Property Tax Refund Not “Based on Need” for Exemption Purposes

Posted by NCBRC - November 2, 2018

The debtor’s tax refund under Minnesota’s Property Tax Refund Act was not “government assistance based on need,” and therefore she could not exempt it in her bankruptcy. Hanson v. Seaver (In re Hanson), No. 17-1192 (8th Cir. Sept. 11, 2018).

The circuit court affirmed the BAP’s finding that chapter 7 debtor, Sheri Hanson, could not exempt her tax refund under Minnesota’s Property Tax Refund Act (PTRA), which provides for taxpayers to receive a refund when their property taxes exceed a certain percentage of their household income.

In finding that the refund did not constitute “government assistance based on need,” the court relied on Minnesota legislature’s definition of that phrase as applying to programs intended to assist low income, disabled or elderly taxpayers. It contrasted this case with In re Hardy, 787 F.3d 1189 (8th Cir. 2015), where it found that the Additional Child Tax Credit Act (ACTC) satisfied the “based on need” requirement. The Hardy decision relied on various amendments to the statute which were specifically intended to increase the benefit to low income taxpayers. In contrast, the language in the PTRA indicated that the refund was intended to benefit “property owners and renters,” and amendments to the Act tended to expand coverage to higher income taxpayers. In addition, the income level for those eligible to benefit from the PTRA was substantially higher ($100,000) than the income level constituting the cut-off for those able to take the tax credit under the ACTC ($26,300).

While the court cautioned that the mere fact that a statute benefits some higher-income taxpayers does not necessarily preclude a finding that the statute’s purpose is to provide assistance based on need, in this case, the level of income of a potential beneficiary of the refund was too high to support a finding that the statute was geared toward the needy. In fact, the court found that one of the purposes of the PTRA was to equalize property taxes geographically for the middle class as well as the needy.

Based on these factors, the court affirmed the finding of the BAP that the tax refund was not exempt as “government assistance based on need.”

Hanson 8th Cir Sept 2018


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