Question

Chapter 16 The Tax Is Illegal—Getting the Story Out

• 1. Is it the TRUTH?
• 2. Is it FAIR to all concerned?
• 3. Will it build GOODWILL and better FRIENDSHIPS?
• 4. Will it be BENEFICIAL to all concerned?

  —The “Four Way Test,” written by Herbert J. Taylor, adopted as creed of Rotary International, 1943

Lunapark was an urbanized township. It used to have farms, but they were all gobbled up with housing developments. The only businesses were nonagricultural manufacturers, offices, and retail stores. A nearby city of Bedford had grown beyond its limits and most of Lunapark’s residents worked in Bedford. When Lunapark was more rural, it did not have a police force, and its fire department was all volunteer and the equipment was quite basic.

With development came a full-time police force that grew to almost forty officers. The fire department maintained a volunteer structure, but there were eventually five full-time chiefs, and state-of-the-art fire engines and equipment gave the township the top rating for any force with volunteers. The developments of police and fire infrastructure had come with costs. In the 1950s, the state passed a law for urbanized townships allowing their boards to raise tax millages specifically for fire and police operations. These tax increases, according to the law, were to be levied only against real property, whether owned by residents or by businesses. However, the taxes were not to be levied against what was called business personal property. Business personal property consisted of things like equipment—typewriters, machines, etc.—and vehicles. The rationale for the discrepancy in how the taxes were applied may have related to the idea that a thief (object of police services) is unlikely to steal a large piece of business equipment, and similarly, such equipment is less likely to burn up in a fire. There was no tax on personal property in residences. The general township property tax levy was subject to strict state limitations and could only be raised by a vote of the people. This tax was to be applied to all property—real and business personal. Lunapark took advantage of the state law, and in 1952 the township board imposed a ten-mill tax for fire and police services. Ten mills equates to 1%, however, since the property was assessed at 50% of its value, in actuality it was a property tax of one half of 1% of the value of the property. For a house worth $200,000 and assessed at $100,000, the ten-mill tax amounted to $1,000 a year. The general township tax was gradually raised to fifteen mills as a result of various elections. The township also collected taxes for schools and for county services.

After the board (not the people) had voted in the levy for police and fire services, the township treasurer, with or without approval of other township officials, began sending out tax bills that assessed the township’s full 25-mill levy on all assessed property—both real property and business personal property. And so the tax was collected. In fact, there were few factories and retail stores in the township at the time. As the new factories and businesses were built they received their tax bills and paid them—the same tax rate being applied to both their real and personal property. This went on for 27 years.

One Tuesday morning, Township Supervisor Tim Colwell was sitting in his office gazing out at the pretty flowers on the lawn in front of township hall. The phone rang. It was Mike Malone of the Bedford Enterprise. He bluntly said, “You know you are imposing illegal taxes on your businesses.”

Colwell responded, “I am? Tell me about it.”

“Yes, you are, and you have been doing it for 27 years, and we want to know what you’re going to do about it,” Malone said.

Tim said, “I better be filled in on the details before I answer a question like that. This is the first time I have heard such a thing.”

Malone then described the state law, how the township board, not the voters, had passed the fire and police levies, and how the treasurer had been misapplying the tax to all property. Malone told Colwell that he must have been sleeping at the switch.

Colwell said, “Well, I’ve been in office 3 years, and you have been covering the township news for all 3 years, so maybe we have both been asleep, but I intend to respond. First I think I’ll be calling the township attorney and some state officials up at the capitol. I promise I’ll be back. By the way, did you dig this up all by yourself?”

Malone said, “I can’t tell you my source, but it was a politically active citizen.”

Colwell knew a pack of such citizens, one of whom was after his office. So be it. If they were doing wrong, they should correct their ways.

Colwell called the township attorney, who quickly checked the state law and agreed that the fire and police levy should apply only to real property. Colwell called the treasurer, and he said he’d been collecting taxes that way for 10 years, and he understood that was the way it was done before he had come to office. The clerk concurred. Colwell asked the clerk if he knew about the state law, and he just sort of smiled and said the issue had been discussed at a township association meeting once, but he let it pass. It was technically outside his job description, although he was responsible for putting the township budget together.

The idea hit the supervisor that some businesses had been overpaying their taxes for a long time, and they might be not only mad about it, but they might want their money back. He decided to call the state taxation office, division of local affairs. He also called the attorney general’s office. The division of local affairs was very clear in its view, in fact its view had been tested in courts several times and it had been affirmed by the state supreme court. If a taxpayer paid taxes in excess of what was required by law, a rebate was in order only for taxes paid either in protest or taxes paid for services to be totally rendered in the future. As the last collection of taxes had been 6 months previously, and since no business taxpayers had protested the illegal tax when they had paid it, no business taxpayer could file a protest. The attorney general’s office concurred in this judgment. Colwell was relieved over that. No money had to be paid back as a matter of law. However, there was a future to worry about. The attorney general’s office told the supervisor that his knowledge of the situation thereafter rendered him liable if his government were to continue the practice in the future—meaning with its tax bills 6 months hence.

Colwell called Malone and shared his newfound information with the Bedford Enterprise. He also indicated that he would be working on a solution. And he told Malone that he wanted to make sure that the township was acting within the law in all cases. He indicated that the options included a cutback in police and fire services of about 15% or a comparable raise in the fire and police levy. These actions could be taken by the board, but at the moment he didn’t care for either of them. Malone indicated that some other townships might be in the same situation, and the story was going to be big when it hit the newsstands. Considering the likely source of the story, Colwell was a bit concerned that the story could be slanted toward the notion of malfeasance and corruption and abuse of powers. Colwell did not think about it as a moral issue, because in his mind services were being rendered for the taxes received—after all, machinery can be destroyed in fires and thieves do steal typewriters. Nonetheless, he agreed that the law should be followed.

That Wednesday the Lunapark officials met with the officials of Liberty Township over a regional parks proposal. It was a chance to bring up the taxation matter. Col-well asked his neighboring supervisor if the tax issue was handled the same way in Liberty Township. It was. Colwell then asked the supervisor if he knew about the state law. He said, “Of course, we have known about it all the way along, but the businesses don’t protest so we just take the money.” The matter-of-fact answer sort of gave Colwell a jolt but he tried to conceal his amazement.

That evening he talked the matter over with the clerk and treasurer, and he floated the two options in front of them. The treasurer said, “Tim, you better check the 1952 law; I think it said we could only go to ten mills on the fire and police thing.”

They grabbed the law book and sure enough that option was off the board. The option of cutting fire and police services 15% remained. They stared at each other and shook their heads. That was not what they wanted to do.

Then Colwell said, “Well, we could ask the citizens to vote on an increased general millage, and if it passed we could lower the fire and police millage a comparable amount. That way the citizens really wouldn’t be paying any more, but the businesses would keep paying taxes on their business personal property.”

The clerk said, “Boy that’s a solution—just get the taxpayers to raise their taxes, so they don’t have to pay any more in taxes.” Colwell added that they could do an educational campaign and get business leaders to agree that they should all pay the same—their fair share. In fact, it would be a way to get businesses to praise the services they were getting from the police and fire department. All agreed that businesses were indeed happy with their services.

After a further review of state law, it was discovered that the board could, on its own, raise real estate taxes (but not personal business property taxes) two mills for specific capital equipment improvements for fire departments. So now the campaign could be couched in terms of, “Let’s raise the general tax so we can remove the need to raise the special tax.” In the end, the citizens would be paying a lower tax amount on their real estate property by approving the general tax increase.

Malone did not call on Thursday. Colwell feared that the story in the Bedford Enterprise could be devastating. There was no story on Thursday evening and no call from Malone on Friday. Colwell got the early Friday afternoon paper and there was no story. He thought defensively. They had a good story, they were going to propose a new tax so that citizens would pay less, but everyone would pay the same rate on all property. They just needed a vote of the people. But this was not going to be in Malone’s story. Colwell called Malone’s office. Malone was unavailable. Colwell decided to take the story to the public in his own words.

At 4:00 PM, he called his old friend, Martin Anthony, who was the news reporter at the public radio station. He described the situation, and Anthony was amazed. “Get your butt over here right now; we shall be live at five.” Colwell jumped in his car and drove 12 miles to the station. Martin greeted him at the door and said, “We got the studio, we are on live at five.” For 10 minutes they went through the details and the proposal that Colwell was making to correct the situation. The clerk and treasurer had agreed, and an agenda item to call a millage vote for the August election was ready to be acted upon. At 5:00 PM the whole story filled the airways on the public radio station. Anthony did a little salt-in-the-wound journalism as he kept saying it was a WBPR–Bedford Public Radio news exclusive. On Monday, at the township meeting, the citizens praised the officials for bringing their 27-year-long mistake to the public attention, and for enlisting the business community in making a correction so that all would be legal in the future. The meeting served as a campaign send-off for a positive vote to increase the general millage.

There was someone at the Monday township meeting who was not happy at all. Mike Malone had been put off by his paper because they thought the story was so big that it deserved front-page Sunday coverage. While Malone admitted the story was going to be quite negative, and it included quotations from angry citizens and the supervisor’s opponent in the upcoming election, he was visibly angry. “This was my best story in months, and you took it to Anthony, you son of a bitch,” he said to Colwell.

Instead of the front-page story on Sunday, there was a factual story about the issue on a back page of the Saturday edition of the Bedford Enterprise.

Supervisor Colwell genuinely liked Malone, so he smiled and said he understood, and in reverse circumstances he would feel the same. He asked, “Why, why, why had they held back on the story?” Colwell told Malone that he believed in a free press and appreciated his work even when it was critical, but that as a township officer he must also be concerned that the public saw the township government in a positive light, not just as a bunch of bumbling idiots who couldn’t follow the law.

Malone was still angry. And as it turned out, his stories on the township and especially on Colwell took on a negative slant through the fall. Colwell was very satisfied when the millage referendum passed, and he announced that he was not going to seek another term in office.

The supervisor in Liberty Township had also put a general millage increase on the ballot, but without an effective campaign, the voters turned it down. As a result, he had either to cut police and fire services or to have the board impose a new tax just on real property without the approval of the people.

Questions

1. Should public officials honor information given to them by the press by not sharing it with other rival media?

4. Should Colwell have accepted blame for the past illegal collections of taxes? Should he have cast blame on his predecessors in office?

5. Are court decisions that illegal taxes collected in the past not be returned ethical? If not, should there be some statute of limitations on returns?

Answer 1

1) The role of public officials is to ensure that all information in the public domain is available to all the citizens and the reach of media used for spreading the information should be as vast as possible. In this light, it is pertinent that all information given to the them by the press should be shared with all other media channels that also includes the rival media companies.

4) Each public official is always expected to know the law of the land in its entirety. Therefore Colwell can and should accept the blame only for the wrong tax collections in his tenure. Since he is not responsible for the tax collections before his tenure, he should not take blame for wrong tax collections of his predecessors.

Since judgement on actions of Colwell's predecessors is not the prereogative of Colwell, he cannot put the blame of wrong tax collections on his preddecessors.

5) since the tax returns collected in the past have been spent for the public good and the benefits of these expenditure have already been enjoyed by the general public, it is ethical and judicious to not return the tax collections. However, The local authorities should ensure that once the wrong doing is identified the same is rectified as soon as possible.