Opinion ID: 770271
Heading Depth: 3
Heading Rank: 2

Heading: Applicability of ten percent interest provision

Text: 19 Homeowners contend that the combined interest and penalty charges imposed by NTF on the assigned claims are unlawful under the Municipal Claims and Tax Liens Law. Section 7143 which is a provision of that law reads in pertinent part: 20 Interest as determined by the municipality at a rate not to exceed ten per cent per annum shall be collectible on all municipal claims from the date of the completion of the work after it is filed as a lien, and on claims for taxes, water rents or rates, lighting rates, or sewer rates from the date of the filing of the lien therefor. 21 Pa. Stat. Ann. tit. 53, S 7143 (emphasis added). 10 22 Like the district court, we conclude that NTF, as assignee of claims belonging to the government entities, is subject to section 7143. The plain language of section 7143 permits the collection of interest on a municipality's claim for taxes, water rents or rates, or sewer rates, 11 but the rate is limited to ten percent per annum. The term municipality includes not only cities, but also school districts and municipal authorities. See Pa. Stat. Ann. tit. 53,S 7101. Thus, NTF, as assignee of the City, the School District, and the PWSA, is entitled to collect interest on the assigned claims up to this ten percent cap. See Horbal v. Moxham Nat'l Bank, 697 A.2d 577, 583 (Pa. 1997) (Under the law of assignment, the assignee succeeds to no greater rights than those possessed by the assignor.). There can be no dispute that NTF has exceeded the cap. 23 Defendants argue that the City, as a home rule municipality, acted within its power in passing the ordinances setting the interest and penalty rates at issue here. Yet, it is clear that under the Home Rule Charter and Optional Plans Law (the Home Rule Law) a home rule municipality may not act in contravention of state laws applicable to municipalities. Under the Home Rule Law, [a] municipality which has adopted a home rule charter may exercise any powers and perform any function not denied by the Constitution of Pennsylvania, by statute or by its home rule charter. 53 Pa. Cons. Stat. Ann. S 2961. Further, the Home Rule Law provides that, [w]ith respect to the following subjects, the home rule charter shall not give any power or authority to the municipality contrary to, or in limitation or enlargement of, powers granted by statutes which are applicable to a class or classes of municipalities; among the listed subjects is[t]he filing and collection of municipal tax claims or liens and the sale of real or personal property in satisfaction of them. 53 Pa. Cons. Stat. Ann. S 2962(a)(1). Clearly, the assessment of interest and penalties on delinquent tax obligations falls within the scope of collection of municipal tax claims. Another provision of the Home Rule Law states that[a] municipality shall not . . . [e]xercise powers contrary to, or in limitation or enlargement of, powers granted by statutes which are applicable in every part of this Commonwealth. 53 Pa. Cons. Stat. Ann. S 2962(c)(2). Based on the clear language of the Home Rule Law, we conclude that a home rule municipality may not exceed the ten percent interest limit set forth in section 7143. 24 Defendants argue that the interest and penalty rates set by the City with respect to the tax claims are lawful under the following provision of the Home Rule Law: 25 Establishment of rates of taxation.--No provision of this subpart or any other statute shall limit a municipality which adopts a home rule charter from establishing its own rates of taxation upon all authorized subjects of taxation . . . . 26 53 Pa. Cons. Stat. Ann. S 2962(i). 12 Defendants contend that rate of taxation includes the rate of interest and penalties on delinquent tax obligations. Plaintiffs respond that establishing the rate of taxation is not the same as assessing a rate of interest on an already delinquent tax. See reply br. of appellants/cross-appellees in Nos. 99-3856 and 99-3857 at 15. 27 Like the district court, we agree with plaintiffs that a home rule municipality's authority to set rates of taxation does not include the authority to set interest and penalty rates on delinquent taxes. Rate of taxation undoubtedly means the rate which is applied to the value of property in order to determine the amount of the tax owed; its plain meaning does not include the rate of interest or penalty on overdue tax obligations. The rate of interest on tax obligations is directly governed by Pa. Stat. Ann. tit. 53, S 7143, which expressly limits [i]nterest on claims for taxes. 28 Finally, defendants argue that the interest and penalty rates on water and sewer claims set by the PWSA resolution do not violate section 7143 because the annual rate of interest under the resolution is less than ten percent. As stated, under the resolution, the interest charge is one-half percent per month while the penalty charge is one percent per month. App. at 1119. Defendants argue that section 7143 by its terms limits only the rate ofinterest and not the rate of penalty. 13 The district court rejected defendants' argument, finding that this distinction [between interest and penalty] rings hollow when applied to the instant set of facts. Pollice, 59 F. Supp.2d at 479. The court stated that no municipality may evade the requirements of the Municipal Claims Act [section 7143] by converting interest in excess of that which is statutorily authorized to a `penalty.'  Id. We agree with the district court's reasoning. There appears to be no actual distinction between the monthly interest charge and the monthly penalty charge under the PWSA resolution; indeed, there would be no practical difference if the one percentpenalty rate were labeled an interest rate and the one-half percent interest rate were labeled a penalty rate. 29 In attempting to draw a valid distinction between interest and penalty, defendants argue that the former compensates the government for the lost time-value of unpaid obligations, while the latter does not necessarily compensate the government for the lost value of money, and generally imposes an added cost on the delinquent party as punishment for noncompliance with the law. Br. of appellees in No. 99-3998 at 40-41. We, however, find this distinction to be artificial and thus we agree with the district court that a municipality should not be permitted to avoid the ten percent limit by arbitrarily labeling some portion of the monthly charge as penalty rather than interest. 30 In sum, we conclude that NTF, as assignee of the government entities, is subject to section 7143 and that it has violated that provision by imposing interest charges on the assigned claims in excess of ten percent per annum.