Opinion ID: 4017222
Heading Depth: 3
Heading Rank: 1

Heading: Extent and Legal Consequences of 1935 Tax Sale

Text: The Keller Heirs’ first issue addresses the overarching question in this case: whether the 1935 tax sale to the County Commissioner resulted in the sale of only the surface estate or the entire Eleanor Siddons Warrant. They essentially claim that the Kellers’ proper filing of their 1899 deed conveying the surface estate, but reserving the subsurface estate, placed Centre County on notice of the severance of the property, such that the 1935 tax sale solely conveyed the surface property. They emphasize that the 1936 Deed referenced the land “surveyed to Ralph Smith,” the surface owner of the property at the time. This first issue contains several sub-issues, addressed seriatim. Initially, the Keller Heirs fault the Superior Court for imposing an affirmative duty on the Kellers to report the severance under the Act of 1806. We conclude that the Keller Heirs are correct that the relevant portion of the Act of 1806 imposed a reporting duty only on a party “becoming a holder of unseated land,” and that, given their prior ownership of the entire Warrant, the Kellers did not “become” a holder of unseated land by selling the surface estate and reserving the mineral estate. 13 Nevertheless, based upon the case law discussed at length above, we agree with the Superior Court’s conclusion that if neither the Kellers nor the purchaser of the 13 As a separate issue, the Keller Heirs assert that the Superior Court exceeded its fact-finding authority in determining that the Kellers did provide notice of the severance for purposes of compliance with the Act of 1806. As we conclude that compliance with this aspect of the Act of 1806 is not definitive, we will not discuss this issue. [J-8-2016] - 25 surface rights in 1899 reported the transfer, then the Centre County Commissioners would have assessed and taxed the Eleanor Siddons Warrant in its entirely. We unequivocally stated in Heft that the tax system relating to unseated land, including the Acts of 1806 and 1815, treated unseated land “entirely in reference to the original warrants when not otherwise directed by the owners. Heft, 65 Pa. at 516; see also Hutchinson, 49 A. 312; Williston, 9 Pa. at 39; McCoy, 7 Watts & Serg. at 390. As ownership of unseated land was not easily ascertainable, the County Commissioners were not tasked with searching deed records to determine the present ownership of unseated land. See Rockwell, 77 A. at 666; Stoetzel, 105 Pa. at 567. Next, we reject the Keller Heirs’ claim that the reference to the “land surveyed to Ralph Smith” in the 1936 Deed from the Treasurer to the County Commissioners indicated that the deed was limited to the surface estate. Instead, we recognize that unseated land was assessed and taxed in the name of the Warrant, and any reference to the presumed-current owner, such as Ralph Smith, was merely used for descriptive purposes. See Bannard, 293 A.2d at 49 (holding that “it is immaterial that the name of the owner as given in the assessment is inaccurate, since no personal liability is involved; the land, not the owner, is looked to for payment of delinquent taxes”); Rockwell, 77 A. at 666; Strauch, 1 Watts & Serg. at 175. We additionally find unpersuasive the Keller Heirs’ argument that the Act of 1806’s four-fold tax penalty would apply to this case. The Keller Heirs properly recognize that the penalty for failing to report under the Act of 1806 was four times the relevant tax. The 1935 tax sale at the heart of this case, however, was not triggered by [J-8-2016] - 26 the failure to report ownership but instead by the failure of the owner or owners of the taxed property to pay the assessed tax.14 The Keller Heirs next contend that the 1935 tax sale should not be deemed to encompass the reserved mineral rights because those rights did not have taxable value in 1935.15 The Keller Heirs rely upon language in Rockwell acknowledging that a subsurface estate can only be subject to tax if it is demonstrated that mineral or other rights have actual value either through current production or an evaluation of neighboring properties. Rockwell, 77 A. at 665. They claim that the reserved rights in this case had no value as of the tax sale in 1935. The Keller Heirs, however, fail to recognize that the potential assessable value of the minerals is irrelevant to whether the 1935 assessment addressed the Warrant as a whole or merely the surface estate. Indeed, their theory could lead to a windfall for fee simple owners, who years after the 14 In support, the Keller Heirs rely upon this Court’s decision in City of Philadelphia v. Miller, 49 Pa. 440, 450-52, (Pa. 1865), where the Court used language emphasizing that the seizure of property should not be substituted for the four-fold penalty to report. That case, however, involved an unusual situation where the tax assessment listed a warrantee name completely unrelated to the name connected to the unseated land at issue due to a transcription error. 15 The Keller Heirs suggest that the gas rights, included in the reservation of subsurface rights, should be deemed conclusively to be non-taxable given our recent holding that oil and gas should not be subject to ad valorem taxes because those substances are not “land.” Independent Oil and Gas Assoc. of Pa. v. Board of Assessment Appeals of Fayette Co., 814 A.2d 180 (Pa. 2002) (IOGA). We reject this argument as we have held that IOGA only applies prospectively. Oz Gas, Ltd. v. Warren Area School District, 938 A.2d 274 (Pa. 2007). In applying IOGA prospectively, this Court specifically emphasized the need to protect taxing authorities’ reliance on prior oil and gas taxes. Id. at 284. We also noted that the trial court in that case additionally observed that “[r]etroactive application of IOGA would, in effect, invalidate each of those tax sales, perhaps leading prior owners to seek return of the properties lost to those tax sales.” Id. at 279. The trial court and this Court both concluded that such consequences weighed in favor of applying IOGA prospectively only. [J-8-2016] - 27 tax sale of the entire property could claim that the prior tax sale should be deemed to have exempted specific mineral rights that at the time of the sale had no value, but today are coveted, with Marcellus Shale being an obvious example. Such a theory would result in chaos whereby courts today would be required to determine whether certain minerals or other subsurface rights would have had taxable value in the late 1800s. See Bannard, 293 A.2d at 49. Moreover, as set forth above, if the Kellers disputed the County Commissioners’ failure to assess their subsurface estate separately from the surface estate, they should have contested the assessment and tax sale within the initial two-year redemption period. After the expiration of that redemption period, a challenge to the propriety of the tax sale would not be heard under Section 4 of the Act of 1815: “no alleged irregularity in the assessment, or in the process or otherwise, shall be construed or taken to affect the title of the purchaser, but the same shall be declared to be good and legal.” 72 P.S. § 6091; see also Bannard, 293 A.2d at 49; Strauch, 1 Watts v. Serg at 176; Bushong, § 473(V) at 507-10. Finally, the Keller Heirs attempt to distinguish the caselaw relating to titlewashing by emphasizing that the cited cases, such as Powell v. Lantzy, address situations where the severance occurred after the imposition of taxes, whereas the severance of the Eleanor Siddons Warrant occurred in 1899, years prior to the assessment and taxation that lead to the 1935 tax sale. They also minimize the significance of Hutchinson, which involved a pre-taxation severance, as this Court merely affirmed per curiam. Instead, the Keller Heirs rely upon this Court’s decision in Tide-Water Pipe Co. v. Bell, 124 A. 351 (Pa. 1924), to support their claim that “titlewashing” does not apply to duly recorded prior estates or interests because the tax sale [J-8-2016] - 28 under Section 5 of the Act of 1804 only conveys the interest “of the real owner or owners.” In Tide-Water Pipe Co., this Court addressed the effect of a tax sale on a right-ofway granted nearly forty years earlier by the prior owner to Tide-Water Pipe for the construction of above-ground petroleum-carrying pipes, which traversed the entire Commonwealth. The Court reiterated the well-established principle that a right of way which is open, notorious, permanent, and continuous is not affected by either a private or public sale of the property over which it passes. Id. at 353. The Court found no reason why this long established rule would not also apply to a treasurer’s sale of unseated land for delinquent taxes. The Court held that the purchaser at a tax sale takes the land subject to an easement, servitude, or interest in the nature of an easement. Id. The Court also opined that an easement or right of way was distinct from the fee, and thus did not pass with the tax sale. We conclude that this Court’s holding in Tide-Water Pipe, relating to easements and rights of way, is not controlling in regard to a subsurface estate if the estate has been assessed and taxed as a whole. Unlike the open and notorious above-ground pipes which made all aware of the right-of-way, a severance of a subsurface estate could not be viewed by the assessor. Thus, if the warrant had been assessed as a whole, the tax sale would have divested “all the estate and interest therein, that the real owner or owners had at the time of such sale.” Act of 1804, § 5. In contrast, the easement or right of way in Tide-Water Pipe was not an “estate [or] interest” of the property owner and, thus, was not affected by the tax sale under the Act of 1804. TideWater Pipe, 124 A. at 355. Additionally, in light of our caselaw recognizing the difficulty assessors had in ascertaining the then-current ownership of unseated land and providing for the [J-8-2016] - 29 assessment to be based on the entire warrant in the absence of direction from the owners, we reject the Keller Heirs distinction based on the timing of the assessment versus the severance. See Hept, 65 Pa. at 516. As discussed, tax on unseated land was the liability of the land rather than the owners. Therefore, if the property was assessed as a whole property and none of the owners paid the tax, then the property would be sold as a whole to satisfy that tax. As cogently set forth in Powell v. Lantzy, “[a]ny moral obligation to agree and jointly pay the tax, each contributing his just share, rested equally upon the owners of the different parts; but there was no legal duty on either to do this. It was their separate, not their joint, interests which were in peril.” Id. at 550; see also Proctor, 166 F.Supp. at 475 (“[w]hen there is no separate assessment of the minerals, a purchase of the whole by the owner of the surface divests the title of the owner of the minerals”); Hutchinson, 49 A. 312. We find no distinction based upon the timing of the severance. After rejecting the Keller Heirs’ various arguments regarding the effect of the 1935 tax sale, we next consider whether the documents in the record demonstrate the 1935 tax sale was imposed on the Eleanor Siddons Warrant as a whole. We reiterate that the caselaw counsels that unseated land should be assessed according to the original warrant, absent direction from the owners, and that a tax sale conveys the property covered by the assessment. See New York State Natural Gas Corp. v. SwanFinch Gas Development Corp., 278 F.2d 577, 579 (3d Cir. 1960) (recognizing “the well established rule that a tax deed conveys only such interest as was actually assessed to the defaulting taxpayer,” citing Brundred v. Egbert, 30 A. 503, 505 (Pa. 1894)). Moreover, Section 5 of the Act of 1804 provided that a tax sale of unseated land conveys “all the estate and interest” “that the real owner or owners thereof had at the [J-8-2016] - 30 time of such sale,” such that the tax on the entire estate would convey all rights held by the owners of the assessed property. In this case, the documents relating to the 1935 tax sale provide no indication that the assessment and taxation occurred on anything other than the entire Eleanor Siddons Warrant, as they provide no reference to the surface estate or a reserved subsurface estate. Therefore, we conclude that the 1935 tax sale to the Centre County Commissioners conveyed the entire Eleanor Siddons Warrant including both the surface and subsurface estates. Accordingly, when neither the Kellers nor the surface owners challenged the assessment or tax sale and failed to redeem the property within the relevant redemption period, their title was extinguished, allowing the entire Eleanor Siddons Warrant to be purchased in 1941 by Herr, from whom Herder Spring derives its title. See Reinboth, 29 Pa. at 145 (observing that “[a] tax sale extinguishes all previous titles”); Proctor, 166 F.Supp. at 476-77 (indicating that in the absence of a separate assessment of the minerals, the entire property is subject to the tax sale).