May 12, 2003 – By court order, the V.I. government may not collect on any outstanding property tax bills from 1999 onward and may not issue any new property tax bills until it revamps its tax assessment process.
The order comes in the wake of Gov. Charles W. Turnbull's admission last month that the government is teetering on the brink of bankruptcy.
U.S. District Judge Thomas K. Moore issued the decree on Monday. It is the latest in a string of rulings unfavorable to the government that Moore has issued the last three years in connection with a series of taxpayer suits filed against the V.I. government. The 3rd Circuit Court of Appeals in March sided with Moore in rejecting the territory's appeal of one earlier ruling.
While earlier cases involved only commercial property, Moore made it clear that his moratorium now on tax assessments and collections applies to both commercial and residential property.
The basic issue is the same in all of the cases. The federal government says V.I. property must be assessed for tax purposes on the basis of "actual value" or "market value" — in other words, on what that property could reasonably be expected to sell for if it went on the market today. But the V.I. government has been using other measurements, notably replacement value, in making its assessments. This has invariably resulted in higher assessments and, consequently, higher tax bills.
For decades, high assessments have compensated for an unusually low property tax rate. The rate of 1.25 percent of assessed value was set in 1936; in nearly 70 years, it has never been raised.
Moore said the Legislature "miserably failed the people of the Virgin Islands by not living up to its responsibility to determine how much revenue property taxes should contribute to the overall budget" and by failing to change the property tax rate to reflect the government's growing budget. "The Legislature has further contributed to the illegality of the property tax system by enacting provisions over the years that prevent the Tax Assessor from appraising commercial and residential property at actual value," he wrote.
The Legislature's failure to enact a tax increase "puts undue and unnecessary pressure on the Tax Assessor's levels of assessment," according to Moore.
The judge shares the opinion of Joseph E. Hunt, a consultant brought in as a "special master" under the terms of the settlement in 2000 of the first assessment challenge case, brought by Berne Corp. and B&B Corp. Hunt has said that a system of relying on high assessments for tax revenues "lends itself to abuse."
While Moore chastised the Legislature, he was especially critical of the executive branch in general and the Turnbull administration in particular. He charged that the government intentionally stalled settlement talks in the Berne/B&B case and that it delayed handing over documents legitimately requested in a case brought by Equivest St. Thomas Inc., the owner of Bluebeard's Castle Hotel, Bluebeard's Beach Club and The Elysian Beach Resort.
In February, despite the latest case before Moore, Turnbull called the Legislature into special session to act on two bills, one of which provided for the administration to send out commercial property tax bills for 2001 through 2004 using 1999 assessments. The measure was passed and he signed it into law on Feb. 28. On March 11. Lt. Gov. Vargrave Richards announced that 2001 commercial property tax bills would soon be in the mail, except for those businesses involved in litigation over their assessments.
"The present governor, his attorney general [Iver Stridiron] and the tax assessor [Roy Martin] have known they are violating federal law since the fall of 2000 when I granted the first plaintiffs' motion for a preliminary injunction," Moore wrote. "The attorney general acknowledged as much in settling the case and agreeing to overhaul the process to ensure that within two years all property would be assessed at its actual value. For whatever reason, the governor decided to bypass that agreement and to relitigate the issue in these later-filed cases."
While the basic issue remains the same in the most recent case, the application of any ruling is broader. More than 20 plaintiffs against the government are listed, and they represent virtually all types of property taxpayers in the territory. They are from St. Thomas, St. Croix and St. John and protest the method of assessing taxes on vacant land, agricultural land, commercial properties, residential properties, condominiums and timeshare units.
Under Moore's order, the government may not collect on 1999, 2000 or 2001 bills or issue bills for 2002 or beyond until:
– The property tax system has been certified as reliable and credible.
– The Board of Tax Review consistently holds hearings and reaches determinations on appeals within the 60 days required by law.
– The Finance Department consistently remits refunds within the 30 days required by law.
Further, Moore said, the government must provide for "retroactive adjustment" of bills back to 1999.
The judge also ordered the enforcement of the Berne settlement agreement and extended the Hunt's appointment as "special master" at the V.I. government's expense.
Citing "the recalcitrance of the government, including the Legislature, in adequately funding the Berne settlement agreement," Moore also ordered that a special fund be set up as a kind of escrow account for payments from property tax litigants.
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