Supreme Court Can Uphold States’ Tax Rights With Condo Sale Case

The Supreme Court this week will hear arguments in Tyler v. Hennepin County, a case that involves Hennepin County, Minn. resident Geraldine Tyler and the enforcement of Minnesota’s property tax collection process.

If a property owner fails to pay property taxes, the state compels payment through late fees and interest, and ultimately, through a tax forfeiture. In 2011, Tyler stopped paying the property taxes due on a condominium she owned but didn’t live in.

Hennepin County took title to the condominium for unpaid taxes and later sold the property at a public sale for $40,000. In 2019, Tyler sued the county to recover the equity she claimed the county appropriated. A federal district court dismissed her suit, and the US Court of Appeals for the Eighth Circuit upheld that ruling.

Tyler raised two big questions in her Supreme Court petition. The first is essentially an assertion: she claims that any residual money left after the county elected to sell the property belonged to her, and the county’s failure to pay her those funds violated the Takings Clause in the Fifth Amendment, which states, “nor shall private property be taken for public use, without just compensation.”

The second issue is whether the forfeiture of her equity violated the Eighth Amendment prohibition on excessive fines. Precedent supports the county, so reversal will be problematic for states with tax forfeiture provisions like Minnesota’s.

Support for Tyler

There were more than 30 amicus briefs in the case. The Cato Institute, joined by the national ACLU and its Minnesota chapter, argued that tax forfeiture hurts the elderly on fixed incomes or the poor the most. At its core, Cato argued that owners’ equity is a constitutionally protected property interest that Minnesota’s forfeiture system ignores, but it never addresses the excessive fines question.

The US Chamber of Commerce, which also filed an amicus brief supporting Tyler, asserted that as far back as the Magna Carta, if the state seized land for a debt, any surplus belonged to the debtor. This principle, the Chamber says, became enshrined in the Taking Cause.

Further, the requirement of just compensation forces governments to weigh the cost of taking property against whatever public benefit is obtained. The Chamber of Commerce did address the excessive fines question, saying the seizure of Tyler’s purported equity far exceeded the debt owed, making it a punitive sanction—in violation of precedent going back, again, to the Magna Carta.

It’s hard to see any federal interest that justifies the federal government weighing in on a question of state law property tax enforcement. But the Solicitor General filed an amicus brief purportedly in support of neither party. In fact, the US supported Tyler’s Taking Clause argument.

The Solicitor General asserted the federal interest lay with the forfeiture provisions the IRS enforces. Even if the court upholds Minnesota’s statutes, the IRS provisions should remain intact, as those provisions largely reflect what Tyler would like the Supreme Court to decide.

Support for Hennepin County

Both Minnesota’s and Michigan’s Association of Counties filed briefs supporting Hennepin County. They stressed functional problems would arise if the court upholds Tyler’s challenge—essentially, undue burdens on local tax authorities, which could have significant financial burdens.

Emory University Professor of Law emeritus Frank Alexander asked me to assist in filing a brief in support of Hennepin County. The key points Alexander makes is that equity and redemption lie at the center of Tyler’s case. Equity has two components: economic value and fairness, grounded in the procedural protections of the Due Process Clause.

Due process is satisfied if there are procedural safeguards to give the delinquent taxpayer sufficient notice and a right to be heard. Redemption is the right to free the taxpayer’s property from the tax lien, which the notice requirement protects. Alexander concluded Minnesota’s statute regime provide sufficient procedural protections to satisfy the Due Process Clause and thus should be upheld.

Conclusion

The larger context for Tyler is one of federalism. Traditionally, each state establishes its own property tax regime. Numerous states follow a system similar to Minnesota’s. Each state can strike the balance it wants between procedural fairness and the need to collect local taxes.

That’s the point of the 10th Amendment—to allow this level flexibility among the states. Due process may require notice and a right to be heard, but Minnesota’s statutory regime did that, and the justices should affirm the lower courts’ rulings as a result.

As for the excessive fines question, any answer the high court might provide faces the quandary of what is, in fact, excessive. There’s no easy way to draw a bright line on what’s excessive, and hopefully the court won’t ground its decision on this issue.

The case is: Tyler v. Hennepin Cnty., U.S., No. 22-166, oral arguments 4/26/23

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Scott Knudson is a partner in Taft’s commercial litigation and appellate practices, with a concentration on environmental, transportation, and banking litigation. He is a former law clerk for former Supreme Court Justice William H. Rehnquist.

The author is counsel to Frank S. Alexander, who filed a brief in support of Hennepin County.