States Are Not Entitled to Windfalls in Tax Disputes, Supreme Court Rules

The Supreme Court unanimously ruled on Thursday that states which seize and sell private property to recoup unpaid taxes violate the Constitution’s takings clause if they retain more than what the taxpayer owed.

The case concerned a 94-year-old woman in Minnesota who had stopped paying property taxes on her condominium after moving into an assisted-living center.

By the time Hennepin County seized the property, the woman, Geraldine Tyler, owed about $2,000 in taxes and another $13,000 in penalties and interest. The county sold the condo at auction for $40,000, and it kept not only the $15,000 that all agreed it was due but also the remaining $25,000.

Retaining the entire value of a confiscated property, even when the debts owed amounted to a small portion of it, is authorized by Minnesota law.

The county argued that the Minnesota law was rooted in historical practice and encouraged homeowners to take steps to protect their property.

Writing for the court, Chief Justice John G. Roberts Jr. said that “history and precedent say otherwise.”

“The county had the power to sell Tyler’s home to recover the unpaid property taxes,” he wrote, but, he added, “it could not use the toehold of the tax debt to confiscate more property than was due.”

The county’s action, the chief justice wrote, was a classic violation of the takings clause, which says that property cannot “be taken for public use, without just compensation.”

History supported that view, Chief Justice Roberts wrote.

“The principle that a government may not take more from a taxpayer than she owes,” he wrote, “can trace its origins at least as far back as Runnymeade in 1215, where King John swore in the Magna Carta that when his sheriff or bailiff came to collect any debts owed him from a dead man, they could remove property ‘until the debt which is evident shall be fully paid to us; and the residue shall be left to the executors to fulfill the will of the deceased.’”

The chief justice added that “our precedents have also recognized the principle that a taxpayer is entitled to the surplus in excess of the debt owed.”

Minnesota’s approach is a relative outlier, he wrote. “Thirty-six states and the federal government require that the excess value be returned to the taxpayer,” he wrote.

The Constitution forbids the practices in the other states, Chief Justice Roberts wrote in his opinion in the case, Tyler v. Hennepin County, No. 22-166.

“The takings clause,” he wrote, quoting an earlier decision, “‘was designed to bar government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole.’ A taxpayer who loses her $40,000 house to the state to fulfill a $15,000 tax debt has made a far greater contribution to the public fisc than she owed. The taxpayer must render unto Caesar what is Caesar’s, but no more.”

Christina Martin, a lawyer with the Pacific Legal Foundation, which represents Ms. Tyler, called the decision “a major victory for property rights in the United States.”

“The court’s ruling,” she said in a statement, “makes clear that home equity theft is not only unjust, but unconstitutional.”

Justice Neil M. Gorsuch, joined by Justice Ketanji Brown Jackson, issued a concurring opinion that explored another possible ground for ruling in Ms. Tyler’s favor: the Eighth Amendment’s prohibition of “excessive fines.”

“Economic penalties imposed to deter willful noncompliance with the law are fines by any other name,” Justice Gorsuch wrote. “And the Constitution has something to say about them: They cannot be excessive.”