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SC Administrative Law Court Decisions

CAPTION:
Charleston County Assessor vs. Albert Schmidt

AGENCY:
Charleston County Assessor

PARTIES:
Petitioners:
Charleston County Assessor

Respondents:
Albert Schmidt
 
DOCKET NUMBER:
98-ALJ-17-0090-CC

APPEARANCES:
Petitioner, Charleston County Assessor: Samuel W. Howell, IV, Esq.

Respondent, Albert Schmidt: Pro se

Parties Present: Both Parties
 

ORDERS:

FINAL ORDER

I. Introduction


Real property owned by Albert Schmidt (Schmidt) at 31 42nd Avenue, Isle of Palms, Charleston County, South Carolina received a classification as residential property from the Charleston County Assessor (Assessor) for tax years 1985 through 1995. However, an investigation by the Assessor in April of 1996 led the Assessor to conclude Schmidt could not receive residential classification for tax year 1996.(1) In addition, on January 23, 1997, the Assessor further determined that Schmidt improperly received residential classification for tax years 1991, 1992, 1993, 1994, and 1995 and directed the Charleston County Auditor and Charleston County Treasurer to send revised tax bills "to include applicable penalties."

This matter is here since Schmidt opposes both the loss of the residential classification for 1996 and the directive to send additional tax bills for the 1991, 1992, 1993, 1994, and 1995 tax bills.(2) He asserts that both actions by the Assessor are in error since Schmidt left his home at 31 42nd Avenue, Isle of Palms due to military orders. He argues that under such circumstances the Soldiers' and Sailors' Civil Relief Act allows him to retain his residential classification and prohibits any penalty.

Schmidt's argument is incorrect as to residential classification. The Soldiers' and Sailors' Civil Relief Act(3) does not allow Schmidt to retain the residential classification. However, for reasons related to S.C. Code Ann. § 12-54-85(B) (Supp. 1997), Schmidt is entitled to a dismissal of the Assessor's directive for revised tax bills for 1991, 1992, and 1993 but not for 1994 and 1995. Finally, Schmidt is liable for "applicable penalties" under S.C. Code Ann. § 12-43-220(c) as that statute existed in 1990.

II. Residential Classification


A. Findings of Fact

Based upon the preponderance of evidence the following Findings of Fact are made:

In 1984, while in the United States Navy, Schmidt purchased improved real property at 31 42nd Ave., Isle of Palms, South Carolina. The property was used as Schmidt's personal residence. Based on that use, on March 31, 1985, Schmidt applied for residential classification on his property. The Assessor granted the request on June 19, 1985.

Schmidt continued to reside in the house until Schmidt's military orders transferred him outside of South Carolina during 1990. Having left the property, Schmidt rented the residence to tenants under an annual lease. Schmidt did not notify the Assessor that the property was being used as rental property. While the property continued in its rental status, for the tax years 1991 through 1995, Schmidt received tax bills at an out-of-state address and paid the taxes due no later than December 31 of each tax year. For each year from 1991 through 1995, Schmidt continued to receive the 4% residential classification.

However, beginning in 1996, the Assessor imposed changes relating to the residential classification. First, the 4% ratio was denied for tax year 1996 and Schmidt was so notified in April of 1996. Additionally, on January 23, 1997, the Assessor determined that Schmidt had improperly received residential classification for tax years 1991, 1992, 1993, 1994, and 1995 and directed the Charleston County Auditor and Charleston County Treasurer to send revised tax bills plus applicable penalties to Schmidt. The Assessor based his actions on a single premise: Schmidt did not qualify for residential classification since Schmidt leased his property and thus did not occupy the house at 31 Forty-Second Ave., Isle of Palms, South Carolina.









B. Conclusions of Law

Based upon the Findings of Fact, the following Conclusions of Law are made:

1. Tax Year 1996

The first issue is whether the Soldiers' and Sailors' Civil Relief Act allows Schmidt to retain for the 1996 tax year a previously held classification of residential property. The answers to three questions demonstrate Schmidt may not retain the residential classification. Is occupancy a requirement for the 4% residential classification? If yes, did Schmidt occupy the property? If no, does the Soldiers' and Sailors' Civil Relief Act remove Schmidt's duty to occupy the property?

Occupancy is required for obtaining residential classification since the applicable statute grants the 4% ratio to "[t]he legal residence and not more than five acres contiguous thereto, when owned totally or in part in fee or by life estate and occupied by the owner of the interest, . . ." (emphasis added). S.C. Code Ann. § 12-43-220(c)(1) (Supp. 1997). Since occupancy is required, the next question is whether Schmidt occupied the property.

Occupy means "to take or enter upon possession of" the property. See Blacks Law Dictionary, Occupy, p. 1079, (6th ed. 1990). Here, the facts establish that Schmidt leased the property to a tenant under an annual lease. Accordingly, Schmidt did not occupy the property since in a lease arrangement between a landlord and a tenant, the tenant and not the landlord occupies the leased property. See Columbia Ry., Gas and Electric Co. v. Jones, 119 S.C. 480, 112 S.E. 267 (1921) ("The relation of landlord and tenant exists where [the tenant] occupies the land of [the landlord] in subordination to the [the landlord's]title. . . .").

Since occupancy is required and since Schmidt did not occupy the property, the remaining question is whether the Soldiers' and Sailors' Civil Relief Act removes Schmidt's duty to occupy the property. In addressing this question, I recognize that the Act must be liberally construed to protect those covered by the Act. California v Buzard, 382 US 386, 15 L Ed 2d 436, 86 S Ct 478 (1966). Further, no question exists that Schmidt is covered by the Act since he is a "person in military service." 50 U.S.C.A. Appx. § 511(1).

However, such coverage and a liberal reading does not aid Schmidt since the Act does not provide relief from taxation of real property. The Act addresses "taxation in respect of any person, or of his personal property, income, or gross income." 50 App. U.S.C.A. § 574. Obviously, the dispute here does not concern personal property, income, or gross income. Thus, to obtain the coverage of the Act, Schmidt must show the dispute involves "taxation in respect of any person."

This matter is not taxation in respect of any person. Rather, in contrast, the tax here is a tax with respect to property, specifically real property. See 84 C.J.S. Taxation § 59 (1954) (taxing power of a state is triggered by either the person or property being within the jurisdiction of the state). More particularly, the tax levied on real property is levied against the property itself based upon an ad valorem value and is not a tax upon the person. See Arthur v. Johnston, 185 S.C. 324, 194 S.E. 151 (1937) (ad valorem tax is a tax on the property subject to tax measured by the value of the property).

Finally, most sources have interpreted § 514 of the Soldiers' and Sailors' Civil Relief Act not to apply to real property:

The real property tax is unaffected by section 514. The traditional rule is, of course, that realty is taxable where located. Thus, the rule applies with equal force whether such property is owned by the service member or his dependent, unless the state itself chooses to make an exception.

Graham C. Lily, State Power to Tax the Service Member: An Examination of Section 514 of the Soldiers' and Sailors' Civil Relief Act, 36 Mil. L. Rev. 123, 131 (1967) (citing First Nat'l Bank v. Maine, 284 U.S. 312 (1932). The Fourth Circuit has held the Soldiers' and Sailors' Civil Relief Act does not apply to the taxation of real property since it "only reaches state taxation of income and personal property. . . . Congress did not include real property taxes within the statutory prohibition; real property can have but a single situs for tax purposes." United States v. Onslow Co. Bd.. of Education, 728 F.2d 628, 636 (4th Cir. 1984). Likewise, the Supreme Court held that "Congress intended the Act to cover only annually recurring taxes on property -- the familiar ad valorem personal property tax." Sullivan v. United States, 395 U.S. 169, 176-77 (1969).

Accordingly, the Soldiers' and Sailors' Civil Relief Act is not applicable to this dispute and does not remove Schmidt's duty to occupy the property. Thus, having failed to occupy the property for the 1996 tax year, Schmidt is not entitled to the 4% residential classification for the 1996 tax year.

2. Tax Years 1991 - 1995

Having established that Schmidt is not entitled to the residential classification for 1996, the second issue is whether the county may impose additional taxes for tax years 1991 through 1995 on the basis that Schmidt was improperly granted residential assessments in those years. The answer is no taxes may be imposed for 1991, 1992, and 1993 but taxes may be imposed for 1994 and 1995. In examining this issue, a basic premise of property taxation must be understood. The mere fact that an action was taken for one year does not automatically allow a similar change to prior tax years. See Kiawah Resort Associates v. S.C. Tax Comm'n, 318 S.C. 502, 458 S.E.2d 542 (1995) (only 1989 assessment ruled upon by the Tax Commission since the 1986 assessment not presented).

Indeed, the bedrock principle that each tax year must be judged independently from any other tax year is firmly established. A property tax liability arises from a specific tax year as the result of an annual valuation as of December 31 of the year preceding the tax year under consideration. S. C. Code Ann. § 12-37-900 (1976); Atkinson Dredging Co. v. Thomas, 266 S.C. 361, 223 S.E.2d 592 (1976); Lindsey v. S.C. Tax Comm'n, 395 S.E.2d 184, 302 S.C. 274 (1990). No multi-year tax determination results from the annual nature of property taxation.

Thus, the issue becomes one of establishing by what authority the Assessor can remove a classification granted in a prior closed tax year. As a general rule, since the assessor is authorized to grant or deny requests for residential classifications, (see S.C. Code Ann. § 12-43-220(c) (Supp. 1997)), it follows that, in the absence of a prohibiting statute, the assessor is authorized to remove the classification since the authority to grant a status carries with it the authority to remove that status. See 53 C.J.S. Licenses § 51 (1987); See S.C. Code Ann. Sec. 12-37-90(g)(Supp. 1997). As the general rule explains, the removal is allowed only where no other statute prohibits the removal.

Two statutes impacting the Assessor's right to remove the residential classification are found in S.C. Code Ann. §§ 12-39-250 (1997) and 12-54-85(B) (Supp. 1997). Section 12-39-250 prohibits imposing additional taxes resulting from errors made by county officials where the taxes for the prior years have already been paid. In all events section 12-54-85(B) places a thirty-six month time limit on assessing additional taxes. A proper understanding of why these statutes impact removing the residential classification is found by addressing the means for levying the annual property tax and the means for altering an annual levy.

a. Levy Process

The levying of property tax is controlled by the constitution and statutes. No property tax may be imposed until there is a valid assessment by the official required to value property. S.C. Const. art. III, § 29; Simkins v. Spartanburg, 269 S.C. 243, 237 S.E.2d 69 (1977). The assessor determines the assessment of real property, including residential classification. S.C. Code Ann. § 12-37-90 (Supp. 1997); S.C. Code Ann. § 12-43-220(c)(2)(iv) (Supp. 1997). The assessor provides the information to the auditor who utilizes such information to compile the tax books of the county. S.C. Code Ann. Sec. 12-39-350 (Supp. 1997).

The auditor is directed to complete the tax books of the county by September 30 of the tax year with such books showing the value of the taxable property of the county. S.C. Code Ann. §§ 12-39-140 and 12-39-150 (1976). Based on the tax levies of the various taxing entities, the auditor calculates the tax to be levied on each of the properties listed in the tax book with such information identified in the "duplicate." S.C. Code Ann. §§ 12-39-180 (Supp. 1997) and 12-39-190 (1976). The auditor transmits the duplicate to the treasurer to enable the treasurer to prepare the tax bills. S.C. Code Ann. § 12-39-150 (1976). The treasurer may not collect taxes unless ordered by the auditor or unless specifically listed on the duplicate. S.C. Code Ann. § 12-45-60 (1976). Upon receiving the duplicate, the treasurer prepares tax bills sufficient to raise the taxes required by the duplicate. S.C. Code Ann. § 12-45-70 (Supp. 1997); County of Lee v. Stevens, 277 S.C. 421, 289 S.E.2d 155 (1982).

b. Alteration to Levy

The tax books for the county close on September 30 of the tax year and the taxes become a fixed charge. S.C. Code Ann. Sec. 12-39-140 (1976); Town of Myrtle Beach v. Holliday, 203 S.C. 25, 26 S.E.2d 12 (1943). Once the tax is levied, changes to the levy can be made only in compliance with statutory demands. Indeed, the normal procedure is that changes to a closed duplicate cannot be made but rather changes must be made only in the next annual county duplicate preparation. Osborne v. Vallentine, 196 S.C. 90, 12 S.E.2d 856 (1941). In other words, the longstanding rule is that a prospective change (as opposed to a retroactive change) is the general rule.

Over the years, the general rule preferring prospective changes to the duplicate has been furthered by S.C. Code Ann. § 12-39-250 and altered slightly by S.C. Code Ann. § 12-54-85(B) (Supp. 1997). Under § 12-39-250, when an error has been made by a county official, once the tax has been paid, the county may not correct the error by adjusting a closed duplicate. In other words a short period (only that period until the taxpayer pays the tax) applies when an additional tax is produced by the county realizing it made an error. However, in all events, regardless of who made the error, the amount of any tax for a tax year can be assessed only within thirty-six months of the date the tax was paid. S.C. Code Ann. § 12-54-85(B) (Supp. 1997).

c. Application To Schmidt

Thus, here, since Schmidt timely paid the taxes for tax years 1991 through 1995 by December 31 of each year, the issue is whether the additional tax results from a mistake by the county (which means no tax may be imposed due to §12-39-250) or due to Schmidt's mistake (which means due to §12-54-85(B) tax may be imposed only within thirty-six months of the payment of the tax). I find Schmidt made the error and not the county.

The taxpayer filed his application for residential classification in 1985 and correctly received residential treatment. Schmidt's error occurred when he failed to notify the county that his status had changed despite signing a statement acknowledging that a failure to notify the county would result in a penalty. Accordingly, Schmidt and not the county made the mistake which led to the imposition of additional taxes.

However, Schmidt's mistake does not create an enforceable liability for additional taxes for 1991, 1992, or 1993. Rather, the certification of assessment for additional taxes for these three years was not made until January 23, 1997. Schmidt paid the taxes for these years by December 31 of each year. By the January 23, 1997 certification date, the period allowing an assessment would have expired on December 31, 1994 for the 1991 tax year; December 31, 1995 for the 1992 tax year, and December 31, 1996 for the 1993 tax year. S.C. Code Ann. § 12-54-85(B) (Supp. 1997).

Accordingly, additional taxes are due only for tax years 1994 and 1995. Further, given the closed duplicates for 1994 and 1995, the additional tax must be entered as a tax due upon the next open duplicate.







3. Applicable Penalty

The final issue is whether a penalty can be imposed for Schmidt's failure to notify the Assessor of the change in use of the property. Under the facts of this case, a penalty is due with that penalty calculated under S.C. Code Ann. § 12-43-220 as that statute existed at the time of the violation. The more severe penalties of current law under § 12-43-220(c)(vii) are not applied. See 1996 Act 431, § 24 (effective date of new law only applicable to tax years after 1996).

The violation occurred in 1990 when Schmidt rented his former residence and failed to notify the county of the change in use from residential to rental. For such a violation in 1990, the penalty was ten percent of the difference between the amount of the tax that was paid and the amount of tax that should have been paid. Accordingly, the ten percent penalty must be imposed.

IV. Order


The Assessor is directed to deny the residential classification for the 1996 tax year for Schmidt's property located at 31 42nd Avenue, Isle of Palms, Charleston County, South Carolina. The county is directed not to assess Schmidt for additional taxes on the 42nd Avenue property for tax years 1991, 1992, and 1993. Additional taxes are due for 1994 and 1995. The county is directed to impose the ten percent penalty required by S.C. Code Ann § 12-43-220(c) as that statute was in effect in 1990, the time of the violation. Finally, since the Assessor's actions seek to alter a closed duplicate, the additional tax and the penalty must be entered as a tax and penalty upon the next open duplicate.



AND IT IS SO ORDERED.

RAY N. STEVENS

Administrative Law Judge

Dated: July 9, 1998

Columbia, South Carolina

1. Denial of a residential classification changes an assessment ratio from 4% to 6%.

2. Jurisdiction is in the Administrative Law Judge Division (ALJD). See S.C. Code Ann. Regs. 117-118 (a taxpayer aggrieved by an assessor's change in classification must follow the appeal procedures governing valuation assessment disputes); S.C. Code Ann. § 12-60-2520 (1997) (taxpayer may object to valuation assessments by county assessor); S.C. Code Ann. § 12-60-2540 (1997) (appeals from county decisions are to ALJD as contested case hearings).

3. The statutory cite is 50 U.S.C.A. Appx. §§ 501 et seq.


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