Litigation Lessons

Litigation Update: Kimbrough and the Amendment 79 freeze

Greetings, faithful county officials and friends of county government. Over the past few months, I’ve been working on defense of a new lawsuit about interpretation of Amendment 79 to the Arkansas Constitution and the “freeze” of assessed value of a homestead — and resulting freeze of property tax liability — provided under section 1(d) of Amendment 79 for individuals who are disabled or over age 65. The plaintiffs in the case have named all 75 Arkansas counties, and the County Judges, County Assessors, County Collectors, and County Treasurers of each county, as defendants in the case. If you have any familiarity with this case and the underlying Amendment 79 issue, then you are probably one of AAC’s 300+ clients in Kimbrough v. Grieve, Benton County Circuit Court No. 04CV-21-2250.

On Feb. 17, I filed a motion and a comprehensive legal brief arguing that the lawsuit should be dismissed. Those of you who are clients should have received a copy of these filings from me. For those of you (and anyone else) who are curious, but not curious enough to read a 50-page brief, in this article below is the introduction section of the brief, which summarizes what the case is about, and why I’ve argued that the lawsuit should be dismissed at the outset. I have very much enjoyed working on this case on behalf of many of our County Lines readers. Thank you for all that you do.

Plaintiffs challenge the constitutionality of Arkansas Act 49 of 2017, contending that the definition of “assessed value” in Act 49 violates Amendment 79 to the Arkansas Constitution, and constitutes an illegal exaction. Plaintiffs do not challenge the lawfulness of their ad valorem property taxes — rather, Plaintiffs assert that an “increased assessed value” and/or “change in the assessed value” has been improperly applied against them, based on Plaintiffs’ interpretation of Amendment 79 as conferring a transferable and potentially perpetual tax benefit. Plaintiffs seek declaratory and injunctive relief on the legal question presented. Plaintiffs also seek past compensatory damages in the form of refunds of excess past property taxes. Plaintiffs seek to certify a statewide class of plaintiffs for this purpose, and Plaintiffs sue all 75 Arkansas counties and elected officials of all 75 counties, in pursuit of the past damages claim.

The Court lacks subject-matter jurisdiction because Plaintiffs are required to challenge the assessed value of their property through a statutory appeal process, but Plaintiffs failed to exhaust or even pursue their administrative remedy. Even if this was not jurisdictionally required, original jurisdiction over matters related to county taxes lies in county court, not circuit court. The Court also lacks subject-matter jurisdiction over the claims arising outside Benton County, the Court lacks personal jurisdiction over the (non-Benton) County Defendants and over the Plaintiffs with homesteads in other counties, and venue is improper Colin Jorgensen Risk Management Litigation Counsel as to claims arising outside of Benton County and exclusively involving residents, officials, and property in other counties. None of the parties, subject matter, or claims related to the non-Benton County Defendants have anything to do with Benton County. The Second Amended Complaint against the non-Benton County Defendants should be dismissed for lack of subject-matter jurisdiction, lack of personal jurisdiction, and improper venue. See Ark. R. Civ. P. 12(b)(1), (2) & (3). The complaint also fails to satisfy the fact-pleading requirements of Arkansas law as to the non-Benton County Defendants. See Ark. R. Civ. P. 8(a) (1) & 12(b)(6).

Beyond threshold jurisdictional and procedural issues, this case presents a question of law on the facts presented by Plaintiffs. While the non-Benton County Defendants don’t concede jurisdiction and don’t waive affirmative defenses, the Court can address the merits of Plaintiffs’ constitutional challenge with no need for evidence, discovery, or a trial in this case. The legal question presented is straightforward: When a homestead is sold by a seller who previously obtained a freeze of the “assessed value” of the homestead (and resulting tax liability) under section 1(d) of Amendment 79, does the seller’s past freeze transfer to a buyer when the buyer is also a qualifying taxpayer under Amendment 79? Or is the property assessed at full value upon sale — 20 percent of market/ appraised value, as in all other sales — with the Amendment 79 qualifying buyer eligible for a freeze of the assessed value moving forward? As explained herein, the correct answer is the latter. Multiple laws adopted by the Arkansas General Assembly in 2001, 2005, and 2017, and faithfully adhered to by Arkansas officials statewide, apply the Amendment 79 “freeze” benefit to qualifying taxpayers in the same way — treating them equally — without reference to whether a seller enjoyed an Amendment 79 benefit in the past or not. Amendment 79 expressly grants the legislature the authority to prescribe the method and means of reassessment, and Amendment 79 contemplates assessment at full value prior

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and governing statutes allow a qualifying homestead owner (over age 65 or disabled) to freeze the assessed value of a homestead upon purchase — but Amendment 79 and the statutes do not allow a person who turns 65 and qualifies for the Amendment 79 freeze to purchase a home from a person who is 85, then claim the seller’s frozen assessed value and frozen tax liability from 20 years ago.

The bonus Amendment 79 freeze benefit that Plaintiffs claim in this case is not required by the plain language of Amendment 79 — in fact, Amendment 79 contemplates full assessment before a freeze, and authorizes the legislature to enact the law(s) challenged in this case. Plaintiffs’ interpretation was foreclosed by a 1955 law providing the same definition of “assessed value” as Act 49 of 2017, and in effect when voters adopted Amendment 79 in 2000. Plaintiffs’ interpretation has been foreclosed by legislation since the Arkansas General Assembly first adopted enabling Amendment 79 legislation in 2001 — as Amendment 79 expressly authorized the legislature to do. Efforts to expand a tax benefit or reduce a taxpayer’s tax liability are disfavored under the law, and strictly construed against the taxpayer. Validly-adopted laws like Act 49 of 2017 are presumed constitutional — and in this case, Act 49 is constitutional. Plaintiffs’ interpretation of Amendment 79 would mandate disparate treatment of Amendment 79 taxpayers without justification. Plaintiffs’ interpretation of Amendment 79 would upend decades of consistent legislative interpretation in the opposite direction. Plaintiffs’ interpretation offends settled principles of interpretation and doctrines of tax law. And according to Plaintiffs, their interpretation of Amendment 79 also requires the 75 Arkansas assessors to reassess and recalculate tax bills for three years into the past for all Amendment 79 qualifying taxpayers who own homesteads that were previously owned by other Amendment 79 qualifying taxpayers — a tall order that is not warranted even if Plaintiffs’ interpretation of Amendment 79 is correct.

The Court should conclude that Act 49 of 2017 is constitutional and dismiss the Complaint because Plaintiffs’ constitutional challenge fails on the merits as a matter of law. Regardless of how the Court rules on the central legal question, the Court should dismiss Plaintiffs’ claim for past refunds because that remedy is unavailable to Plaintiffs even if their interpretation of Amendment 79 is correct.

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