Estates Are Claimants Entitled to Rebates

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Explore:  Estate Planning Rebates

In a four to three decision, the en banc Commonwealth Court held that a senior citizen’s estate was entitled to a rebate under the Senior Citizens Property Tax and Rent Rebate Assistance Act, 53 P.S. §§ 6926.1301-6926.1313 (the Senior Rebate Act), so long as the decedent met any of the claimant eligibility criteria under Section 1303 even if the decedent did not live throughout the tax year for which the rebate was sought. Muscarella v. Commonwealth, 10 F.R. 2011 (Pa. Commw. Mar. 14, 2014). The court determined that sections 401.1(iv) and 401.43(a) of the Department of Revenue’s regulations and the instructions to the Property Tax and Rent Rebate Claim form, PA-1000 were invalid and violated the Equal Protection and Due Process Clauses of the U.S. and Pennsylvania Constitutions in so far as they denied the rebate for estates.

The decedent, Josephine Carbo, owned property located in Norristown, Pa. During the 2008 tax year and for a number of years prior, Carbo paid property taxes and thereafter filed property tax rebates under the Senior Rebate Act. Prior to Carbo’s death in November 2009, she paid her 2009 property taxes. Thereafter, in June of 2010, the executor of Carbo’s estate filed a property tax rebate claim with the Department of Revenue. The Department of Revenue denied the refund claim because Carbo did not survive for the entire 2009 tax year. Administrative appeals were taken and relief was denied as well. Shortly after filing an appeal with the court, the executor filed a motion for certification of the class of claimants for those similarly situated to Carbo. This motion was granted in January 2012 with the court defining the class as those claimants who filed property tax rebate claims for the 2003 through 2008 tax years and were otherwise eligible for rebates but died before December 31 of the applicable tax year. It was later determined that there were 2,455 claimants identified as part of the class.

During the course of discovery, Carbo’s estate sought documentation or other information supporting the limitation of a claimant in the department’s regulations. The state responded that no such documentation existed. As a result, the estate argued that the distinctions noted in the regulations violated the Equal Protection and Due Process Clauses of the U.S. and Pennsylvania Constitutions. The state initially argued that the limitation in the regulations was reasonable and rationally related to the purpose of the Senior Rebate Act. Thereafter, the state changed its position and argued that the regulation permitting rebates to estates should be disregarded as the definition of claimant under Section 1303 was clear and unambiguous in not including estates.

The court examined Section 1303 of the Senior Rebate Act, and indicated that an eligible “claimant” was a person who filed a claim for a property tax rebate or rent rebate in lieu of property taxes paid and (1) was at least 65 years old or had a spouse or member of that household who was at least that age; or (2) was a widower and at least 50 years of age; or (3) was permanently disabled person at least 18 years of age. 53 P.S. § 6926.1303. The court further noted the fact that as early as 1974 the Department of Revenue proposed regulations to the Senior Rebate Act’s predecessor statute recognizing that estates are included in the definition of “claimant” with the limitation that the decedent must have lived during some part of the succeeding year in which the rebate assistance was sought. The court determined that these regulations were ultimately adopted in 1976 and remained virtually unchanged today.

In reviewing the Equal Protection argument, the court noted that a legislative classification of persons must rest upon some ground of difference that justifies classification and a fair and substantial relationship to the object of the legislation. Curtis v. Klein, 666 A.2d 265, 268 (Pa 1995). Applying such principal to the present case, the court indicated that in order to treat claimants who died during the claim year differently from claimants who had survived the claim year, the Department of Revenue was required to show pervasive evidence that such classification was reasonable rather than arbitrary and bore a reasonable relationship to the object of the legislation. Based upon the record, namely the interrogatory responses from the state, the court concluded that the state could not identify or justify why the claimant needed to survive the entire year to be eligible for the rebate.

Turning to the Due Process provisions of the U.S. and the Pennsylvania Constitutions, which essentially have the same standard, the court stated the two prong test enunciated by the court of the right to a due process hearing: (1) the challenged action has caused that party an injury in fact, economic or otherwise; and (2) the interest asserted by the plaintiff was within the zones of interest sought to be protected or regulated by the statute or constitutional guarantee in question. City of Philadelphia v. Pennsylvania Insurance Department, 889 A.2d 664, 670 (Pa. Commw. 2005). Under either constitutional provision, “once a party is determined to have a property interest or interest in the outcome of litigation, the person has standing to challenge the governmental action and is entitled to a due process hearing.” Id.

The court indicated that the legislative classification in this case did not implicate a fundamental right or involve a suspect class and the proper level of scrutiny was a rational basis. The court then utilized the rational basis test enunciated in Association of Settlement Company v. Department of Banking, 977 A.2d 1257 (Pa. Commw. 2009) and considered whether there existed any legitimate state interest in the classification difference and whether the legislation was reasonably related to a legitimate state interest. The court concluded that in this situation, the executor established the lack of any legitimate state interest in treating claimants who died during the claim year differently from claimants who survived the entire claim year. Moreover, the court indicated that the very language under the regulations, as well as the instructions to the PA 1000 claim form, expressly prohibited estates, such as Carbo and others similarly situated, to file rebate claims if the decedents did not survive the entire tax year without any means of challenging their exclusion. As a result, the court held that the estates were denied their fundamental due process rights to protect legitimate property interests in obtaining rebates under the Senior Rebate Act.

The court also addressed the state’s assertion that all estates were prohibited from receiving rebates and the regulation should be abandoned. The court indicated that the term claimant was defined under Section 1303 of the Senior Rebate Act as a “person who files a claim for property tax rebate or rent rebate in lieu of property taxes . . ..” The court pointed out that since the term person was not defined, it needed to resort to the definition under Section 1991 of the Statutory Construction Act (Act). Because a person includes the term estate under the Act, the court concluded that claimant had to be construed to include estate. In addition the court indicated that since the regulation was enacted in 1976, the General Assembly amended the Senior Rebate Act and its predecessor 10 different times. In all of those changes, the General Assembly never amended the term claimant to deny estates the right to file for rebates. Moreover, the court pointed out that the Department of Revenue made a determination nearly 40 years ago that an estate may qualify as a claimant and promulgated regulations to that effect with a condition that was now unconstitutional. Finally the court indicated that the Commonwealth Documents Law under section 205 specifically prohibited the state from attempting to void a regulation in the course of litigation. 45 P.S. § 1205.

The dissent indicated that Section 1991 of the Act serves to fill gaps in legislation and noted that the definition of person thereunder was very broad to include not only natural persons but businesses, governmental entities and foundations. The dissent noted that no one was arguing that such latter entities were claimants, which was apparent from the Senior Rebate Act itself, and should likewise preclude an estate to be considered a claimant. Furthermore, the dissent pointed out that under Section 1301 of the Senior Rebate Act senior citizens were provided with the benefit of assistance in the form of property tax or rent rebates. The dissent reasoned that this legislative statement established definitively that the General Assembly’s intent was that the Senior Rebate Act would benefit senior citizens. As a result, the dissent reasoned that allowing an estate to pursue a rebate under the Senior Rebate Act would violate the General Assembly’s stated purpose in enacting the law.

 

Topics:  Estate Planning, Rebates

Published In: Constitutional Law Updates, Residential Real Estate Updates, Tax Updates, Wills, Trusts, & Estate Planning Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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