Dec. 5, 2022 – A district court properly dismissed a claim for the recovery of unlawful taxes because the party making the claim failed to first pay the taxes, the Wisconsin Supreme Court has ruled.
In St. John’s Communities, Inc. v. City of Milwaukee, 2022 WI 69 (Nov. 22, 2022), the supreme court unanimously held that the plain wording of Wis. Stat. section 74.35(2)(a) requires a party a seeking to recover an unlawful tax to first pay the tax.
Change in Property Use
St. John’s Communities, Inc. (SJCI) owned a retirement care facility in the City of Milwaukee (City). The city recognized the property as tax exempt for tax years 2010 through 2016.
Jeff M. Brown is a legal writer for the State Bar of Wisconsin, Madison. He can be reached by
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SJCI began to renovate and expand the facility in 2018. The company demolished the existing facilities and built new facilities on an area previously used for parking.
In 2019, the City’s Assessor’s Office determined that the changes constituted a new use of the property, and the City notified SJCI that it would no longer recognize the property as tax exempt.
On Nov. 8, 2019, SJCI filed a claim to recover unlawful taxes under section 74.35.
The City replied that the claim was premature, because SJCI hadn’t yet paid the tax and therefore had not been “aggrieved by the levy and collection of an unlawful tax” as required by section 74.35(2).
On Nov. 27, 2019, the City levied the tax on the SJCI property. SJCI still hadn’t paid the tax on Dec. 5, 2019, when it filed a second claim under section 74.35.
On Jan. 21, 2020, the City disallowed SJCI’s claim because it hadn’t yet paid the challenged tax.
On Jan. 22, 2020, SJCI paid the first installment of its 2019 tax. SJCI also on that day sued the City in Milwaukee County Circuit Court, making claims under section 74.35 and other statutory and constitutional provisions.
The City filed a motion to dismiss for failure to state a claim in February 2020. In April 2020, SJCI filed a motion for summary judgment, on the grounds that the City had unlawfully levied the tax because the property at issue remained exempt.
The circuit court granted partial summary judgment for SJCI and ordered a refund of the taxes, plus interest.
The City appealed. The Wisconsin Court of Appeals reversed the circuit court.
Plain Meaning of Statute
Chief Justice Ziegler began her opinion by examining the wording of section 74.35(2). She pointed out that the statute requires a person filing a claim to “recover” an unlawful tax to be “aggrieved” by both the “levy” and the “collection” of the tax.
“A person cannot be ‘aggrieved’ by the ‘collection’ of unlawful tax unless the tax has actually been collected,” Ziegler wrote.
Using terms from the dictionary meaning of “recover,” Chief Justice Ziegler wrote that “‘Recover’ connotes that the tax has already been paid. One cannot recover—that is, ‘get back,’ ‘regain,’ or ‘be compensate[d] for”’—a tax that has not been paid.”
Given the plain meaning of the statutory terms, Ziegler concluded that a person seeking to recover an unlawful tax under section 75.35(2) must first pay the tax.
Method of Interest Calculation is Relevant
The court’s conclusion was supported by the method of calculating interest under section 74.35, Chief Justice Ziegler explained.
She pointed out that under section 74.35(4), the amount of a claim filed under section 74.35(2) may include interest calculated from the date of filing the claim, rather than from the date the tax was paid.
“If a taxpayer could file a claim before paying the tax, there would be no sum paid upon which interest could accrue,” Chief Justice Ziegler wrote.
“Requiring a taxpayer to pay the tax before filing a claim ensures that taxpayers can receive interest payments only on sums actually paid.”
Provision is Substantive, Not Introductory
SJCI argued that section 74.35(2)(a) was nothing more than an introductory provision that alerts the reader to the general subject matter – namely, unlawful taxes and the parties.
But that argument, Chief Justice Ziegler, failed to give a reasonable effect to every word in the subsection and, in effect, eliminated the first half of subsection (2)(a).
SJCI also argued that because subsections (2)(b), (5)(a), and (5)(c) establish procedural requirements for challenging an unlawful tax, they were the logical place to put any requirement that a party challenging an unlawful tax pay the tax first.
But the wording of those subsections, Ziegler explained, belied such a claim.
“Nothing in the language of any of these subsections indicates that they are the exclusive temporal conditions taxpayers must satisfy, and reading them as such renders the language in section 74.35(2)(a) inoperative,” Chief Justice Ziegler wrote.
Absurd Results Canon Not Applicable
SCJI also argued that requiring a person seeking to challenge an unlawful tax to pay the tax first would lead to absurd results.
Specifically, SCJI argued that such a requirement would: 1) deprive a challenging taxpayer of the right to choose between paying taxes any time before January 31 (the deadline for filing a claim under section 74.35); and 2) force a challenging taxpayer to choose between either delaying paying taxes until the last day allowed or filing the claim on the same day.
But Ziegler, quoting a treatise on statutory interpretation written by Bryan Garner and former U.S. Supreme Court Justice Antonin Scalia, pointed out that the canon of statutory interpretation that disfavors an interpretation that would lead to absurd results “is reserved only for those interpretations that no reasonable person could intend, not interpretations that ‘may seem odd.’”
“We refuse to disregard Wis. Stat. section 74.35’s plain and express meaning based on a result Saint John’s considers unreasonable,” Chief Justice Ziegler wrote.