U.S. Third Circuit - The FindLaw 3rd Circuit Court of Appeals Opinion Summaries Blog

Reservist Can't Escape Property Taxes After Transferring Home to Biz

As a member of the U.S. Army Reserve, Michel Davis served for half a year in Iraq and three years in Afghanistan. And while he was fighting abroad, taxes were piling up on his Philadelphia home. Eventually, Davis's home was foreclosed upon, despite his repeated attempts to limit delinquent property taxes and penalties under the Servicemembers Civil Relief Act -- requests that were repeatedly denied.

Davis sued, arguing that the denial of relief under SCRA violated his rights. But, the Third Circuit noted last week, Davis's arguments had a fatal flaw: he had transferred his house to his company before leaving for his tours of duty and businesses simply don't qualify as servicemembers under the SCRA.

Protection for Servicemembers

The Servicemembers Civil Relief Act is just one of the protections the federal government affords servicemembers called to active duty. The SRCA limits the interest that can be imposed on a servicemember's delinquent property taxes and forbids additional penalties.

In 2009, facing mounting unpaid property taxes, Davis argued that the SRCA limited what he owed the city of Philadelphia. He made that argument again in 2010, after his initial request was denied. And again in 2013, as the city foreclosed on his house. Finally, he asserted that argument in a 1983 suit against the city.

In each instance, however, Davis ran into the same wall. A few months after he was first called to service in 2004, Davis transferred his property to Global Sales Call Center, a company solely owned and managed by Davis. And that fact was fatal, the Philadelphia Department of Revenue, the Philadelphia Tax Review Board, the District Court for the Eastern District of Pennsylvania, and the Third Circuit all agreed.

Corporations Don't Count

As the Third Circuit noted, the SCRA is a "straightforward statute." It limits the taxes and penalties that can be imposed on "property... owned individually by a servicemember or jointly by a servicemember and a dependent or dependents." A servicemember is defined as "a member of the uniformed services."

Under that language, Davis's company could not benefit from the SCRA. "Although federal law treats corporations as 'people' in many respects," Judge Thomas Hardiman wrote for the unanimous three judge panel, "it does not deem them soldiers." And since Davis's home was owned by Global Sales Call Center, not Davis, there's no way it can be afforded the protections of the SCRA.

The court noted that the case was "an unfortunate twist of law and fate." Denying Davis the act's protections, after all, "runs counter to the SCRA's ambition that servicemembers feel secure in their tax and legal affairs during their active duty deployments." But Davis "cannot have his cake and eat it took." Having transferred his home to his company to reap financial benefits at the time, he cannot latter demand protections afforded only to soldiers, and not their call center companies.

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