Bluebeard's Castle v. Government, Virgin Islands

• Decision Date: 28 February 2003
• Docket Number: No. 02-2807.,02-2807.
• Citation: 321 F.3d 394
• Parties: BLUEBEARD'S CASTLE, INC.; Castle Acquisitions, Inc. v. GOVERNMENT OF THE VIRGIN ISLANDS; Roy Martin, in his official capacity as Tax Assessor, Appellants.
• Court: U.S. Court of Appeals — Third Circuit

Page 394

321 F.3d 394

BLUEBEARD'S CASTLE, INC.; Castle Acquisitions, Inc. v. GOVERNMENT OF THE VIRGIN ISLANDS; Roy Martin, in his official capacity as Tax Assessor, Appellants.

No. 02-2807.

United States Court of Appeals, Third Circuit.

Argued November 8, 2002.

Filed February 28, 2003.

COPYRIGHT MATERIAL OMITTED

Nandi Sekou, (Argued), Kerry E. Drue, Office of the Attorney General of the Virgin Islands, Department of Justice, Charlotte Amalie, St. Thomas, for Appellants.

Simone R.D. Francis, (Argued), Chad C. Messier, William S. McConnell, Dudley, Topper and Feuerzeig, LLP, Charlotte Amalie, St. Thomas, for Appellees.

Before SCIRICA, ALITO and RENDELL, Circuit Judges.

OPINION OF THE COURT

SCIRICA, Circuit Judge.

In this appeal involving the assessment of real property taxes in the Unites States Virgin Islands, we address the special relationship between federal and territorial law. The District Court enjoined the Virgin Islands tax assessor from employing a certain tax assessment method, concluding it violated federal law. Contending that any claims can only arise under territorial law, the Government of the Virgin Islands maintains the District Court lacked federal subject-matter jurisdiction. We hold that plaintiff has properly pled a federal claim.

I.

Plaintiff Equivest St. Thomas, Inc.¹ is a United States Virgin Islands corporation that owns commercial property in St. Thomas, Virgin Islands. Plaintiff challenges the tax assessment of three of its hotel resort properties, Bluebeard's Castle, Bluebeard's Beach Club, and the Elysian Resort. For the 2000 tax year, the Government of the Virgin Islands assessed these three properties at more than $98 million, resulting in a tax bill of approximately $740,000. Plaintiff contends the assessment greatly exceeds the properties' actual value of less than $40 million.

Federal statutory law, and its Virgin Islands corollary, mandate that Virgin Islands real property must be assessed at "actual value."² 48 U.S.C. § 1401a; 33 V.I.Code Ann. § 2404. According to defendant Virgin Islands Tax Assessor Roy Martin, the Virgin Islands primarily employed replacement-cost value and declaration value in assessing the properties, methods he conceded do not reflect fair market value. Plaintiff contends that reliance on replacement-cost and declaration value violates federal statutory and Virgin Islands law. Plaintiff brought this action under 42 U.S.C. § 1983, seeking to enjoin defendants "from assessing real property taxes for commercial property in the Virgin Islands other than in strict accordance with 48 U.S.C. § 1401a and 33 V.I.C. § 2404."³

Finding that plaintiff was likely to prevail on the merits and had met the other requirements for preliminary relief, the District Court enjoined the Government of the Virgin Islands "from collecting property taxes against the hotel properties owned by Equivest St. Thomas, Inc. until the tax assessor can establish at a trial on the merits that the property taxes on those properties have been assessed on their actual value." Equivest St. Thomas, Inc. v. Gov't of the V.I., 208 F.Supp.2d 545, 553 (D.Vi.2002).

At this time, the Government of the Virgin Islands does not contest the District Court's resolution of the merits. Instead, the government contends the District Court lacked jurisdiction because this dispute arises not under federal law, but solely under Virgin Islands law.⁴

II.

a.

Property taxes are generally governed by state law. As we discuss, the importance to the states of their tax systems is such that comity mandates that federal courts are ordinarily powerless to entertain challenges to state taxation, even under 42 U.S.C. § 1983. Fair Assessment in Real Estate Assoc. v. McNary, 454 U.S. 100, 116, 102 S.Ct. 177, 70 L.Ed.2d 271 (1981). But the Virgin Islands is not a state;⁵ it is a territory subject to Congress's broad power under Article IV, section 3, clause 2 of the United States Constitution to govern territories.⁶ See Examining Bd. of Eng'rs, Architects and Surveyors v. Flores de Otero, 426 U.S. 572, 587 n. 16, 96 S.Ct. 2264, 49 L.Ed.2d 65 (1975).

It is settled that Congress has sovereignty over the territories of the United States and accordingly has power to legislate for a territory with respect to all subjects upon which the legislature of a state might legislate within the state. Simms v. Simms, 1899, 175 U.S. 162, 168, 20 S.Ct. 58, 44 L.Ed. 115. It is also settled that Congress may delegate to a territory such of these powers as it sees fit. Binns v. United States, 1904, 194 U.S. 486, 491-492, 24 S.Ct. 816, 48 L.Ed. 1087; Christianson v. King County, 1915, 239 U.S. 356, 364-366, 36 S.Ct. 114, 60 L.Ed. 327. And the right of Congress to revise, alter and revoke these delegated powers does not diminish the powers while they reside in the territory. Hornbuckle v. Toombs, 1873, 18 Wall. 648, 85 U.S. 648, 655-656, 21 L.Ed. 966; District of Columbia v. John R. Thompson Co., 1953, 346 U.S. 100, 106, 73 S.Ct. 1007, 97 L.Ed. 1480.

Harris v. Boreham, 233 F.2d 110, 113 (3d Cir.1956). Accordingly, Congress undisputedly has constitutional authority to regulate property taxation in the territory of the Virgin Islands.

In 1936, Congress exercised this authority. In order "to equalize and more equitably to distribute existing taxes on real property in the Virgin Islands of the United States and to reduce the burden of taxation now imposed on land in productive use in such islands," 48 U.S.C. §§ 1401, Congress enacted a statute governing property taxes in the Virgin Islands. 48 U.S.C. §§ 1401-1401e. Section 1401a provides:

For the calendar year 1936 and for all succeeding years all taxes on real property in the Virgin Islands shall be computed on the basis of the actual value of such property and the rate in each municipality of such islands shall be the same for all real property subject to taxation in such municipality whether or not such property is in cultivation and regardless of the use to which such property is put.

The general requirements of § 1401a are followed by the more specific requirements of § 1401b, which also recognizes a measure of self-governance over specific property tax requirements:

Until local tax laws conforming to the requirements of sections 1401 to 1401e of this title are in effect in a municipality the tax on real property in such municipality for any calendar year shall be at the rate of 1.25 per centum of the assessed value. If the legislative authority of a municipality failed to enact laws for the levy, assessment, collection or enforcement of any tax imposed under authority of said sections, within three months after May 26, 1936, the President shall prescribe regulations for the levy, assessment, collection, and enforcement of such tax, which shall be in effect until the legislative authority of such municipality shall make regulations for such purposes.

This section created an interim tax rate and specified a source of interim regulations over the tax collection system. But these provisions were to apply only "until local tax laws conforming to the requirements of sections 1401 to 1401e of this title are in effect," with respect to the tax rate, and "until the legislative authority of [a] municipality shall make regulations for such purposes," with respect to tax collection and enforcement mechanisms.

The two sections fit together. Section 1401a provides general requirements for property taxation in the Virgin Islands — that taxes be uniformly assessed and that they be "computed on the basis of the actual value" of the properties taxed. Section 1401b provides details that conform with the more general requirements of 1401a — setting tax rates and directing the President to prescribe regulations.⁷ Both 1401b requirements are subject to change by local legislation, but they must "conform[] to the requirements of sections 1401 to 1401e" — including the general requirements in 1401a. The federal statute, therefore, contemplates a hybrid scheme of real property law: the general requirements are set by the federal government, with specifics established as a matter of territorial law consistent with federal law.⁸

b.

Plaintiff contends the Government of the Virgin Islands is subject to, and in violation of, § 1401a's requirement that "all taxes on real property in the Virgin Islands shall be computed on the basis of the actual value of such property." (Emphasis added). In response, the government argues this section no longer applies because it has been superceded by Virgin Islands law.

The Government of the Virgin Islands contends the federal statute was supplanted in 1955 when the Virgin Islands Legislature⁹ passed a real property assessment law, including 33 V.I.Code Ann. § 2404, which enumerates the factors to be considered in determining "actual value." In support, the Government of the Virgin Islands focuses primarily on the expiratory language in § 1401b, which limits application "until local laws ... are in effect." According to the government, this reveals the temporary nature of the 1936 act — whose effect ended with the passage of 33 V.I.Code Ann. § 2404.

But as noted, the expiratory language in S 1401b applies only to the specific requirements of that section; it does not apply to the rest of the statute, including the general requirements of § 1401a. Significantly, § 1401b expressly provides that the local measures enacted must also "conform[] to the requirements of sections 1401 to 1401e." A local tax law cannot conform to the requirements of the rest of the statute by abrogating it. It is a requirement of § 1401a — that the tax be computed on the "actual value" of the property — that plaintiff contends the Government of the Virgin Islands has violated. Accordingly, while 33 V.I.Code Ann. § 2404 may have abrogated the regulations prescribed by President Roosevelt under § 1401b,¹⁰ the language of § 1401b does not support the proposition asserted by the Government of...