August 19, 1985
Mr. Glenn Roth
Hutchinson County State's Attorney
Post Office Box 137
Olivet, South Dakota 57052
OFFICIAL OPINION NO. 85-35
Stay of collection procedure of bankrupt's delinquent property taxes
Dear Mr. Roth:
You have requested my official opinion on the following factual situation:
FACTS:
Over the past year our county treasurer has received letters or telephone calls from various bankruptcy attorneys, whose clients own real estate in the county and who are in Chapter 11 or Chapter 13 bankruptcy reorganization. The attorneys request that the treasurer refrain from publishing the names of the debtors in the tax delinquency list in the local newspaper and cite U.S.C. § 362 of the Federal Bankruptcy Code, claiming it is harassment to publish the names in the local newspapers. They further state that U.S. Bankruptcy Judge Peder Ecker has made a ruling on this issue which prohibits county treasurers from publishing the names of the bankruptcy debtors, who are delinquent on their real estate taxes, in the local newspapers. Pursuant to SDCL 10-23-2 the county treasurer is required to give notice of the sale of real property for taxes or assessments by publication and is also required to list the real estate to be sold, the names of the parties against whom it is assessed, and the amount of taxes due.
Furthermore, the county treasurer has also received word from the bankruptcy debtor attorneys requesting the county treasurer to receive payment of the current year's taxes from the debtor so that that money can be applied to the current year taxes and not to the back taxes. This is contrary to SDCL 10-21-15, which requires that the county treasurer must apply the payment received from the property owner to the back taxes before it can be applied to the current year's taxes.
Based upon the above factual situation you have asked the following questions:
QUESTIONS:
1. Whether the county treasurer is restrained from publishing the names of the bankrupt debtor, who is delinquent on his real estate taxes and who is going through Chapter 11 or Chapter 13 Bankruptcy Reorganization?
2. Whether the county treasurer is restrained from applying the bankrupt debtor's payment on the real estate taxes to the oldest tax first?
Although the laws of the state provide sure and swift procedures for tax collections in the event of a delinquency in the payment of real property taxes, the bankruptcy code of the United States, which is intended to provide either a new start for a debtor or a systematic payment of debts, takes precedence over local enactments. This proposition is so clear it should require no citation, however, the case of Wright v. Union Central Life Insurance Company, 304 U.S. 502 (1938), demonstrates that Congress, when acting within its bankruptcy powers, may authorize the bankruptcy court to affect property rights created and protected by state law as long as the limitations of the due process clause are observed. Thus, although property taxes are given a priority by state law, the remedies for collection of those taxes may be stayed and will be qualified in the interest of fulfilling the congressional requirement that bankruptcy court has authority over the debtor and his property for purposes of liquidation, reorganization, or repayment plans.
The filing of a petition under the bankruptcy code automatically operates to stay almost every conceivable type of claim or action, including tax collection action against the debtor or the debtor's property. 11 U.S.C. 362(a). The automatic stay does not affect the status of the creditor's rights against the debtor or the creditor's relative status versus other creditors. The automatic stay prevents the commencement or continuation of a proceeding against the debtor that was, or could have been, commenced before the bankruptcy proceeding was filed. 11 U.S.C. 362(a)(1). These proceedings can be judicial or administrative and they apply to every step of the proceedings, including actions by the government with the exception of governmental actions to enforce police or regulatory powers. 11 U.S.C. 362(b)(4). This would include the publishing of notice of intention to sell property for taxes given by the county treasurer pursuant to SDCL 10-23-2.
Since an automatic stay only applies to pre-petition liabilities, it is necessary to examine the sequence of the taxing process. The property is assessed according to its value on January 1, (SDCL 10-6-2). Following the equalization process of SDCL 10-11, taxes become due and become a lien against the property of the first day of January of each year next following the assessment levy. SDCL 10-21-4, 10-19-1. Although a written bill is sent to each property taxpayer (SDCL 10-21-1.1), no demand is necessary to fix the liability of the person against whom taxes are assessed. On the first day of May the year after which taxes have been assessed and after they become due, one-half of the unpaid real estate taxes become delinquent. If the second half is not paid on or before the 31st day of October of the same year, the second half becomes delinquent. SDCL 10-21-23. If taxes are not paid by the time they finally become delinquent, the county treasurer is required upon two weeks notice to sell the property for taxes on the third Monday of December in each year. SDCL 10-23-2, 10-23-7.
Property on which there are delinquent taxes is offered for sale and the successful bidder obtains a tax sale certificate and a tax receipt evidencing his payment of taxes and his right under established procedures to obtain a tax deed. SDCL 10-23-18, 10-23-20. In the event there are no other bidders offering the amount due on real property offered at a tax sale, the county treasurer is required to bid in the property for the amount of taxes penalty interest cost and to issue a tax sale certificate in the name of the county. It is noted, however, that no tax receipt is issued to the county, and therefore the taxes are not paid. SDCL 10-23-24, 10-23-25. When an individual buys the property, pays the taxes and obtains the receipt of tax sale certificate, the taxes are considered to have been paid and the property may be subsequently assessed, levied upon and again sold for taxes if subsequent years' taxes are not paid. 1935-36 A.G.R. 514; 1951-52 A.G.R. 51. On the other hand, when the county acquires the interest of the property by reason of having been bid off in the name of the county, the property is not again advertised and sold for delinquent taxes so long as the county retains its interests in and rights to such real property. SDCL 10-23-26, 1929 A.G.R. 352. It is this collection process, stayed by the filing of a bankruptcy petition for taxes which have become due prior to the filing of the petition, and those prior taxes and the respective rights of the creditor county and the debtor taxpayer during the following year when the taxes become delinquent and the property is offered for sale, with which this opinion is concerned.
In answer to Question No. 1, it is my opinion that if a bankruptcy petition is filed prior to the third Monday in December, the county treasurer may not advertise delinquent tax property for sale or hold the sale on that date. This stay does not apply to post-petition taxes; those taxes which become due after the filing of the bankruptcy petition. Thus, if an individual was delinquent in the payment of real property taxes in 1984 and in December of 1984 prior to the third Monday filed a petition for Chapter 7, 11 or 13 bankruptcy, the county treasurer should not give notice of the sale of property for taxes on the third Monday in December. However, the 1985 taxes which become due on January 1, 1985, would not fall under this same stay since they are post-petition taxes and must be paid in Chapter 11 or 13 actions. 11 U.S.C. 1305(a)(1).
Under another section of South Dakota law, SDCL 10-21-15, and as a further means of insuring the collection of taxes, there is the requirement that in collecting the taxes the county treasurer should collect the oldest tax first and not issue a receipt for the current year until all prior taxes are paid. In this situation it is necessary again to examine the sequence of the taxing process. If the property has been sold for taxes and a private bidder has paid the tax and bought the certificate, the taxes have been paid and therefore there are at that point no delinquent taxes. If the county is the holder of the tax sale certificate it would not be to the county's advantage to apply current year tax payment to the outstanding oldest tax, thus giving up the tax sales certificate since post-petition taxes are required to be paid, § 1302 supra.
It is my opinion in the context of your question that the county treasurer may accept without prejudice the current year's taxes. However, the tax receipt must clearly note the exception that this does not bar the receipt for specifically named years when the tax has either not been paid or when the county is the holder of the tax receipt. SDCL 10-21-15. As this office has continually pointed out, it is not sufficient that the tax receipt merely bear a printed or written notification that the 'payment of this tax is not a bar to any prior unpaid taxes.' A county treasurer who issues such a receipt is personally liable for the uncollectable taxes resulting therefrom. See Guarantee State Bank of Sisseton v. Roberts County, 57 S.D. 515, 234 N.W. 35 (1930). The same situation does not prevail, however, where a private individual is the holder of the tax sale certificate since that tax in effect has been paid for the year in which he holds the certificate or the year in which he holds any subsequent tax receipts. As our Supreme Court indicated in the case of Union Central Life Insurance Company v. Hoilien, 60 S.D. 183, 244 N.W. 116 (1932), where it was contended that an owner had paid subsequent taxes without the notation being on the receipt and thus the holder of the certificate should be deemed to have lost his rights under the certificate, the clear tax receipt did not prevent the purchaser of the tax sale certificate from asserting his rights or interests under such certificate. In answer to Question No. 2, the treasurer should accept the payment of current taxes noting on the receipt the year of any prior unpaid taxes.
Respectfully submitted,
Mark V. Meierhenry
Attorney General
