The N.C. Supreme Court has held that Henderson County can collect back taxes with interest from a widow after the county failed to assess property taxes on her house for a decade.
The high court’s ruling overturns a Court of Appeals ruling that the county’s attempts to collect the taxes were improper.
Under N.C. law, rulings by the Court of Appeals, the state’s second highest court, are binding interpretations of state law unless over-ruled by the N.C. Supreme Court. When the Supreme Court considers a case previously heard by the Court of Appeals it is not, however, required to issue a separate opinion in the case. The high court can instead adopt the opinion issued by the appeals court or, if there’s a minority opinion from a judge in a three-judge Court of Appeals panel, the dissent.
That’s what the Supreme Court did in this case, adopting Court of Appeals Judge Martha Geer’s dissent that held that the county’s actions in imposing back taxes were proper.
Tyleta Morgan and her now-deceased husband had 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, the county discovered its 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.
What’s an “immaterial irregularity?”
The central issue in Morgan’s appeal is the interpretation of N.C. Gen. Stat. § 105-394 covering ”immaterial irregularities” in property taxation. The section 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, a 1993 decision in which the Court of Appeals held that a clerical or administrative error was an immaterial irregularity that does not excuse tax liability. The commission held that Henderson County’s omissions did not amount to an immaterial irregularity, and that the county should not have been able to collect from Morgan.
“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 in upholding the commission’s decision.
“This evidence supports the Commission’s conclusion that the action of the County Tax Assessor’s Office was neither a ‘clerical or administrative error.’”
Geer dissented from the majority holding, and this is the view of the law the Supreme Court found to be correct.
“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 proper amounted to an immaterial irregularity.
“The plain language of the statute states that an immaterial irregularity includes a ‘failure to . . . assess any property for taxation . . . within the time prescribed by law,’” Geer wrote.
“Contrary to the decision of the Property Tax Commission and the majority opinion, this language does not require that this failure be due to ‘a clerical or administrative error,’” she said.
Geer also noted that nothing in Dickey limited an immaterial irregularity to a clerical or administrative error.
This outcome also confers significant public policy advantages, Geer held. She quoted with approval from a brief filed by the N.C. Association of County Commissioners in the case:
“The policy also avoids any incentive on the part of the property owner to allow an assessment oversight to persist. That is, if a property owner knows that a listing or assessment error will be picked up sooner or later and that taxes will be due for the years in question, that property owner is more likely to bring any omission or other error to the attention of the county assessor’s office.”
Geer found that this extended to interest for late payment of taxes, even though Morgan had not been sent a tax bill.
As to whether the outcome would be fair, Geer viewed that as a matter for the legislature, not the courts, to decide.
The case is In re Appeal of Morgan, (06-1423). Because of the Supreme Court’s holding, Geer’s dissent should be read as the controlling opinion.
Michael Lowrey is an associate editor of Carolina Journal.