Sept. 12, 2008 — A Virgin Islands judge held the V.I. government in contempt Thursday for knowingly violating a 2003 court order when it issued property tax bills with newly assessed property values and a new property tax rate structure, and ordered the government to pay $5,000 every day it fails to comply with the court.
V.I. District Court Judge Curtis Gomez also said the V.I. government must rescind all recently issued 2006 property tax bills.
In 2000, a group of commercial property owners took the V.I. government to court, alleging the it 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 established. The court case and revaluation process prevented the government from issuing property tax bills for 2006 and 2007, government officials said.
Though the injunction is still in place, bills for fiscal year 2006 went out last month, prompting attorneys for the commercial property owners to file a motion to find the government in contempt of the court's 2003 order. In his opinion, Gomez granted the motion and also ordered the government to pay the property owners' attorneys' fees, along with other costs racked up during the "litigation of the contempt issue."
"The facts surrounding the government's issues of the 2006 tax bills provide this court with clear and convincing evidence that the defendants' have violated the May 12, 2003 decree and are therefore in contempt," Gomez said in his memorandum opinion. "The court finds that a sanction that will coerce the government into compliance with the court's order and compensate the plaintiffs' losses — sustained as result of the government's conduct — is appropriate."
The "remedy" laid out by Gomez is something the judge said was "not entered into lightly."
"The court is cognizant of the fiscal concerns of the government," he wrote. "At the same time, the court is mindful that the legislative knot about which the defendant complains, and which it argues ties its hands and compelled issuance of tax bills was made possible by the rope and knot-tying instructions supplied by the defendant itself."
Government attorneys have pressed the court to dismiss the case and lift the injunction barring the government from issuing property tax bills. In hearings over the past few months, government attorney Carol Thomas-Jacobs said the government has completed its revaluation and received a favorable report from the special master. 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, Thomas-Jacobs has said.
The 1936 statute prevented the V.I. government from taxing real property — regardless of its classification or use — at different rates.
"The court order is also not valid because the Legislature has already repealed the act that originally authorized the government to issue property tax bills at the 1998 levels and replaced it with a new law, which allows the government to issue bills at the 2006 values," Thomas-Jacobs argued during a show-cause hearing last week on St. Thomas. "The government clearly cannot issue bills at a rate that the Legislature has repealed."
But Gomez said Thursday the government's new property tax law does not contain language forcing the immediate issuance of property tax bills.
"Rather, the act requires that real property in the Virgin Islands be assessed at 100 percent of its fair market value," the judge wrote. "At most, Act 6991 provides that the tax assessor may issue real property tax bills for the year 2006 during the fiscal year 2008. That language is permissive. Indeed, operating within similar language, the tax assessor has in the past not issued tax bills in certain years. In sum, there is simply no requirement in Act 6991 that the defendants issue the 2006 property tax bills. The decision to issue the bills was solely within the discretion of the executive (branch) and the executive bears sole responsibility for that action."
Since the new law was passed, the government has in fact shown that it has made no efforts to comply with the court order — even though officials have acknowledged they knew the injunction was still in place, Gomez added.
Government in Contempt
To make a finding of civil contempt, the judge said, the court must have "clear and convincing evidence" that:
– a valid court order actually existed;
– the government knew about the order and;
– the government disobeyed that order.
"The defendants do not contest the second and third elements necessary for a contempt finding," he wrote Thursday. "That is, the defendants concede they had knowledge of the May 12, 2003 decree and that they have violated that injunction by issuing tax bills at the 2006 rate."
The third element — proving that a valid court order additionally exists — has been the major bone of contention for the government, whose attorneys have challenged the District Court's jurisdiction over the case. The government's argument is based on federal Tax Injunction Act statutes, which state that "district courts shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under state (or local) law where a plain, speedy and efficient remedy my be had in the courts of such a state (or territory)."
Gomez said Thursday that the government's argument holds no water.
"The government correctly points out that Congress removed a significant federal element of the V.I. tax regime when it repealed the 1936 Act," the judge wrote. "Even so, the Virgin Islands remains a territory and is still subject to Congress. For the Tax Injunction Act to apply, there must be a plain, speedy and efficient state remedy for those challenging their taxes. In 2003, this court found that the V.I. Board of Tax Review does not function at that kind of level. That conclusion has not changed."
While V.I. Attorney General Vincent Frazer said Thursday evening that the government will be "looking into the possibility" of appealing the ruling, Gomez said Thursday that the government can schedule a hearing "at any time" to show that it has come into compliance with the 2003 court order.
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