Opinion
C.A. No. 98A-08-010 RRC.
Submitted: November 23, 1999.
Decided: January 27, 2000.
UPON APPEAL FROM A DECISION OF THE NEW CASTLE COUNTY BOARD OF ASSESSMENT REVIEW.
AFFIRMED.
Joseph D. Kulesza, Jr., Agostini, Levitsky, Isaacs Kulesza, Wilmington, Delaware, Attorneys for Appellant Evangelical Presbyterian Church of Newark
Dennis J. Siebold, Finance Legal Officer, New Castle County Office of Law, Wilmington, Delaware, Attorney for Appellee New Castle County Board of Assessment Review
MEMORANDUM OPINION
I. INTRODUCTION
On September 5, 1996, Evangelical Presbyterian Church of Newark (the Church) purchased an undeveloped parcel of land of approximately 5 acres located adjacent to its existing property from Catherine E. Sweeny (Seller). The parcel of land in question, formerly part of a larger piece of property consisting of approximately 18.21 acres, had been used for agricultural purposes by the Seller and had received a farmland tax exemption from New Castle County (the County) when owned by the Seller. The agricultural use ceased when the parcel was subdivided. The Church was subsequently assessed a farmland rollback tax in a total amount of $2,943.88, relating to the farmland tax exemption for the years 1991 through 1996. The Church appealed this assessment to the New Castle County Board of Assessment Review (the Board). The Church asserted before the Board that any farmland exemption rollback assessment for the years 1991 through 1996 should be levied against the Seller because the Church did not have any interest in the land during that time and because the Church is otherwise generally exempt from property taxation. The Board denied the Church's appeal.
In its appeal to this Court, the Church contends that (1) the Board erred "in fact and/or in law" in denying the request of the Church to remove the farmland rollback tax assessment because the Church did not own the property during the time period for which the taxes were assessed and is otherwise generally exempt from property taxation and (2) that the Church is a tax exempt organization not constitutionally subject to rollback taxes. For the reasons stated below, the decision of the Board is AFFIRMED.
II. SUMMARY OF FACTS AND PROCEDURAL HISTORY
On July 12, 1996, a record minor subdivision plan was filed in the Office of the Recorder of Deeds for New Castle County by Seller for an 18.21 acre property owned by her on Possum Park Road in New Castle County. The purpose of this record minor plan was to subdivide the property into three parcels. Prior to the minor subdivision, the entire 18.21 acre parcel had been used for agricultural purposes and had received a farmland tax exemption. Seller then conveyed one of the three parcels (being about 5 acres) to the Church on September 5, 1996 for $300,000. The agricultural use ceased, as a matter of law, when the land was subdivided.
9 Del. C. § 8334 provides, in pertinent part, that "[l]and which is actively devoted to agricultural . . . use shall be eligible for valuation, assessment and taxation as provided in this [subchapter] . . ."
9 Del. C. § 8335(d)(3) provides that "[r]ollback taxes as provided herein shall become payable when the land is applied to a use other than agricultural, horticultural or forestry. The terms 'applied to a use other than agriculture' and 'change in use' for purposes of this subsection shall include any of the following . . . c. The subdivision of the land which allows for nonagricultural usage [ . . . ]."
A title search had been performed prior to the real estate settlement. The title search did not indicate that any rollback taxes were due and owing on the property. Approximately one year after the original purchase date, the Church refinanced the original loan and a second title search was performed which again showed no rollback taxes due.
However, on March 21, 1998, the Church was assessed a farmland rollback tax by the County for the years 1991 through 1996. The Church filed an Assessment Appeal Form for the Removal of Farmland Assessment with the Board, asserting before the Board that the Church, a religious organization otherwise generally exempt from property taxation, did not have any interest in the land during the time period in question and that any assessment for rollback taxes should be levied against the Seller. On October 14, 1998, the Board denied the Church's appeal. The Board's brief decision stated in its entirety that the "[t]ransfer [sic] tax was due when title transferred. The new owner received the property subject to a lien established by law at the time of the subdivision." On November 19, 1998, the Church appealed the decision of the Board to the Superior Court.
The Board mistakenly referred to the rollback tax as a "transfer tax."
Bd. dec. at 1.
III. SUMMARY OF OPINION
Rollback taxes assessed under the provisions of 9 Del. C. § 8335(d) are levied against the land and are not the personal obligations of prior owners. The farmland rollback tax at issue was levied against the land and was not assessed against the Church directly. The Church is liable for the rollback tax even though it is otherwise generally exempt from property taxation and did not own the land during the time period in question. The Church has failed to show that the Board's actions were contrary to law, fraudulent, arbitrary or capricious.
IV. STANDARD OF REVIEW
In New Castle County, the Department of Finance prepares initial tax assessments of real property. A taxpayer may dispute an assessment by appealing to the Board. The taxpayer may appeal a decision of the Board to the Superior Court. On appeal, the decision of the Board "shall be prima facie correct and the burden of proof shall be on the appellant to show that such body acted contrary to law, fraudulently, arbitrarily or capriciously. The Superior Court "may affirm, reverse or modify the decision of such body and the decision of the Court shall be final."
Id. see 1001 Jefferson Plaza Partnership, L.P., v. New Castle County Department of Finance, Del. Supr., 695 A.2d 50 (1997).
Id.
V. THE PARTIES' CONTENTIONS
The Church contends that the Board "erred in fact and/or law" and should have removed the farmland rollback tax assessment because the Church, a religious organization generally exempt from property taxation, did not own the property during the time period in which the taxes were levied by the County. The Church further argues that it is a tax exempt organization not constitutionally subject to the farmland exemption rollback taxes.The County contends that the Church has failed to meet its statutory burden of showing that the Board "acted contrary to law, fraudulently, arbitrarily or capriciously." The County asserts that the Church's exemption from property taxes is not applicable here because property taxes are levied against the land and are not the personal obligations of the property owner.
VI. DISCUSSION
A. The Church, Although Otherwise Generally Exempt From Property Taxation, is Liable For the Farmland Rollback Tax Set Forth in 9 Del. C. § 8335 Because the Tax Was Levied Against The Land and Not Against The Church Directly.
The issue of whether a farmland rollback tax can be assessed against an otherwise tax exempt religious organization for a period of time in which it did not own the property is a question of first impression in Delaware. This Court finds that the farmland rollback tax assessed in 1998 by New Castle County was levied against the land and not against the Church directly. It therefore is of no import, as the Church argues, that the Church is exempt from rollback taxes except as to property "held by way of investment."
That the current property owner is a lawfully constituted religious corporation is not in dispute. The record sent up by the Board contains copies of several letters from Edward W. Cooch, counsel in the 1940's for the Church, helping to establish the then-current exemption of the Church's property from property taxation.
Nine Del. C. § 8105 exempts, generally, property owned by a religious organization from property taxation except for property "held by way of investment." Section 8105 states that
[p]roperty belonging . . . [to] any church or religious society, and not held by way of investment, shall not be liable to taxation and assessment for public purposes by any county or other political subdivision of this State. Nothing in this section shall be construed to apply to ditch taxes, sewer taxes and/or utility fees.
The levying of rollback taxes by a county is authorized by 9 Del. C. § 8335(d) which provides, in pertinent part, that
[w]hen land in agricultural use and being valued, assessed and taxed under the provisions of this chapter, is applied to a use other than agriculture, it shall be subject to additional taxes, hereinafter referred to as rollback taxes, in an amount equal to the difference, if any, between the taxes paid or payable on the basis of the valuation and the assessment authorized hereunder and the taxes that would have been paid or payable had the land been valued, assessed and taxed as other land in the taxing district, in the current tax year immediately proceeding, in which the land was valued, assessed and taxed hereunder.
Significantly, § 8335(d) states that rollback taxes are a "lien" on the land. Section 8335(d)(5) provides, in pertinent part, that "[t]he amount due for roll-back tax shall become a lien on the land which was subject to change in use or applied to a use other than agriculture as of the due date." This unambiguous statutory pronouncement makes it clear that the rollback taxes are assessed against the land, and not against any particular landowner.
Further support for this Court's conclusion that the Church is liable for the rollback taxes is seen by the fact that the General Assembly amended 9 Del. C. § 8335(d) in 1994 by adding subsection (6) which provides for a specific rollback tax calculation to be applied "[w]hen land in agricultural use and being valued, assessed and taxed under the provisions of this chapter, is acquired for public use by State agencies." The General Assembly recognized that even when the State acquires land, the State is liable for the payment of rollback taxes.
Case law is supportive of this Court's conclusion that the Church is liable for rollback taxes for a period of time that it did not own the land. In In Re Rini, a case where debtors had objected to the county's claim for real estate taxes, the United States Bankruptcy Court for the District of Delaware interpreted 9 Del. C. § 8335(d) to be a computation and assessment of farmland rollback taxes against the land. The Court in Rini stated that "the taxes are a lien against the land rather than a personal obligation and must be billed to whoever owns the land at the time the rollback taxes issue."
Bankr. D. Del., No. 84-161, Balick, J. (June 13, 1985) (Mem. Op.).
Id. at 548.
Similarly, in Pottock v. Miller, an action where the plaintiffs sought to recover the amount of a deposit made on a contract for the purchase of land, the Delaware Supreme Court held that "[t]he assessment of the tax is against the land . . . [t]he law itself is notice to the world of the liability of the land for the taxes . . ."
Del. Supr., 22 A.2d 843 (1941).
Id. at 849-850. See also Delaware Ass'n of Police v. Julian, Del. Ch., 90 A.2d 792 (1952) (holding that prior outstanding county taxes on the property constituted a lien superior to a judgment lien on the property); In re Schwartz, Del. Ch., 45 A.2d 461 (1946) (holding that a city tax is a lien against the land). Nine Del. C. § 8705(a) provides, in pertinent part, that "[a]ll taxes assessed against real estate by New Castle County shall continue a lien against such real estate for 10 years from July 1 of the year for which the taxes were levied. . . .", and 25 Del. C. § 2901(3) provides, in pertinent part, that "the liens created by this subsection are levied or imposed only upon that parcel of real property against or upon which such charges have been levied or imposed. The liens created by this section shall have preference to and priority over all other liens on such real property. . . ."
The Delaware Farmland Assessment Act rollback provisions are comparable to the rollback provisions of the New Jersey Farmland Assessment Act. New Jersey courts have addressed the specific issue of whether the assessment of a farmland rollback tax is considered a lien against the land or the personal obligation of the owner.
Thus in State of New Jersey v. Washington Township, the New Jersey Supreme Court noted that the acquisition of property by public agencies did not preclude the imposition of farmland exemption rollback taxes. The Court in Washington Township stated that "real estate taxes are a lien upon the property assessed, but, in contrast to personal property taxes, not the personal obligation of the owner."
N.J. Supr., 373 A.2d 652 (1977).
Id. at 653.
In Department of Environmental Protection v. Franklin Township, the New Jersey Tax Court upheld the application of farmland rollback taxes against realty acquired by the Department of Environmental Protection for the purposes of public water supply, public recreation, and conservation. The Court in Franklin Township held that exemptions from rollback taxes, like all tax exemptions, are not favored and will be strictly construed against the agency seeking the exemption. The Court in Franklin Township stated that "[i]f the intent was to exempt the Department from rollback [taxes] and limit its obligation to payments in lieu of taxes, that fact should have been expressly noted in the legislation . . . [w]ithout such an indication, the rollback provisions of the Farmland Assessment Act must operate in their normal course."
N.J. Tax. Ct., 437 A.2d 353 (1981).
Id. at 366-367.
In Gardiner v. State of New Jersey, landowners brought an action seeking adjudication that farmland rollback taxes were the obligation of the State as the taker of their land in eminent domain proceedings. The New Jersey Superior Court held that the State, not the former owner, was liable for the rollback taxes. The Gardiner Court noted that the taxes were levied against the land and not the owners and stated that "no change of use was made by the seller but the land was in effect taken out of circulation by the action of the State. The logical result is that the State must bear all rollback taxes, the sellers being completely free of any such obligation."
N.J. Super., 483 A.2d 442 (1984).
Id. at 445.
This Court finds that the farmland rollback tax on the 5 acre parcel of land in question was assessed because it had received the farmland exemption while the land was being used from 1991 through 1996 for agricultural purposes by the Seller. Once the land was sold to the Church, the agricultural use ended and the land, not the Church, was assessed the farmland rollback tax. The owner of the land at the time of assessment was the Church. The Church is not being taxed directly in violation of 9 Del. C. § 8105 since the tax is a lien on the land and any subsequent purchaser (in this case, the Church) would be liable for the farmland rollback tax due.
This Court need not reach the issue of whether Seller, pursuant to her Agreement of Sale with the Church, should have been otherwise required to pay the rollback taxes to the County at the time of the real estate settlement on September 5, 1996, but, as stated earlier, neither the Seller nor the Church may have been aware of the rollback tax liability at the time.
B. The Church is Not Immune From The Rollback Tax Pursuant to The United States Constitution and The Delaware Constitution.
The Church also broadly, and without extensive discussion, claims exemption from any farmland exemption rollback property taxation by virtue of the First Amendment to the United States Constitution and three provisions of the Delaware Constitution.
The Church contends that the levy of a farmland rollback tax by the county against a religious organization otherwise generally exempt from property taxation is in violation of the First Amendment to the United States Constitution which provides, in pertinent part, that "Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof. . . ."
The Church also maintains that the levy of a rollback tax by the County is violative of three provisions of the Delaware Constitution. First, the Church claims that subjecting a religious organization to rollback taxes violates Article I, § 3, of the Delaware Constitution. That section provides, in pertinent part, that
No portion of any fund now existing, or which may hereafter be appropriated, or raised by tax . . . shall be appropriated to, or used by, or in aid of any . . . church . . . provided that all real . . . property . . ., shall be exempt from taxation and assessment for public purposes.
Second, the Church argues that the levy of a rollback tax against a religious organization additionally violates Article I, § 1, of the Delaware Constitution which states that
[a]lthough it is the duty of all men frequently to assemble together for the public worship of almighty god; and piety and morality, on which the prosperity of communities depends, are hereby promoted; yet no man shall or ought to be compelled to attend any religious worship, to contribute to the erection or support of any place of worship, or to the maintenance of any ministry, against his own free will and consent; and no power shall or ought to be vested in or assumed by any magistrate that shall in any case interfere with, or in any maimer control the rights of conscience, in the free exercise of religious worship, nor preference given by law to any religious societies, denominations, or modes of worship.
Third, the Church contends that the levy of a rollback tax against a religious organization also violates Article VIII, § 1 which provides, in pertinent part, that
[a]ll taxes shall be uniform upon the same class of subjects within the territorial limits of the authority levying the tax, and shall be levied and collected under general laws passed by the General Assembly. [New Castle, Kent, and Sussex Counties] are hereby authorized to exempt from county taxation such property in their respective counties as in their opinion will best promote the public welfare.
The Church relies on Board of Assessment Review of New Castle County v. Silverbrook Cemetety Company, in which the Delaware Supreme Court, addressing the tax exempt status of three cemeteries, concluded that Article VIII, § 1 did not grant New Castle County the authority to repeal the property tax exemption enjoyed by charitable agencies.
Del. Supr., 378 A.2d 619 (1977).
Considering that the assessment of a farmland exemption rollback tax against a religious organization otherwise exempt from property taxation has not been decided in Delaware, this Court finds it helpful to look to non-Delaware authorities for guidance. In Bethany Baptist Church v. Deptford Township, the New Jersey Superior Court addressed the question of whether a religious organization could avoid the levy of taxes on property which was acquired after a yearly assessment date. In that case, the Court analyzed the New Jersey tax exemption statute, and balanced the First Amendment to the United States Constitution's establishment clause against the state interest in taxing religious organizations.
N.J. Super., 542 A.2d 505 (1988).
Initially, the Bethany Court analyzed the New Jersey tax exemption statutes and stated that "[New Jersey's] statutes do not afford an exemption to an otherwise exempt owner who acquires property subsequent to the assessing date." The Court considered the transfer of property from a nonexempt owner to an exempt owner and stated that "the Legislature's silence evidences an intention not to afford an exemption where, after the . . . assessment date, property used for a nonexempt purpose is transferred to an exempt owner."
Id. at 507.
Id.
Turning to the First Amendment issue, the Court noted at length that the United States Constitution specifically refers to the tax exempt status of property used for religious purposes. However, the Court also noted that it had been held that religious organizations are not free from all of the financial burdens imposed by government. Although the Bethany Court determined that the controversy in that case was more about when the date of exemption occurs as opposed to the religious organization's immunity from taxation, the Court held, nevertheless, that there was a compelling state interest supporting the statute mandating the payment of taxes. The Court stated that it "perceive[d] no constitutional doctrine requiring deviation from the statutory requirement that exemptions be determined and fixed at the time of the assessing date."
Id. at 508-510.
Id. at 510.
Id.
Lastly, the Bethany Court addressed the very issue of a religious organization's immunity from property taxation. The Court identified the struggle that would be created between the free exercise and establishment clauses if the Court were to "pick and choose churches and sects subject to exemption from taxes in an attempt to accommodate religious beliefs." In response to the [religious organization's] contentions that the exemption sought would be relatively minimal, the Bethany Court stated that "[b]y granting exemption from taxation to particular religions, churches or sects, while leaving it to others to meet their fair share of the burden of taxation, the effect would be to reward some at the expense of others." The Court held that "because the broad public interest in maintaining a sound tax system is of such a high order, religious belief in conflict with the payment of taxes affords no basis for resisting the tax."
Id.
Id.
Id.
The United States Constitution and the three provisions of the Delaware Constitution noted above do not provide protection to the Church from property taxation. There are situations when property taxes are constitutionally assessed against a religious organization. "Religious societies do not enjoy a general immunity from the imposition of property taxes under the First Amendment." Furthermore, a state may "justify a limitation on religious liberty by showing that it is essential to accomplish an overriding governmental interest." Although the Delaware Constitutional provisions cited by the Church do authorize property tax exemption, these provisions are balanced against a compelling interest of the state. In this case, the Church is subject to the rollback tax levied by the County because "broad public interest in maintaining a sound tax system"37 and because the effect of granting the Church an exemption from the assessment of the farmland rollback tax would be to "reward some at the expense of others."38 This Court finds that the Church's tax exempt status does not, in and of itself, exempt it from being subject to the farmland rollback tax assessed by the County as a matter of federal or state constitutional law.
16A C.J.S. Constitutional Law § 537 (1984).
Market Street Mission v. Bureau of Rooming and Boarding House Standards, N.J. Supr., 541 A.2d 668, 673 (1988) (holding that fire safety provisions, and fines for violations thereof contained in the Rooming and Boarding House Act were constitutionally applied to a religious rescue mission and that application did not unduly interfere with the free exercise of religion nor did it create excessive entanglement with religion).
VII. CONCLUSION
This Court finds that the farmland exemption rollback taxes assessed under the provisions of 9 Del. C. § 8335(d) against a religious corporation that is otherwise exempt from property taxation is a lien against the land and is not the personal obligation of a prior owner. This Court also finds that the Church is not immune from the rollback taxes here assessed as a matter of federal or state constitutional law. The Church has failed to show that the Board's actions were contrary to law, fraudulent, arbitrary or capricious. For the reasons stated above, the decision of the Board is AFFIRMED.
IT IS SO ORDERED.