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Opt out tax law struck down (UPDATE)

By: David Ziemer, [email protected]//March 25, 2011//

Opt out tax law struck down (UPDATE)

By: David Ziemer, [email protected]//March 25, 2011//

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Property owners, wherever they live in Wisconsin, will be able to obtain de novo review of their tax assessments.

For the city of Milwaukee, that could be very expensive.

On Friday, the Wisconsin Supreme Court struck down 2007 Wis. Act 86, which allowed municipalities to limit their taxpayers to certiorari review on the record.

Writing for a 4-3 majority, Justice Michael J. Gableman said that there is no rational basis for affording taxpayers in different communities different rights, in violation of the Equal Protection Clause.

Prior to 2001, most property owners could obtain judicial review of a Board of Review’s decision, either on the record, or de novo review. In Milwaukee County, however, taxpayers could seek review only on the record created before the Board.

But in that year, the Supreme Court held the distinction violated equal protection, in Nankin v. Village of Shorewood, 2001 WI 92, 245 Wis.2d 86, 630 N.W.2d 141. In response, the legislature later passed Act 86, giving municipalities a choice whether to allow both forms of review, or just certiorari review. In 2008, the city of Milwaukee opted to eliminate de novo review.

Metropolitan Associates, a limited partnership owning property in Milwaukee, filed a class action suit in 2008, seeking a declaration that the law was unconstitutional.

The circuit court agreed, but the Court of Appeals reversed. Metro. Assocs. v. City of Milwaukee, 2009 WI App 157, 321 Wis.2d 632, 774 N.W.2d 821. In turn, the Supreme Court reversed the Court of Appeals.

The court concluded that its opinion in Nankin required that Act 86 be struck down as well.

In Nankin, the court found: (1) the statute creates a distinct classification of citizens; (2) the difference in treatment of citizens was significant; and (3) no rational basis existed for the difference.

It was not disputed that Act 86 creates a distinct classification of citizens, and thus the first similarity was present.

Turning to the second element, the court found the differences significant, because, with de novo review, a taxpayer has significantly more time and opportunity for discovery. As in Nankin, the court found that without de novo review, there is a risk that the Board of Review would not develop a complete and accurate record.

Addressing the final criteria, the court concluded that there is no rational basis for the different treatment.

As in Nankin, the court found that the law failed in three respects.

First, it found that there is no substantial distinction between taxpayers living in municipalities that opt out of de novo review and those that don’t. “Taxpayers in opt out municipalities are no different from taxpayers in all other municipalities, except for the different rights available to taxpayers in opt out municipalities at the Board of Review and circuit court review stages.”

Second, the court found that the distinction is not germane to the law. Milwaukee argued that the statute allows it to provide taxpayers access to a faster and less expensive review.

But the court found that concerns for judicial efficiency are common to all. If this objective were germane, the court found, the legislature would have eliminated de novo review for all municipalities.

Finally, the court found that the characteristics of the two classes are not so different as to justify substantially different treatment.

The court reemphasized, “as noted above, Milwaukee presents no characteristic of taxpayers residing in opt out municipalities — and we are unable to discern one — that is different than the characteristics of all other taxpayers (emphasis in original).”

The Dissent

Chief Justice Shirley S. Abrahamson dissented, in an opinion joined by Justices Ann Walsh Bradley and N. Patrick Crooks.

The dissenters concluded that the distinction did have a rational basis, because the elected leaders in Milwaukee had chosen different treatment, and they could be removed by the voters.

“I cannot conclude that the legislation is ‘arbitrary,’ because it leaves for the taxation district the choice of how a taxpayer should proceed to challenge an assessment,” Abrahamson wrote. “And as with all policy decisions vested in the representative branches of government, the recourse for taxpayers unhappy with the policy decisions of their representatives rests in the ballot box.”

Vincent D. Moschella, who represented the City before the court, said that the ruling could cost the city a lot of money, because it will need to fully defend its property tax assessments twice -– before the Board of Review, and again in circuit courts.

Moschella said that current pending claims for refunds against the city are approximately $7 million, although it wouldn’t be liable for that much, because the city’s assessments are generally accurate.

Moschella predicted the ruling would have the biggest impact in smaller communities that could be outmanned by large commercial businesses challenging their assessments.

For the most part, however, smaller municipalities have not opted out of de novo review. “Milwaukee was sued so soon after the statute came into effect, the smaller municipalities have taken a wait and see approach,” Moschella said.

Attorney John Macy, who represents dozens of municipalities in southeast Wisconsin, confirmed that none of his clients have opted out of de novo review. But he said it hasn’t been a problem in those communities, and de novo reviews are uncommon.

Instead, he confirmed that it was a problem in the city of Milwaukee, which he represented in assessment disputes for 12 years.

The impetus for Act 86, Macy said, was that, “Large numbers of owners would just put in a token case before the Board of Review, and then request de novo review when they lost.” But in the smaller communities he now represents, “We have not seen problems like the Ccty of Milwaukee has seen.”

Robert L. Gordon, who represented the taxpayer remarked, “What the decision did was reaffirm what the court held 10 years ago in Nankin -– that all taxpayers regardless of what municipality they are in, should have the full panoply of rights to challenge an assessment.”

Noting that the Equal Protection Clause protects individuals, not governments, Gordon said, “There is no natural inherent difference between taxpayers in different municipalities. The actions of their government boards is not a rational basis for affording them different rights.”

Case:    Metropolitan Associates v. City of Milwaukee, No. 2009AP524

Issue:    Does the statute that permits municipalities to opt out of de novo review of Board of Review decisions violate the Equal Protection Clause?

Holding: Yes. The limitation on the rights of taxpayers in opt out municipalities is substantial and lacks a rational basis.

Attorneys: For Plaintiff: Alan Marcuvitz, Robert L. Gordon, Andrea H. Roschke, Milwaukee; for Defendant: Grant F. Langley, Vincent D. Moschella, Milwaukee

Full text available at www.wislawjournal.com

David Ziemer can be reached at [email protected]

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