November 9, 1983
Mr. John R. Steele
Aurora County State's Attorney
Plankinton, South Dakota 57368
Official Opinion No. 83-43
Collection of Penalty and Interest on Delinquent Taxes by County Treasurer
Dear Mr. Steele:
You have requested an official opinion based on the following factual situation:
FACTS:
The regular property taxes on certain property in Aurora County for the years 1978, 1979 and 1980 were not paid by the then record owner and consequently became delinquent on the records of the County Treasurer. From 1978 on, the property was subject to a mortgage given by the record title holders to the Small Business Administration, an agency of the United States of America.
Pursuant to a foreclosure proceeding commenced by SBA, the property was sold to SBA on August 14, 1980, in satisfaction of the mortgage. A year later, after the expiration of the statutory redemption period, on August 24, 1981, a Sheriff's Deed was executed and delivered conveying the property to SBA.
SBA has now undertaken to resell the property to a private individual and wishes to fulfill its obligation to deliver a clear title to the property to the buyer. SBA has tendered the 1978, 1979, and 1980 taxes on the property (these are the only ones that present a problem since no taxes from 1981 or subsequent years were delinquent prior to the delivery of the Sheriff's Deed to SBA) but has tendered only the principal amount due, and not interest and penalty provided for by South Dakota law. SBA claims that it is exempt from paying interest and penalty under Federal law. The County acknowledges this to be true but takes the position that it is irrelevant as to interest and penalty accruing prior to the time SBA acquired title to the property, August 24, 1981.
The County Treasurer has always required that all principal, interest and penalty be paid for any year for which delinquent taxes are outstanding before issuing her receipt or accepting payment of any portion of the taxes (principal, interest or penalty) for any subsequent year. Moreover, she is under the impression that such is the universal practice among County Treasurers in this state. Based on this practice and my advice that she is correct in handling it this way the Treasurer has refused to issue her receipt showing the principal paid on the 1978, 1979, and 1980 taxes based on SBA's tender, unless all penalty and interest accrued prior to August 24, 1981, are also paid. She has also stated to SBA that she will not accept the principal amounts due for any subsequent years from anyone, SBA, or the Buyer, until all outstanding principal, penalty and interest are paid for all prior years.
Concerning these facts you have asked the following questions:
QUESTIONS:
1. Must the County Treasurer accept tax principal payments for the years 1978-82 without collecting outstanding interest and penalty on each year before accepting the principal for a subsequent year?
2. If the answer to Question No. 1, is yes, does this apply to persons who seek to pay delinquent taxes from years predating their ownership other than agencies of the United States, for example, a Federal Land Bank, a savings and loan association, commercial bank or a bona fide purchaser of the land (or, for that matter, the delinquent owner)?
3. Do unpaid penalty and interest constitute a lien on the real estate along with the principal amount of tax?
The statutory lien for taxes in South Dakota is provided by SDCL 10‑19-2 which reads:
Taxes upon real property shall be a perpetual lien thereon against all persons and bodies corporate, except the United States and this state.
In an early opinion my predecessor held that the tax lien statute created a valid lien against property which remained in effect although that property might be purchased or acquired by the United States but that the lien could not be enforced against the United States since the government has not given its consent to any proceeding to enforce the same. See 1945-46 A.G.R. 298. The Attorney General stated:
The tax lien itself however exists upon this property, and whenever the United States undertakes to transfer this title to a taxable person or entity, the United States will ultimately be required to satisfy the tax lien in order to convey merchantable title. . . .
At this point it is important to include additional facts which I have verified with the Aurora County Treasurer as I believe these facts are necessary to resolve the questions you have raised. SDCL 10-23 provides for the sale of real property for delinquent taxes and generally prescribed that on the third Monday in December all property on which the taxes are delinquent is offered at public sale. The property may be purchased and a tax sale certificate issued to individual bidders or if there are no bidders the county treasurer is authorized to bid off the property at the sale for the amount of taxes, penalty and interest and costs due and unpaid thereon in the name of the county. The county thereupon acquires all the right both legal and equitable that any purchaser could acquire by reason of such purchase. SDCL 10-23-24. The certificate is made out to the county and the face amount on such certificate is the taxes, penalty, interests and costs due at that time. The certificate bears interest in such amount as the buyer has agreed to accept. This is a means of enforcing tax collection. As our court said in Union Central Life Insurance Company v. Hoilien, 224 N.W. 116 (1932).
The distinction between the sale of property to a private bidder for taxes and a sale to the county is that when a purchase is made at a tax sale by a private bidder, the tax is paid and the purchaser is entitled to a tax receipt and the taxing authorities have no further lien upon the land for the payment of taxes while if the county is the purchaser, the tax remains unpaid until redemption is made the certificate is assigned or the land is sold by the county after title is acquired by tax deed and the sale of the land by the county is merely a process for enforcing the collection of the tax.
In the normal course of events an individual or the county may obtain a tax deed to property by following the procedures outlined in § 10-25. Before this time occurs SDCL 10-24-1 provides the means for redemption of property sold. This section reads as follows:
Any person may redeem real property sold for taxes at any time before issue of a tax deed therefore, by paying the treasurer, for the use of the purchaser, his heirs, or assigns, the sum mentioned in the certificate, and interest thereon at the rate at which the real property was sold from the date of purchase, together with all other taxes subsequently paid, whether for any year or years previous or subsequent to such sale, and interest thereon at the same rate from the date of such payment; and the treasurer shall enter a memorandum of the redemption in this list of sale, and give a receipt therefore to the person redeeming the same, and file a duplicate of the same with the county auditor as in other cases, and hold the money subject to the order of the purchaser, his agent, or attorney.
If real property which has been sold for taxes pursuant to SDCL 10-23 is not redeemed in accordance with 10-24 within four years from the date of sale and within fix years from the date of the tax sale certificate a tax deed may be procured pursuant to SDCL 10-25.
In the case you have presented, the Sheriff's Deed resulting from the foreclosure by advertisement of the property in question foreclosed the lesser interests of the purchasers and persons with subsequent liens. It did not destroy the lien of the county for property taxes. In a decision of the United States Supreme Court, United States of America v. State of Alabama, 313 U.S. 274, 85 L.Ed. 1327 (1941), the Court held, while the lien may not be enforced against the United States it nevertheless remains against the land and may be cleared only by compliance with the redemption statutes which requires that the person seeking to redeem pay the full amount of the certificate which includes on its face the original tax, penalty, interests and costs as well as all subsequent taxes.
I would answer your question in the following way.
IN RE QUESTION NO. 1:
The county treasurer must comply with SDCL 10-24-1 if redemption is sought. This answer makes unnecessary a response to your subsequent questions.
Respectfully submitted,
Mark V. Meierhenry
Attorney General
