Accounting Day for the Taxman
Small businesses that rely on assessments made by government and private accounting agencies are often in a hurry to pay their tax bills. After all, tax bills can be counted on to be unforgivingly accurate--or so people think. But trust in the accounting methods of others has led some 2,500 (and counting) Minnesota taxpayers to overpay their property taxes by thousands of dollars. The response of the counties, including Hennepin, Ramsey, Washington, and Anoka, can be summed up in two short words: tough luck.
Two Minneapolis law firms, Robert Hill and Associates and Larkin Hoffman, have filed a class-action suit on the behalf of the overcharged taxpayers, charging that the counties failed to calculate the property tax in accordance with a state law that dates back more than 10 years. Under a statute that was enacted in 1985, the first $100,000 in market value of a commercial property is taxed at 3.3 percent; after the first $100,000, the rate increases at a rate that has changed several times since the law went into effect. Many small-business owners, unaware of the statute, did not take the tax break for the first $100,000 in property value.
The suit charges that several local counties haven't bothered to correct business owners' returns or to alert them to the change. Over the years, the attorneys allege, the lack of communication has cost individual taxpayers more than $20,000 in some cases.
What surprises Robert Hill, who represents some of the taxpayers, is that while county officials admit the taxes were overpaid, they categorically deny they bear any responsibility for the error. He believes the officials knew of the mistake, but never bothered to clean up their records. "It's one thing to make mistakes in administering the law," he says. "It's another to willingly refuse to rectify your mistakes because you don't believe you have to or because you think it's too hard."
Max Wexler owns a commercial building in Minnetonka that he says has been overcharged $2,000 annually for each of the past 10 years. He's angry at county officials. "As a taxpayer and a citizen, what upsets me the most is that the county was aware of these problems yet said nothing," he says. "Instead of wasting taxpayers' money on this crazy lawsuit, they should just admit that they made a mistake and offer tax vouchers."
What most bothers David Baker--as well as Wexler and hundreds of others--is the suspicion that tax officials stood by and let him overpay time and time again. "We petitioned in 1993 to get the property taxes on our convenience store on Lake Street lowered and they ended up reducing the assessed value of the property. You'd think that they would have told us about this deferential tax then," he says. "They said it wasn't their obligation to tell people, but they should have told me and they should have given me that reduction. They knew what they were doing but they didn't say anything."
Assistant Hennepin County Attorney Marilyn Maloney, who is defending Hennepin County in the suit, says it's impossible for tax authorities to keep track of everyone's mistakes. "There are 15,000 commercial properties in Hennepin County," she explains. "We can't possibly identify them all. Property taxes are done on an annual basis. If the assessor doesn't give you the proper rate, you can petition within that year. If complaints don't occur within that time frame, the law says you can't go back."
In the end, says Maloney, small-business owners need to seek professional help when doing their taxes to make sure they are working with up-to-date tax codes. "It's a very complicated tax system," she says. "Even people just doing their income taxes usually get professional assistance. Small-business owners definitely need to consider getting professional advice if they want to get tax breaks."
While such suggestions might be sound, they aren't necessarily legally binding. As attorney Hill points out, when the average Joe gets a tax bill and pays it, he should be able to assume that the bill is correct. When, like Baker, an owner feels that his business is marginal to begin with, hiring costly professional auditors isn't always feasible.
"The law says that if you challenge a tax bill, you have a year to do so," says Hill. "That's assuming that the tax code was constitutional, and clearly in this case it wasn't. Under equal protection, two similarly situated taxpayers must be treated alike. The counties enforced statute 273.13 haphazardly, thereby depriving my clients equal benefit of the law." The time limit shouldn't apply, Hill adds, because the taxpayers never received notice that their tax bills were miscalculated.
The suit will probably be heard in a special tax court some time next year. Ultimately, because of the seriousness of the constitutional issues involved, it's likely the case will reach the Minnesota Supreme Court. Although the issues Hill and his colleagues plan to present there might sound like a jumble of complicated tax codes and statutes of limitation, they believe the case will set an important precedent. "If people know that the counties are able to get away with making mistakes without consequence," says Hill, "no one will be able to rely on the counties to do things right."
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