Bill of review for tax assessment revived

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Where the Emmanuel Worship Center challenged the city of Petersburg’s property tax assessment on a “learning annex,” the circuit court erred by dismissing EWC’s bill of review after concluding the underlying matter was an action at law. Under the relevant statutes, a bill of review is an equitable proceeding.

The court further erred by issuing a decree of sale after concluding the EWC had to challenge the assessment within three years of when the assessment was made. The limitations period prevents a suit to challenge the assessment but does not prevent a defense that the assessment should not have made to begin with.

EWC seeks to raise, as a defense to a court-ordered sale of the property, a self-executing tax exemption for religious property provided by the state constitution.

“We will remand this matter to the circuit court for a determination whether the property in question was used for religious worship as defined in Code § 58.1-3606, and consequently whether EWC owed any delinquent taxes for the property.”

Overview

The city of Petersburg filed a complaint against EWC for delinquent taxes. The circuit court determined EWC owed the city more than $29,000 and that a three-year statute of limitations barred EWC’s challenge.

The circuit court then ordered the property to be sold to satisfy the delinquency. EWC did not appeal, and paid more than $114,000 to satisfy the back taxes, penalties, interest and fees. EWC then filed a bill of review.

EWC argued that the state constitution provided a tax emption for religious property and that the provision was self-executing. The city moved to dismiss. It argued that a bill of review is a procedure to reopen equity suits and that the underlying matter was a legal action.

After a hearing, the circuit court denied the bill of review.

Equitable matter

“In its final order, the circuit court held the bill of review was not properly before it because the underlying matter ‘was an action at law.’ However, the record demonstrates the underlying action was filed by the City pursuant to Code § 58.1-3965 to sell EWC’s property to collect delinquent real estate taxes.

“Code § 58.1-3965 is located in Chapter 39, Article 4, which is titled, ‘Bill in Equity for Sale of Delinquent Tax Lands.’ … Code § 58.1-3967 states, ‘[p]roceedings under this article for the appointment of a special commissioner under § 58.1-3970.1 or the sale of real estate on which county, city, or town taxes are delinquent shall be by bill in equity.’ Code § 58.1-3967 (emphasis added). …

“[T]he circuit court erred in holding that the underlying action was a matter at law and that a bill of review was inappropriate.”

Subject to taxation?

“EWC argues the circuit court erred when it concluded EWC’s property was subject to taxation by the City. …

“EWC asserts that its property, which it refers to as a ‘learning annex,’ qualified for [an] automatic exemption. During oral argument the City disagreed, arguing the exemption only applies to property used for ‘worship and housing.’ We disagree with the City’s narrow interpretation of the exemption.

“Code § 58.1-3606 contains an expansive definition of religious worship that, in addition to ‘worship and housing’ includes ‘property used for outdoor worship activities,’ ‘property used for ancillary and accessory purposes’ that ‘support[s] or augment[s] the principal religious worship use’, and ‘property used as required by federal, state, or local law.’ …

“Based upon the record before us, we are unable to determine whether EWC’s property in question would qualify for this exemption. We note that it appears EWC attempted to proffer evidence of its use that would qualify for tax-exempt status, but the circuit court never gave EWC an opportunity to present that evidence.

“Instead, the circuit court agreed with the City’s argument that even if EWC’s property was exempt from taxation, EWC failed to challenge the tax assessment within the three-year limitations period provided by Code § 58-3984, and therefore the assessments for the years in question were beyond review by the court.”

Limitations period

“EWC argues the circuit court erred when it held EWC could not challenge the delinquent real estate taxes because the statute of limitations to do so had expired. …

“EWC does not dispute that more than three years have passed since the assessments in question were issued. Under Code § 58.1-3984, EWC would be barred by the three-year statute of limitations from bringing an action against the City to challenge the validity of the assessments.

“However, EWC’s inability to initiate a legal challenge under this statute does not end the inquiry. Despite the City’s argument to the contrary, just because EWC can no longer initiate a lawsuit against the City does not mean EWC cannot raise the self-executing tax exemption as a defense to the City’s attempt to sell the property in a tax sale.

“Code § 58.1-3940 gives localities the right to enforce real property taxes by sale under Article 4 … for twenty years after the assessments were due. However, before a circuit court may issue a decree of sale under Code § 58.1-3965, the court must find the taxes are ‘delinquent.’ …

“That requires a determination whether the taxes were even owed in the first place. If the locality was never entitled to tax the property, there would be no ‘delinquent’ taxes. In this case, however, the court refused to consider EWC’s defense, holding that EWC was barred by the statute of limitations under Code § 58.1-3984 from raising this defense. …

“The City’s argument that the three-year limitations period in Code § 58.1-3984 means a property owner can no longer even raise a defense to a delinquent tax charge after three years would clearly lead to absurd results, since localities can bring these suits for up to twenty years. Therefore, we hold the circuit court erred in ruling that EWC could not assert a defense to the City’s allegation of delinquent taxes.”

Reversed and remanded.

Emmanuel Worship Center v. City of Peterburg, Record No. 201322 (Mims) Jan. 6, 2022. From the Circuit Court of  the City of Petersburg (Teefey). Lenard Myers II (Fortress Proprietas, on brief), for appellants. Andrew R. McRoberts (Debra L. Mallory; Sands Anderson, on brief), for appellee. VLW 022-6-001, 11 pp.