling that a taxing authority can, under the immaterial irregularity provisions of N.C. Gen. Stat. § 105-394, go back 10 years to assess property that the authority has neglected to assess in a timely fashion through no fault of the taxpayer,” she wrote.
“Whether a County should be able to do so is, however, a question for the General Assembly and not for the courts. It is our responsibility to apply the statute as written.”
N.C. Court of Appeal rulings are binding interpretations of state law unless over-ruled by the N.C. Supreme Court. Because of Geer’s dissent, the high court will hear the case if Henderson County further appeals.
The case is In re Appeal of Morgan, (06-1423).
Michael Lowrey is associate editor of Carolina Journal.