May 16, 2008 — The decision by Congress to repeal a 1936 federal statute gave the V.I. government more control over its property tax system, and effectively invalidated a court order preventing the government from issuing bills reflecting new property values and tax rates, government attorneys argued in District Court Friday.
In 2000, a group of commercial property owners took the V.I. government to court, alleging the government was assessing commercial properties based on replacement rather than actual property value — a method, they said, that resulted in inflated assessments. Thomas Moore, then the sitting U.S. District Court judge, agreed, and in 2003 ordered the government to conduct a thorough revaluation of commercial and residential properties.
Meanwhile, property tax values were frozen at 1998 levels until the project was complete and a new assessment system — which had to be certified by a court-appointed special master — was put in place.
The government has since completed its revaluation, and received a favorable report from the special master, government attorney Carol Thomas-Jacobs argued during Friday's hearing. Meanwhile, the federal statute upon which the case and subsequent settlement was based has been repealed, making the court's stay on property tax values moot, she said.
The 1936 statute prevented the V.I. government from taxing real property — regardless of its classification or use — at different rates.
It is imperative that the court decide to lift the injunction so that the government can implement its new property tax system — which was signed into law in March by the governor — and collect the revenues needed to sustain the current fiscal year's budget, Thomas-Jacobs argued.
"The consequence of the repeal is that this case would no longer stand," Thomas-Jacobs told District Court Presiding Judge Curtis Gomez. "Therefore, this case would have to be vacated. The agreement was based on the law at the time. The law has changed and the agreement cannot survive on an invalid law."
Jim Derr, representing Berne Corp., one of the original plaintiffs in the matter, said the case was also based on local law, which required that the government assess properties based on their actual, or fair market, value. Sections of the V.I. Code supported the federal statute, and still have a bearing on the case with or without the repeal, he argued.
"The government attempted to get the whole thing dismissed, but lost in the Third Circuit," Derr said. "They then turned to the political arena and asked the delegate to Congress to introduce a bill to repeal the federal statute, and tried to say that everything Judge Moore did had no validity. Congress can retroactively repeal the act, but I don't think it can affect the outcome of a specific case."
Derr and attorney Stefan Herpel, representing Bluebeard's Castle and Elysian Resort, said several procedural due process violations were also included in the court's decision. Specifically, the lifting of the injunction was based on two other conditions: the establishment of a functioning Board of Tax Review and the ability of the Department of Finance to issue tax refunds in a timely manner, they said.
"These two conditions are not based on the federal act," Herpel said. "It sometimes took the board three to five years to schedule a hearing for an appeal, and the court also found that refunds, when they were appropriate, were not issued in time."
While Gomez questioned whether the government should be granted "partial relief" from the injunction, Herpel argued that all three conditions have to be met in order for the government to issue bills reflecting the newly assessed rates.
"It may be proper just to eliminate the first section (dealing with assessing property at fair market value) from the injunction," Herpel said. "But I don't think it would be proper to vacate the whole thing."
There are also "serious questions" regarding the accuracy and methodology of the new property tax valuations, or whether the "government has even completed the revaluation process," Derr added.
The government has been making efforts to make sure the Tax Review Board is functioning — including hiring two new administrative staffers, Thomas-Jacobs responded.
"The board is ready to function, to resume its role," she said, adding that the government is suffering from "financial hardship" while property tax collections are prevented from coming in.
"We hope that the court would find a remedy or some kind of relief that allows the court to check up on the status of the board but still allow us to issue property taxes," Thomas-Jacobs said.
Gomez gave each side 10 days to file supplemental briefs to back up their arguments. It is not yet clear whether the matter will go to trial on the already scheduled Oct. 27 date.
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