Minnesota Tax Officials Lose 9-0 in Supreme Court in Property Tax Case

Can a county seize and sell a home to collect unpaid property taxes, then keep all amounts above what was owed and not refund them to the former homeowner? No, said a unanimous Supreme Court today in Tyler v. Hennepin County.

Geraldine Tyler, 94, moved out of her home in Hennepin County, Minnesota, into an assisted living facility. Unfortunately, her family neglected to pay the property taxes on her home, and eventually $2,300 in unpaid taxes accumulated along with $13,000 in interest and penalties. The county seized the home to pay the back taxes, and sold it for $40,000. It kept it all, and refused to refund the $25,000 excess to Ms. Tyler. A lower court judge and the Eighth Circuit appeals court refused to allow Ms. Tyler to even claim that Hennepin County’s action violated the U.S. Constitution.

“The taxpayer must render unto Caesar what is Caesar’s, but no more,” writes Chief Justice John Roberts’s opinion, which all nine justices joined. Roberts’s opinion works through each of the county’s arguments and rejects them, leaving only the fact that what Hennepin County did violates the Fifth Amendment prohibition on taking property without just compensation:

  • Ms. Tyler has standing to sue. At the last minute the County tried to introduce evidence that she had an outstanding mortgage and other liens that may exceed the $25,000 surplus. Roberts notes that the County didn’t introduce those records earlier, and even if they did, the $25,000 still “belongs to her… Had Tyler received the surplus from the tax sale, she could have at the very least used it to reduce any such liability.”

  • Property is not just what Minnesota says it is. Minnesota has a law that says that a property owner forfeits their property when they fall behind on taxes, and asserted that Tyler has no property right beyond that defined in state law. Roberts rejects this, pointing to historical consensus going back to Magna Carta in 1215 that “a government could not take more property than it was owed.” The county’s main contrary example, a Virginia law in effect from 1790 to 1813 that allowed the state to reclaim from speculators who paid no taxes, “carries little weight against the overwhelming consensus of its sister states.” Roberts also notes that Minnesota law returns surpluses with all other tax types, just not property tax.

  • The Court distinguishes Nelson v. City of New York, a 1956 case with similar facts (New York City seized properties with unpaid water bills and refused to return any surplus). Roberts writes that the situation there was different, with New York allowing the taxpayer 20 days after a sale to reclaim the surplus (Minnesota doesn’t offer that option at all) and that the Nelson plaintiffs only belatedly raised the Takings Clause as an argument.

  • Roberts rejects the county’s assertion that Ms. Tyler “constructively abandoned” her home by failing to abide by the “reasonable conditions on property ownership” of paying her taxes timely. Roberts states that the Minnesota statute is not about abandonment, and a taxpayer still living in their home can violate it, so the county cannot reshape the facts “to avoid the demands of the Takings Clause.”

Justices Neil Gorsuch and Ketanji Brown Jackson authored a concurrence together, joining the Court’s opinion in full but adding their view that Minnesota’s scheme also violates the Eighth Amendment’s ban on excessive fines. This is the argument NTUF’s Taxpayer Defense Center made in our brief to the Court, and we are pleased to see strong interest in reviving the Excessive Fines Clause into a constitutional powerhouse. Gorsuch and Jackson reject three dangerous claims made by the lower courts, the county, and the federal government in the case:

  • They reject the claim that the Excessive Fines Clause does not apply if the government action is only partly punitive. The court below said the “primary purpose” of the Minnesota law is remedial, that is to allow the government to obtain the taxes already owed; the punitive keeping of the surplus was only one aspect. Gorsuch and Jackson say that mostly remedial still means partly punitive, and only a law that is “solely to serve a remedial purpose” (emphasis original) avoids the Excessive Fines Clause.

  • They reject the lower court’s observation that sometimes a taxpayer may win out with Minnesota’s scheme, if they owe more in back taxes than their property is worth. Gorsuch and Jackson write: “That observation may be factually true, but it is legally irrelevant. Some prisoners better themselves behind bars; some addicts credit court-ordered rehabilitation with saving their lives. But punishment remains punishment all the same.”

  • They reject the view that the Excessive Fines Clause only applies if there is “culpability” by the individual property owner, noting that the Court has never held that it is required. They state that if a law’s goal is deterrence, that is punitive: “Economic penalties imposed to deter willful noncompliance with the law are fines by any other name. And the Constitution has something to say about them: They cannot be excessive.”

There’s likely lots of celebration today at the Pacific Legal Foundation, which represented Ms. Tyler to change Minnesota’s home equity theft law and ably made its case in oral argument last month. When all 9 justices say you won, and 2 of them say you won twice over, it’s really like an 11 to 0 decision.

While Roberts deftly sidesteps Nelson v. City of New York, it might have been better if the Court had instead overruled it. It’s hard to see how the Court’s insistence today that “excess value be returned to the taxpayer” squares with a ruling that a state can keep the excess value so long as they give the former homeowner a mere 20 days after the tax sale to reclaim it.

And while Gorsuch and Jackson speak just for themselves, the majority did not disagree but merely stated that resolving the Excessive Fines claim was unnecessary because Ms. Tyler already won on her Takings claim. Governments would be well-advised not to ignore the concerns outlined by the Gorsuch and Jackson concurrence. For too long, it’s been an article of faith that excessive tax penalties cannot be constitutionally challenged, but Gorsuch and Jackson from opposite ends of the Court rejected that today. We'll certainly be keeping our eyes peeled at NTUF.

The case is Tyler v Hennepin County, Minnesota, No. 22-166, decided May 25, 2023.