In re Peete, 21-23863-beh

CourtUnited States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Eastern District of Wisconsin
Writing for the CourtBeth E. Hanan, United States Bankruptcy Judge
PartiesIn re: John Lee Peete, Debtor.
Docket Number21-23863-beh
Decision Date30 June 2022

In re: John Lee Peete, Debtor.

No. 21-23863-beh

United States Bankruptcy Court, E.D. Wisconsin

June 30, 2022

Chapter 13


Beth E. Hanan, United States Bankruptcy Judge

This is not the first time courts have been asked to decide whether an exaction by a governmental entity is a tax or a fee. Here, the City of Milwaukee filed an amended proof of claim, asserting that the debtor owes it $26,754.99 as a priority property tax claim. But ninety-percent of that amount represents special charges. The City's tax bill allocates the special charges into four categories: delinquent municipal services, delinquent storm water account, delinquent water account, and "total other special." The debtor objected to the priority portion of the City's claim, contending that the special charges are not property taxes and should be treated like other general unsecured claims. His amended Chapter 13 plan reflects that view. The City objected to the debtor's plan, arguing that the plan could not be confirmed because it does not pay the priority portion of the City's claim in full.

The two objections present one primary legal question: are each of the special charges included in the debtor's 2020 property tax bill a property tax, or are they fees, and therefore not entitled to priority treatment under 11 U.S.C. § 507(a)(8)(B)?[1] A second question, raised by the Court, is whether any portion of the "interest and penalties" included in the 2020 tax bill are entitled to priority status. In light of the City's burden of proof in establishing priority


status, and applying a functional analysis to the supplemented record offered by the parties, the Court concludes that neither the special charges (and their corresponding prepetition interest) nor the penalties are entitled to priority treatment under 11 U.S.C. § 507(a)(8).


The City's amended proof of claim asserts a total debt of $46,754.99 for delinquent real estate taxes from 2014 through 2020, of which $20,000 is secured by the debtor's real estate. The City contends that the remaining $26,754.99 is entitled to priority status under 11 U.S.C. § 507(a)(8)(B), which applies to "allowed unsecured claims of governmental units, only to the extent that such claims are for . . . a property tax incurred before the commencement of the case and last payable without penalty after one year before the date of the filing of the petition."

A. The Proof of Claim

Attached to the City's amended proof of claim is Exhibit A, dated July 7, 2021, which sets out the various components of the City's claim. The total unpaid balance of real estate tax bills issued to the debtor from 2014 through 2019 is $19,591.42, while a total of $27,163.57 is attributable to the 2020 tax bill. Because the parties agree that the unpaid balance through 2019, as well as a small portion of the unpaid 2020 tax bill, is secured by the debtor's real estate (valued at $20,000), the Court's inquiry is limited to whether the charges on the 2020 tax bill are entitled to priority status.

The unpaid balance of the 2020 tax bill comprises several parts. The amounts originally billed to the debtor include a "tax principal" of $903.36 and "special charges" of $24,229.18. The tax bill allocates these special charges into four categories: $746.19 for delinquent municipal services, $1,033.48 for a delinquent storm water account, $1,960.37 for a delinquent water account, and $20,489.14 for "total other special" (which, as explained below, includes charges for health abatement, a delinquent sewer account, and building reinspections).


The City submitted affidavits from two employees-(1) Samantha Meagher, a Water Collections Supervisor with the City of Milwaukee Water Works (MWW), and (2) Tanz Rome, Business Operations Manager with the City of Milwaukee's Department of Neighborhood Services (DNS)-to clarify the further breakdown of the special charges:

Delinquent municipal services: The $746.19 included on the tax bill consists of an unpaid municipal services bill in the amount of $678.35 at the time it was added to the tax rolls, plus a 10% penalty of $67.84;[2]
Delinquent storm water account: The $1,033.48 included on the tax bill consists of an unpaid balance of $939.53 at the time it was added to the tax rolls, plus a 10% penalty of $93.96;[3]
Delinquent water account: The $1,960.37 included on the tax bill consists of an unpaid water bill of $1,782.15 at the time it was added to the tax rolls, plus a 10% penalty of $178.22;[4]
Total other special: The $20,489.14 for "total other special" charges included on the tax bill consists of the following
o $874.06 for "Health Abatement" ($620.30 in charges for litter cleanup, plus "IT Surcharges" of $13.76 and cumulative "Administrative Costs" of $240);[5]
o $1,093.08 in delinquent sewer account charges, with $993.71 attributable to the unpaid account balance at the time it was added to the tax rolls, and $99.37 as a 10% penalty;[6] and
o $18,522 for "Building Reinspection," which includes "IT Surcharges" of $39.20[7]

Despite two opportunities to supplement the record, and the filing of four affidavits, the City has failed to explain the nature or purpose of the underlying charges imposed by Milwaukee Water Works for "municipal services," "storm water account," "water account," and "sewer account." So, it is not apparent from the record whether any delinquent charges included on Mr. Peete's 2020 tax bill were assessed to collect funds to pay for a public benefit, or were imposed to compensate the City for services provided to Mr. Peete specifically (in other words, to raise revenue used for the benefit of the individual owner of the property upon which the charges were assessed).

Altogether, the amounts billed in 2020 for "tax principal" and "special charges" total $25,132.54, of which $24,920.70 remains unpaid.[8]

The "interests & penalties" on the unpaid balance are $2,242.87. According to a declaration of City employee Samantha Jackson, this amount represents a 6% interest charge ($1,495.25) and a 3% penalty charge ($747.62) on the unpaid balance of $24,920.70. See ECF No. 122.

B. Wisconsin Statutory and Administrative Scheme

The City of Milwaukee's ability to collect arrearages for municipal water services is governed by Wis.Stat. § 62.69(2)(f), which provides:

All water rates for water furnished to any building or premises . . . are a lien on the lot, part of lot or parcel of land on which the building or premises is located. If any water rates . . . remain unpaid on October 1, the unpaid rates . . . shall be certified to the city comptroller on or before November 1, and shall be placed by the comptroller upon the tax roll and collected in the same manner as other taxes on real estate are collected in the city. . . .

Wis. Stat. Ann. § 62.69(2)(f).[9]

In addition, Wis.Stat. § 66.0809(3)(a), which Ms. Meagher cites as the basis for the City to add a 10% penalty when MWW-related delinquent account


balances are added to the tax rolls, describes how any delinquent amounts will be added to the tax bill as special charge

. . . [O]n October 15 in each year notice shall be given to the owner or occupant of the lots or parcels of real estate to which utility service has been furnished prior to October 1 by a public utility operated by a town, city, or village and payment for which is owing and in arrears at the time of giving the notice. The department in charge of the utility shall furnish the treasurer with a list of the lots or parcels of real estate for which utility service charges are in arrears, and the notice shall be given by the treasurer, unless the governing body of the city, village, or town authorizes notice to be given directly by the department. The notice shall be in writing and shall state the amount of arrears, including any penalty assessed pursuant to the rules of the utility; that unless the amount is paid by November 1 a penalty of 10 percent of the amount of arrears will be added; and that unless the arrears, with any added penalty, are paid by November 15, the arrears and penalty will be levied as a special charge, as defined under s. 74.01(4), against the lot or parcel of real estate to which utility service was furnished and for which payment is delinquent .....

Wis. Stat. § 66.0809(3)(a).

As for reinspection fees, Milwaukee Code of Ordinances § 200-33-48 governs:

a. To compensate for inspectional and administrative costs, a fee of $175 may be charged for any reinspection to determine compliance with an order to correct conditions of provisions of the code under the jurisdiction of the department of neighborhood services or assigned to the department, except no fee shall be charged for the reinspection when compliance is recorded. A fee of $350 may be charged for each subsequent reinspection. Reinspection fees shall be charged against the real estate upon which the reinspections were made, shall upon delinquency be a lien upon the real estate and shall be assessed and collected as a special charge for payment and settlement as provided in ch. 19 of the city charter.

Section 19-12 of the Milwaukee City Charter describes how delinquent reinspection fees are to be placed on the property tax bill:

In all cases where . . . any special charge or assessment is made a lien upon land, the amount of such charge or assessment shall be carried out on the tax roll in a separate column or columns, opposite the lot or tract upon which the same may be a lien; and the treasurer may collect and
sell, and do all other acts in relation thereto, in the same manner as if the amount of such lien was a general tax.


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