Three property taxpayers in Hollis and Hudson filed suit in federal court challenging the constitutionality of RSA 74:17, the state law that allows local assessing officials to seek administrative inspection warrants when property owners refuse to allow them to enter their property to obtain information necessary for property appraisal. The law also provides that property owners who fail to consent to the assessing officials' request to enter property lose their right to appeal tax abatement and exemption decisions.
The lawsuit named the towns of Hollis and Hudson as defendants, as well as the state attorney general and the Board of Tax and Land Appeals (BTLA). The two Hollis taxpayers had applied to the board of selectmen for tax abatements after they had twice denied the assessor's request to enter their homes as part of the appraisal process. The abatement requests were denied pursuant to RSA 74:17 because the taxpayers had refused to allow entry to their property. Both of the Hollis taxpayers then wrote to the BTLA, asking whether their appeals of the selectmen's decisions would be rejected because they had refused inspection of their homes. The BTLA responded by quoting the provisions of RSA 74:17. The Hudson property owners said they had received notice from town officials that the assessor would visit the property and request entry into the home for an inspection for purposes of property appraisal. They said in the lawsuit that they did not want to be required to allow a stranger into their home.
The plaintiffs argued that RSA 74:17 in conjunction with RSA Chapter 595-B, the inspection warrant statute, were unconstitutional in that they violate the Fourth Amendment by subjecting them to a “search” of their homes without the traditional probable cause to believe a law is being broken and, further, their refusal to submit to a “warrantless search” costs them their right to appeal an abatement decision.
The U.S. District Court in Concord dismissed the lawsuit, agreeing with the towns and the state that the federal Tax Injunction Act, 28 U.S.C. §1341, provides that federal courts “shall not enjoin, suspend, or restrain the assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State.”
The court said the Tax Injunction Act (TIA) “operates to divest the court of subject matter jurisdiction over all actions within its statutory ambit,” adding that “allegations of deprivations of constitutional rights do not render the Act inapplicable.”
The two sides disagreed over the scope of the TIA given the U.S. Supreme Court's opinion in Hibbs v. Winn , 124 S. Ct. 2276 (2004), which held that the TIA did not bar an action against an Arizona law that allowed tax credits to certain organizations that dispersed scholarship funds to students attending religious schools. However, the court cited federal cases interpreting the Congress's intent in enacting the Tax Injunction Act. The court wrote that the TIA applies not simply to cases in which the taxpayer seeks to avoid paying taxes, as the plaintiff argued, but that it applies in situations where federal relief “would have operated to reduce the flow of state tax revenue.” The plaintiffs argued that they had paid their property tax and were not seeking to avoid payment.
However, the court said the lawsuit would have an impact on the flow of state tax revenue. “Examining the role RSA 74:17 plays within the state taxation framework makes clear that striking down the section would ‘enjoin, suspend, or restrain' the assessment of taxes within the meaning of that terms as elucidated by Hibbs ,” the court wrote. Therefore, the court held, the Tax Injunction Act barred the court from subject matter jurisdiction over the case.
The court also rejected the plaintiff's argument that an inspection warrant obtained pursuant to RSA Chapter 595-B should be issued only upon probable cause that a law is being broken. The court wrote that the U.S. Supreme Court has recognized that traditional probable cause requirement would “frustrate the purposes of code enforcement, reasoning that…an inspector could not as a practical matter decide to examine certain premises based on his or her knowledge of the conditions there because many such conditions are simply not observable from outside the building. …Likewise, local tax officials often cannot know whether a residence has undergone renovations which have increased its value without entering the residence itself.”
The court added, “Imposing a traditional probable cause requirement onto RSA 74:17 would therefore have consequences similar in kind, if not necessarily degree, to eliminating the statute altogether. Local officials would, out of simple ignorance, lack the ability to consider value-added renovations in their appraisals, which would in turn result in lower assessments and less tax revenue.”
While the Tax Injunction Act bars the plaintiffs from pursuing their lawsuit in federal court, the court said New Hampshire's declaratory judgment procedure provides a
remedy in state court for alleged constitutional violations.