Caribou Wins Case with FAME
(from Maine Townsman, July 1997)
By Ellerbe Cole, Esq.
One of the member services that MMA provides, through its Legal Services Department, is participating in court appeals as an amicus curiae, or friend of the court. In the late fall of 1996 MMA undertook to assist the City of Caribou in an appeal involving the Finance Authority of Maine (FAME). That case has now been decided in favor of Caribou by Maines Supreme Court. The case concerned tax exemption of FAMEs real property.
A business that had acquired land and built a structure on it with the assistance of a mortgage loan guarantee from FAME went bust, and FAME bought the property from the foreclosing bank. Caribou had assessed taxes on the property as of the April 1 immediately preceding the July acquisition by FAME. At the closing between the bank and FAME, the bank paid the pro rata share of the taxes based on the period from April 1 to FAMEs acquisition date, but the outstanding balance remained unpaid, and so the Citys Tax Collector recorded a real estate tax lien certificate in the registry of deeds. FAME thereafter sought an abatement of the unpaid taxes and lost with the Assessor and before the State Property Tax Review Board, but prevailed in Superior Court, so Caribou appealed to the Maine Supreme Court.
Everyone concerned agreed that taxes could not be assessed against FAME for taxes on the April 1 following FAMEs acquisition of it. At issue here were taxes assessed before FAME bought it. The Superior Court had concluded that FAME was entitled to be "excuse [d] from responsibility for payment" of the taxes," both under FAMEs own, distinct statutory tax exemption and also under the general exemption provided by 36 MRSA Section 651(1)(B) for "property of the State of Maine."
It was apparent to MMAs attorneys that the Superior Court decision was wrong. Their concern was that, if FAMEs specific exemption were broadly construed, any of Maines dozen or so other state government authorities would feel encouraged to litigate their own exemption statutes, and that, if the general exemption of State property were construed to let FAME off the hook for taxes assessed before it acquired the property, then the balance the Legislature has historically struck between the State and municipalities with respect to taxes would be dramatically and improperly altered.
Caribous attorney invited MMA to participate in the appeal as a friend of the court, and MMAs Executive Committee, on the recommendation of Bill Livengood, Esq., Director of MMAs Legal Services department, authorized MMAs participation. Two MMA attorneys met with the Citys attorney, and one of them wrote MMAs brief, with substantial review and editing assistance from colleagues.
At oral argument in Portland in March, the Chief Justice called FAMEs claim of exemption as to taxes assessed before FAME acquired the property "radical," and on May 5 the Court ruled unanimously in favor of the City of Caribou.
Superficially, FAME had a fairly strong argument. Its statute exempts property "acquired" as well as "held" by FAME "from all taxes". But 36 MRSA Section 502 provides that all real estate is subject to taxation on April 1 of each year, and that the status of all taxpayers and property is to be determined as of that date. If the property was lawfully taxable on April 1 then FAME needed to pay the remaining portion of the taxes or risk losing the property when the Citys lien foreclosed. But FAME argued that the Legislature, in enacting FAMEs specific exemption, had intended that Section 502 be overridden. Its argument was bolstered by the fact that its statutes provide that the chapter of the laws containing the exemption is to be liberally construed and is to prevail over conflicting laws.
MMA argued that to give FAMEs exemption the retroactive effect FAME claimed for it would introduce an unwelcome uncertainty into the municipal budget process: a town could have already obligated anticipated revenues from a property lawfully assessed and then find that the taxes would not be paid after all, because FAME had acquired the property a year or two after the assessment. The Court concluded that the way to square FAMEs exemption with the general law "so that a harmonious result" could be achieved is to recognize that Section 502 defines taxation as an act that occurs on April 1. Thus FAME in this case acquired property already "encumbered by taxes previously assessed." The Court said that FAMEs exemption does not retroactively invalidate unpaid taxes legally assessed before FAMEs acquisition nor does it invalidate tax lien certificates that encumber the property for taxes assessed before it acquires property. The Court upheld what it called "the orderly tax assessment scheme established by Section 502".
As MMA anticipated when it entered the case, FAME argued that if its own exemption statute didnt give it what it wanted, then the general tax exemption for "property of the State of Maine" did. The Courts opinion didnt address that argument directly, perhaps because there was really nothing left to talk about after it disposed of FAMEs arguments with respect to its specific exemption. In any event, it is unlikely that anyone will soon argue for a similarly broad reading of the general exemption law, 36 MRSA Section 651(1)(B).
The City of Caribou was represented in Superior Court and on the brief and at oral argument before the Supreme Court by Richard D. Solman, Esq., of Solman & Hunter in Caribou.
As this article was being written your Legal Services staff filed an amicus curiae brief in another case. Under attack there is another aspect of the laws of municipal taxation. Watch for a future article.