Originally published on Forbes.com July 26th, 2013
Believers in the theory that federal land patents defeat property taxes have been dealt a blow by this decision by the Wisconsin Court of Appeals. It is a rather interesting theory. The idea is that if title to your land traces back to a patent issued by the federal government, then municipalities and counties cannot tax it since they could not tax it when it belonged to the federal government. Of course, you might have to do some paperwork in order to claim the benefit. Alan Kreglow will help you with the process and explain it more thoroughly.
A lot of land in the United States traces back to federal land patents.
We don’t want to think too hard about how it is that the federal government came to own the land. It was not always a pretty process. One of the reasons taxes were low in the 19th Century was that the government had quite a bit of revenue from land sales. Of course not all land titles in the United States trace back to federal land patents. It may well be most of it, at least in terms of area – all those rectangle shaped states that you fly over when going coast to coast. I’ll have to make a project of figuring that out some time.
In the latest Wisconsin case, Gary Charles Lizalek had several reasons why his land in the County of Milwaukee should not be foreclosed. Front and center was the notion that title tracing to a federal land patent made the property exempt:
Lizalek first contends that the County had no right to tax his land because the federal government conveyed the land with a clear title to an owner “and to his heirs and assigns forever” through a “federal land patent” in 1837. Lizalek contends that he is the assignee of that land patent, so the County cannot encumber the title to his land; his land is not subject to the political jurisdiction of the State of Wisconsin or the County.
The second sentence really fascinates me. Many tax protester theories concerning the income tax are based on the idea that the federal government is sharply limited and constrained so that it can only apply the income tax to people who live in the District of Columbia or something like that. The land patent people, on the other hand, argue for a kind a federal supremacy that a land owner gets a small sliver of. Their title stretches back to a piece paper signed by Martin Van Buren. Wisconsin was barely a territory then.
The Court made short work of his argument:
The federal courts have squarely rejected this argument, ruling that federal government conveyances of property by federal land patent in centuries past “do not prevent the creation of later interests and have nothing to do with claims subsequently arising under state law.” See Wisconsin v. Glick, 782 F.2d 670, 672 (7th Cir. 1986). The fact that Lizalek’s land, like other land in the State of Wisconsin, was conveyed by federal land patent long ago is irrelevant to the County’s authority to tax the property.
It Does Not Work
In response to a Michigan case, a few months ago, I went looking, pretty thoroughly, to see if anybody had ever gotten so much as the time of day from making the land patent argument with respect to property taxes. My sources and research skills are pretty good, but everything I came up with was negative. I had a bit of an exchange with Alan Kreglow, but none of the cases he pointed to had anything to do with property taxes. This is more or less a summation of his argument:
The real point is NOT that courts are deciding en masse in favor of people seeking to have their property taken off the tax rolls, but that our courts are deeply corrupt and are ignoring the lawful principle of stare decisis by IGNORING U.S. Supreme Court decisions consistently upholding the power of the land patent in decisions that ruled in favor of those claiming the “forever” benefit of the land patent.
I have seen opinion letters from state attorneys general stating flatly that when land was transferred into private ownership it became subject to property tax, but this point is always asserted with no Supreme Court authority to back up the bald assertion. There is no logic to this, aside from the fact that the state WANTS to tax the land and has passed statutes that assert they can. But this violates the Constitution of the United States of America and such statutes are generally unconstitutionally vague.
I had a friend who got deep into the tax protester movement. He and I would have these interesting discussions. When I showed him decisions that flat out said the theories he was propounding were wrong, his answer was “The courts are corrupt”. Mr. Kreglow’s response is similar. The argument is that he is right and the lower courts should be deciding that way, they just don’t. He is violating one of my fundamental tax planning tenets – “It is what it is. Deal with it.”
I’m not sure how big this movement is. Given the large number of taxing jurisdictions in the country, I would not be shocked if making the argument has worked in some small town somewhere. If you decide to try it, be aware that some states, like Indiana, have very unforgiving systems that will cause you to lose your property pretty quickly if you don’t pay the taxes.
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