Sabow v. Pennington County

• Decision Date: 09 February 1993
• Docket Number: No. 17937,17937
• Parties: John D. SABOW, Appellee, v. PENNINGTON COUNTY, Appellant. . Considered on Briefs
• Court: South Dakota Supreme Court

Page 257

500 N.W.2d 257

John D. SABOW, Appellee, v. PENNINGTON COUNTY, Appellant.

No. 17937.

Supreme Court of South Dakota.

Considered on Briefs Feb. 9, 1993.

Decided May 19, 1993.

Donald R. Shultz and Haven L. Stuck, Lynn, Jackson, Shultz & Lebrun P.C., Rapid City, for appellee.

Ronald D. Buskerud, Pennington County Deputy State's Atty., Rapid City, for appellant.

WUEST, Justice.

This is an appeal by Pennington County from a circuit court judgment determining the 1991 tax assessment of John D. Sabow. We reverse and remand.

FACTS

John D. Sabow (hereinafter Taxpayer) appealed to the Pennington County Board of Equalization (hereinafter Board) the 1989 tax year assessment of his residence by the director of equalization. The Board made a slight reduction, but Taxpayer appealed to the circuit court. After a de novo trial was held, the court entered a judgment setting the value of the residence at $368,000.

For tax year 1991, the director of equalization set the value of the residence at $509,600. Taxpayer appealed; the Board upheld the valuation. Taxpayer again appealed to the circuit court.

Upon Taxpayer's motion, the court entered an order for partial summary judgment. The court ruled the $368,000 value of the property was res judicata except for improvements to or appreciation of the property since the date of the previous decision.

A hearing was held to determine the value of any improvements to or appreciation of the property subsequent to the first judgment. The trial court found the evidence introduced by County was insufficient to establish any increase in the value of the property since the first judgment.

Pennington County appeals. We will address two issues, adding additional facts where necessary.

The proper scope of review of a trial court's decision in a trial de novo of a tax assessment is whether the decision was clearly erroneous. Kindsfater v. Butte County, 458 N.W.2d 347, 350 (S.D.1990); Knodel v. Board of County Comm'n of Pennington Co., 269 N.W.2d 386, 389 (S.D.1978); Yadco, Inc. v. Yankton County, 89 S.D. 651, 659, 237 N.W.2d 665, 669-70 (1975).

ANALYSIS

I. WHETHER THE TRIAL COURT ERRED IN HOLDING THE VALUATION OF PROPERTY FOR A PREVIOUS TAX YEAR WAS RES JUDICATA.

Taxpayer asserts the first judicially determined property value is res judicata in a subsequent tax year, absent a change in conditions. County claims the judicially determined value is conclusive only for the tax period at issue in the first action.

We have previously ruled that an issue may be res judicata "if it is comprised of the facts which establish or give rise to the right a party seeks to enforce." Schell v. Walker, 305 N.W.2d 920, 922-23 (S.D.1981); Golden v. Oahe Enterprises, Inc., 90 S.D. 263, 240 N.W.2d 102 (1976); Jerome v. Rust, 23 S.D. 409, 122 N.W. 344 (1909). We have applied the doctrine of res judicata in a tax case. In Schell, we determined that the method of real estate tax assessment challenged was the same cause of action previously litigated in Knodel. Schell, 305 N.W.2d at 922-23. The complaint in Schell involved the same facts, alleged the same wrong and, nominally, involved the same parties; therefore, it was the same cause of action and res judicata operated as an absolute bar to relitigation. Id.

The question whether res judicata may be applied to a subsequent real estate valuation, as opposed to the method by which that value was calculated, has never been addressed by this court. The overwhelming weight of authority from other jurisdictions supports the proposition that a real estate assessment for purposes of taxation is not res judicata concerning the property's value for succeeding years because each tax period gives rise to a separate cause of action.

The seminal case in this area is People v. Fahrenkopf, 279 N.Y. 49, 17 N.E.2d 765 (1938). In Fahrenkopf, the Court of Appeals of New York reversed the New York Supreme Court's ruling that a tax value for one year was res judicata in a subsequent year.

It is of the essence of an assessment that it fixes a value as of a certain time. Each annual proceeding is separate and distinct from every other. Year by year an assessor must use his own judgment and must verify the roll.... the doctrine of res judicata can have no true application to the issues of value in recurring assessment proceedings.

Fahrenkopf, 17 N.E.2d at 766.

The Supreme Court of Pennsylvania held real estate value for purposes of taxation is not res judicata as to the value of the property in following years. In re 1229-35 Chestnut St., 362 Pa. 313, 66 A.2d 242 (1949). In Rieck, the Pennsylvania court opined:

[A] real estate assessment for purposes of taxation for one year is not res judicata of the question of the property's fair market value for assessment purposes for a succeeding or later year.... The decisional law of other jurisdictions fully confirms the view we take of the matter.... The only States cited where the courts formerly held otherwise ... now hold[ ] that an assessment valuation for a particular year is not res judicata of a like question of value for a different year.

Appeal of Rieck Ice Cream Co., 417 Pa. 249, 209 A.2d 383, 385 (1965) (citing Sheldon Hotel Corp. Assessment Appeal, 66 A.2d 242 (Pa.1949)).

Courts in other jurisdictions agree. Jackson Park Yacht Club v. Illinois Dept' of Local Gov't Affairs, 93 Ill.App.3d 542, 49 Ill.Dec. 212, 417 N.E.2d 1039, 1042 (1981) (cause of action for taxes for one year is not identical to cause of action in subsequent year; therefore, decision adjudicating tax status one year is not res judicata in later years); Trustees of Flynn's Estate v. Board of Review, 226 Iowa 1353, 286 N.W. 483, 487 (1939) (an assessment for each year is separate and its adjudication for one year cannot fix the value for succeeding years); Defenders' Townhouse, Inc. v. Kansas City, 441 S.W.2d 365, 369 (Mo.1969) (each year's tax is a separate transaction which gives rise to a new cause of action; Drey v. State Tax Comm'n, 345 S.W.2d 228, 235 (Mo.1961) (judicial determination of value is not res judicata in a subsequent year but is admissible evidence as to value); Beatrice Foods Co. v. Lindley, 24 O.O.3d 68, 70 Ohio St.2d 29, 434 N.E.2d 727, 731 (1982) (tax assessment for different audit period is not res judicata for later audit period); Standard Oil Co. v. Zangerle, 26 O.O. 82, 141 Ohio St. 505, 49 N.E.2d 406, 410-11 (1943) (assessment fixes value for definite date or year and is final and conclusive for that year only). "The courts agree that a judgment involving a tax for one period, irrespective of what has been litigated and determined by the judgment, never operates as an absolute bar precluding the maintenance of a subsequent suit concerning a tax of the same kind for another period." 72 Am.Jur.2d State and Local Taxation Sec. 1150 (1974). "The weight of authority supports the proposition that the determination of value of property of a particular date is not conclusive as to the value of the property on a subsequent date." Annotation, Judgment in tax cases in respect of one period as res judicata in respect of another period, 150 A.L.R. 5, 79 (1944).

In Bellingham, the Supreme Court of Washington rejected an appellant's contention that a judgment of valuation for the previous year was conclusive and binding upon the county unless there had been some material change in the property affecting its value. Bellingham Community Hotel v. Whatcom County, 12 Wash.2d 237, 121 P.2d 335 (1942). The court noted that a Washington statute required reassessment of real estate every two years and stated: "Manifestly, the statute contemplated that real property should be assessed in the even-numbered year and re-assessed in every succeeding even-number year." Id., 121 P.2d at 337.

The reasoning of the Washington Supreme Court is particularly applicable to this case. At the time in question, SDCL 10-6-2 provided:

All real and personal property subject to taxation shall be listed and assessed annually during the first six months of each year, but the value of such property is to be determined according to its value on the first day of January preceding the assessment. ¹

The statute commands the director of equalization to appraise property each year. To apply res judicata to a real estate value in ensuing years would exempt that property from the operation of the statute.

Further, where a statute directs reevaluation of property each year, applying res judicata to the value of one taxpayer's property would lead to inequity among taxpayers. The United States Supreme Court, in refusing to apply collateral estoppel to a prior judgment stated:

[I]f such a determination is then perpetuated each succeeding year as to the taxpayer involved in the original litigation, he is accorded a tax treatment different from that given to other taxpayers of the same class. As a result, there are inequalities in the administration of the revenue laws, discriminatory distinctions in tax liability, and a fertile basis for litigious confusion.

Commissioner v. Sunnen, 333 U.S. 591, 599, 68 S.Ct. 715, 720, 92 L.Ed. 898, 906-07 (1948) (articulating the "separable facts doctrine" in collateral estoppel as applied to tax actions); see also Peck v. C.I.R., 904 F.2d 525, 527 n. 3 (9th Cir.1990).

Additionally, the taxpayer appealing an assessment bears the burden of overcoming the presumption that the director of equalization's value is correct. Roseland v. Faulk County Bd. of Equalization, 474 N.W.2d 273, 275 (S.D.1991); Knodel, 269 N.W.2d at 389; Yadco, 89 S.D. at 656, 237 N.W.2d at 668. If res judicata freezes the value except for improvements or appreciation of the property, the burden is impermissibly shifted from the taxpayer to the director of equalization.

In accord with the great majority of jurisdictions, we find that a judicial determination of value for tax assessment purposes is res judicata only for that tax period. It was error to find the value...