Opinion ID: 1584163
Heading Depth: 1
Heading Rank: 4

Heading: Tax Sale Certificate

Text: We turn to consider whether the district court properly dismissed the collection claims for the tax years 1997 to 2001 because the Treasurer failed to obtain a tax sale certificate prior to instituting its action. The district court determined the statutory scheme for collecting delinquent property taxes requires the Treasurer to obtain a tax sale certificate as a condition precedent to bringing an action to collect taxes in all cases except those in which the subject parcel is land, and the Treasurer is unable to offer the land for tax sale. Because the parcel in this case consists of machinery and equipment, not land, the district court found a tax sale certificate was a condition precedent to an action for a personal judgment for taxes on the parcel. As previously noted, the taxation structure in Iowa includes a tax on real property. Iowa Code § 427.13. The taxation process begins with the county assessor, who values each item of taxable property in the county. Id. §§ 441.18-.21. Each taxable item is called a parcel. Id. § 445.1(4). After the property is valued, the taxpayer has an opportunity to protest the assessment to the board of review. Id. §§ 441.23, .37. The department of revenue then equalizes the assessments, id. § 441.47, and taxing authorities (e.g., cities, counties, school districts, and townships) establish their budgets based on the valuations in the assessments and determine the rate of tax, based on the value of the property, needed to fund their budgets, id. §§ 444.1-.3. The county auditor then delivers a tax list computing the total amount due, id. § 443.2, to the county treasurer to collect the taxes, id. § 443.4. The taxes generally become delinquent if the first installment is not paid by October 1, and the second installment is not paid by April 1. Id. §§ 445.36-.37. If the taxes remain delinquent, the treasurer must offer the parcel at the annual tax sale. See id. § 446.7 (Annually, on the third Monday in June the country treasurer shall offer at public sale all parcels on which taxes are delinquent.). The purpose of the sale is to collect the taxes, interest, fees, and costs due by means of the sale of the parcel to a bidder, or by subsequent redemption. See generally id. chs. 446-48. If a bid is received in an amount equal to the total amount due, then the sale ultimately provides a means for the treasurer to collect the delinquent taxes. See id. § 446.16(1) (The person who offers to pay the total amount due, which is a lien on any parcel, for the smallest percentage of the parcel, is the purchaser. . . .). If no person bids on the parcel, the county treasurer offers it for sale again periodically (at least every two months) until the next annual tax sale. Id. § 446.25. If the parcel remains unsold at the time of the next annual tax sale, the treasurer then offers the parcel at the public bidder sale, formerly known as the scavenger sale. Id. § 446.18. If no person bids on the parcel at the public bidder sale, or the only bid received is for less than the total amount due, the county in which the parcel is located, through its county treasurer, shall bid for the parcel a sum equal to the total amount due. Id. § 446.19. In this way, the treasurer becomes the purchaser, and receives a tax sale certificate. Id. § 446.29. This certificate allows the county to pursue many avenues, including assigning the certificate, id. § 446.31, entering into a compromise or abatement agreement, id. § 445.16, or assigning the certificate for redevelopment of the parcel as housing in exchange for the amount due, id. § 446.19A. Alternatively, the owner of the parcel may redeem the parcel by paying the total amount due. Id. § 447.1. If the parcel is not redeemed, the county may acquire title to the parcel through a tax deed. Id. § 448.1. The county can then sell the property or dispose of it as provided in section 331.361. Id. § 446.19A(4)( b ). Additionally, the county may pursue an action to convert the amount due into a personal judgment against the parcel's owner. See id. §§ 445.3 (In addition to all other remedies and proceedings now provided by law for the collection of taxes, the county treasurer may bring or cause an ordinary suit at law to be commenced and prosecuted in the treasurer's name for the use and benefit of the county for the collection of taxes. . . .), 446.20(1) (Without limiting the county's rights under section 445.3, once a certificate is issued to a county, a county may collect the total amount due by the alternative remedy provided in section 445.3 by converting the total amount due to a personal judgment.). The tax-sale-certificate remedy and the personal-judgment remedy may be pursued simultaneously until the total amount due has been collected. Id. § 446.20(1). However, as a condition precedent to pursuing the personal-judgment remedy, normally, a tax sale certificate must first be issued. See id. (stating a county may pursue a personal judgment  once a certificate is issued (emphasis added)); id. § 445.3 (The commencement of actions for ad valorem taxes authorized under this section shall not begin until the issuance of a tax sale certificate under the requirements of section 446.19.). Thus, in order to obtain a personal judgment based on delinquent property taxes, a treasurer must usually (1) offer the parcel at the annual tax sale to collect the amount due, id. § 446.7; (2) re-offer the parcel at least every two months until the next annual tax sale (i.e., for one year), id. § 446.25; (3) offer the parcel at the public bidder sale, id. § 446.19; and (4) bid the total amount due and obtain a tax sale certificate, id. §§ 446.19, .29. Obviously, this can be a lengthy process. However, there is an exception to the requirement for the treasurer to first obtain a certificate of sale before pursuing an action under section 445.3. Section 445.3 provides: Notwithstanding any other provisions in this section, if the treasurer is unable or has reason to believe that the treasurer will be unable to offer land at the annual tax sale to collect the total amount due, the treasurer may immediately collect the total amount due by the commencement of an action under this section. Id. § 445.3, para. 5. The district court read this exception as limited to situations when the parcel consists of land that the treasurer is unable to offer for sale at the annual tax sale. We think the exception has broader application for two reasons. First, the land limitation found by the district court is not derived from the language of the statute. Instead, the limitation was created by the district court from a presumption that the statutory language concerning the inability to offer land at the annual tax sale means the land must first exist. However, this presumption overlooks that a parcel subject to taxation as real property can be not only land, but equipment, machinery, computers, and many other types of property. See id. § 427A.1 (listing items of property taxed as real property); see also 1984 Op. Iowa Att'y Gen. 125 (Given that real property taxes constitute a lien against the assessed real property of a manufacturing real property unit, any such delinquent taxes can be satisfied by the chapter 446 tax sale. Depending upon the circumstances, the county treasurer may be able to collect delinquent taxes attributable to the machinery by sale of the machinery only.). Given the broad definition of real property for purposes of taxation, it is possible for an item of real property that is not land to be assessed as a parcel separate from the land on which it sits. Each parcel would then be separately taxed. Therefore, taxes on the non-land parcel could become delinquent without the land parcel also becoming delinquent. In this situation, the treasurer would be in a position to offer the non-land parcel at tax sale, but would be unable to offer land at the annual tax sale to collect the total amount due. Id. § 445.3, para. 5. This situation may commonly occur in the case of leased land, where the landowner remains responsible for paying the property taxes on the land. See id. §§ 445.5(5) (stating the treasurer shall deliver the statement of taxes due to the titleholder of the land); 445.5(2) (stating the lessee, mortgagee, contract-purchaser, or financial institution is entitled to a statement of taxes due upon request). It would not be uncommon for a business owner to lease a building and land to operate a business, but own the machinery, equipment, or computers located in the building. Conversely, a business owner could own the building and land and lease the machinery, equipment, and computers from another person or entity. In both situations, the land and non-land real property would have separate owners, and the property would be separately taxed. Consequently, there would be separate parcels that could ultimately be offered at a tax sale in the event of a delinquency. This analysis reveals that a county treasurer is unable to sell land at a tax sale when the parcel consists of real property other than land, such as equipment, machinery, or computers. See id. § 445.3, para. 5 (Notwithstanding any other provisions in this section, if the treasurer is unable or has reason to believe that the treasurer will be unable to offer land at the annual tax sale to collect the total amount due, the treasurer may immediately collect the total amount due by the commencement of an action under this section.). Thus, the exception under the statute is not limited by its language to situations in which the parcel is land. The language itself applies to situations in which the parcel offered for sale does not consist of land. This is the precise situation in this case. Second, the exception would serve little purpose under the interpretation by the district court. There is no readily apparent reason why a county treasurer should be allowed to bypass the tax-sale-certificate procedure in the case of land but not in the case of non-land real property parcels. Conversely, it is clear why the legislature would want to bypass the tax-sale-certificate procedure for non-land parcels but not for land. A treasurer does not bid on a parcel, and obtain a tax sales certificate for the parcel, until the parcel has been previously offered at a tax sale for one year or more and remains unsold for want of bidders. Id. § 446.18-.19. Thus, a substantial amount of time can pass between the offer of a parcel at a tax sale and the issuance of a certificate of sale to the county, which then enables the treasurer to bring a collection action. This passage of time would normally have a greater adverse impact on the value of equipment, machinery, and computers than on land. Equipment, machinery, and computers can depreciate in value much more rapidly than land. This type of property has a limited life, while land does not. Moreover, land is a finite resource, so it always has value. Thus, when a parcel does not include land, it is logical and reasonable to allow the treasurer to dispense with the tax-sale requirements and immediately proceed to file an action to collect the amount due. Without the exception, a treasurer could very well invest great time and effort into obtaining a tax sale certificate on a non-land parcel only to end up with the county getting title to a worthless piece of property in the end. This cannot be what the legislature intended. We conclude a county treasurer may maintain an action to collect a delinquency on a parcel without first obtaining a certificate of sale when, as in this case, the parcel does not include land. Id. § 445.3, para. 5. When a treasurer is not able to sell land at a tax sale to collect delinquent taxes on a parcel, or when the treasurer reasonably believes the treasurer will be unable to sell land, the treasurer may immediately commence an action to collect the amount due on the parcel. Id. The district court erred in granting summary judgment for A-1 on this issue.