May 29, 1985

Mr. Donald W. Kallenberger 
Campbell County State's Attorney 
Post Office Box 658 
Herreid, South Dakota 57632

OFFICIAL OPINION NO. 85-25

Collection of penalty and interest on delinquent taxes, and abatement of taxes by county

Dear Mr. Kallenberger:

You have requested an official opinion based on the following factual situation:

FACTS: 

On May 1, 1979, the local bank extended a loan to a borrower 'A' for real estate acquisition, construction and improvements and took a mortgage on the real estate.  On November 5, 1982, the local bank assigned its mortgage to the Small Business Administration pursuant to a participation loan with that agency.  Borrower 'A' thereafter defaulted on the loan and the Small Business Administration foreclosed on the mortgage with a foreclosure sale being held on August 26, 1983.  The Small Business Administration became the buyer.  A Sheriff's Certificate of Sale was issued to the Small Business Administration at that time, and said certificate was assigned by the Small Business Administration to a subsequent buyer on September 24, 1984. 

The Real Estate taxes on the property in question have not been paid for the years 1979, 1980, 1981, 1982, 1983 and 1984.  On August 25, 1983, the day before the foreclosure sale, the Small Business Administration tendered a check in the amount of $3,956.78 to cover the real estate taxes up to the date of sale, excluding the outstanding penalty and interest.  The treasurer refused to accept the payment as tendered on the grounds that the penalty and interest were excluded and, therefore, payment in full was not tendered.  The Small Business Administration refused to pay the penalty and interest,  arguing that as a governmental entity it was tax exempt. 

The assignee of the Sheriff's Certificate of Sale tendered payment for the final four months of 1984.  This payment was accepted by the Treasurer, subject to outstanding Tax Sale Certificates held by the County for the previous years' outstanding taxes, and the receipt was so marked. 

The Small Business Administration has now requested an abatement of the real estate taxes for the period that they were in fact the owner of the property as a result of their purchase of the real estate at the foreclosure sale.  During part of this period the real estate had been leased and operated with the rentals going to the Small Business Administration.

Concerning these facts you have asked the following questions:

QUESTIONS: 

    1.  Is the Small Business Administration exempt from paying the penalty and interest accrued on the unpaid real estate tax during the period that borrower 'A' was the owner of record (May 1, 1979, to August 26, 1983)? 

    2.  Is the Small Business Administration exempt from real estate taxes for the period that they were the owner of record (August 26, 1983, to September 14, 1984) or are they entitled to an abatement? 

    3.  Does the assignee of the Sheriff's Certificate of Sale become  responsible for real estate taxes as of the date of the assignment (September 14, 1984) or as of January 1, 1985?

This office has had occasion to issue its official opinion previously on the general subject of collection of penalty and interest on delinquent real estate taxes in a situation where taxes were delinquent both prior and subsequent to mortgage foreclosure proceedings by Small Business Administration.  I refer you to Official Opinion No. 83-43, dated November 9, 1983.  The fact situation in response to which that Opinion was issued differed from your stated facts in that, after the statutory redemption period of one year from the date of mortgage foreclosure sale, a Sheriff's Deed was executed and delivered to the Small Business Administration.  That factual situation did not include any application by Small Business Administration for abatement of taxes for any period of time.

Article XI, § 5, South Dakota Constitution provides: 

The property of the United States and of the state, county and municipal corporations, both real and personal, shall be exempt from taxation, provided, however, that all state owned lands acquired under the provisions of the rural credit act may be taxed by the local taxing district for county, township and school purposes, and all state owned lands, known as public shooting areas, acquired under the provisions of §  25.0106 SDC 1939 and acts amendatory thereto, may be taxed by the local taxing districts for  county, township and school purposes in such manner as the Legislature may provide.

The provisions of Article XI, §  5 are self executing and have force and effect without enabling legislation, see Appeal of Black Hills Industrial Freeport, Inc., (1978) 268 N.W.2d 489.

The Small Business Administration is an unincorporated agency of the United States and has no identity separate and distinct from the government.  In 1941-42 A.G.R. 341 my predecessor held that the 'Farm Credit Administration' was a continuation of the 'Federal Farm Board' and had no identity separate from the government.  I concur in that opinion and find the Small Business Administration to also be an agency of the United States.

Your factual situation refers to 'outstanding tax sale certificates held by the county.'  I assume that the County Treasurer did, in fact, conduct the sale of the real estate for delinquent taxes, as required by SDCL 10-23, and that, in the absence of individual bidders, did bid off the property in the name of the County.

It is my opinion that your Question No. 1 is answered by my prior Official Opinion No. 83-43, that is, the Treasurer must comply with SDCL 10-24-1 if redemption is sought.

IN RE QUESTION NO. 2:

It is my opinion that, in the absence of issuance and delivery of Sheriff's deed, after the absence of a redemption from Sheriff's Certificate of Sale on mortgage foreclosure had passed, the Small Business Administration did not become the owner and the real estate did not become 'property of the United States.'  The property did not, therefore, become exempt, and no one became entitled to an abatement.

The answer to Question No. 2 makes any answer to Question No. 3 unnecessary.  As to time of determination of exempt status, and apportionment when property is transferred to a tax exempt entity, (where such a situation exists) the applicable statute is SDCL 10-4-19.1.

Respectfully submitted,

Mark V. Meierhenry
Attorney General