October 27, 2017

When does a $8.41 tax bill cost you $24,215?

By Christina M. Martin Attorney

In January 2013, Uri Rafaeli’s business—Rafaeli, LLC—tried to pay the overdue taxes for a modest rental home in Southfield, Michigan.  Rafaeli miscalculated the interest due for the delinquent 2011 taxes and underpaid by $8.41. A year later, Oakland County foreclosed on the property. The County then auctioned the property for $24,500 and kept every penny. You read that right: the County took almost $25,000 because a property owner underpaid his taxes by $8.

Rafaeli sued. First he tried federal court, but was thrown out of federal court because of a court-created doctrine that sends people who want to enforce their Fifth Amendment right to just compensation to state court. (PLF has been trying to get that precedent overturned for many years.) State court has not proven any more helpful.  This week, the Michigan Court of Appeals held that government may confiscate your property—no matter how valuable—when you fail to pay even as little as $8.

The court said that the constitutional protections against uncompensated takings do not apply to delinquent taxpayers. Instead, the court held that this is just another form of civil asset forfeiture. In other words, it is a penalty against the property for the crime of underpaying your property taxes. (Nevermind that underpaying your property taxes is not a crime). The court then refused to address whether such a forfeiture is an excessive fine in violation of the Eighth Amendment. Judge Shapiro concurred with the outcome, but for alternative reasons. He recognized the judgment was grossly unjust but said that he could do nothing until the Supreme Court or the Michigan legislature step in and correct the law.

Indeed, this judgment is unjust. But as we explained to the Supreme Court this summer in a petition seeking Supreme Court review in Wayside Church v. Van Buren County, Supreme Court precedent supports the idea that this is an unconstitutional takings. Unfortunately, many lower courts disagree, which is why the Supreme Court should grant the Wayside Church petition.

PLF will now step in to represent Rafaeli. We previously supported Rafaeli as a friend-of-the-court by filing this amicus brief, which explained why the law requires the court to hold such legalized theft an unconstitutional taking, or alternatively an excessive fine.  Hopefully, we can now persuade the Michigan Supreme Court (or U.S. Supreme Court) that the state and federal constitutions demand that the government refund whatever it takes in excess of the tax debt.

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