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The authority to decide on retroactive municipal property tax billing - each taxpayer can do as he sees fit

13.12.20 | 10:09  

Taxpayers who wish to dispute their rates bill are often forced to ask which entity is authorized to hear their claims - the Municipal Property Tax Director and thereafter the Municipal Property Tax Appeal Committee within the framework of objection and appeal proceedings, or maybe the Administrative Affairs Court pursuant to an administrative petition?

With regard to municipal property tax charges, section 3 of the Local Authorities Law (Appeal Against Determination of General Rates), 5736-1976 stipulates that the Municipal Property Tax Director and the Municipal Property Tax Appeal Committee may only hear taxpayers' claims based upon the following grounds:

  1. The property for which the payment of municipal property tax is being demanded is not located in the area specified in the invoice;
  2. A mistake was made regarding the classification, size or use of the property     

in the municipal property tax invoice which the taxpayer is objecting to;

  1. The taxpayer does not "hold" the property as defined in the Municipalities Ordinance;
  2. Where the property is a "business" within the meaning of section 8(c) of the Arrangements Law 5733 - it is not a controlling shareholder in the taxpayer or the general rates charged with respect to that property had already been redeemed by its occupant.

Despite the unequivocal provisions of the law, which delineate the limits of the Municipal Property Tax Director's and Appeal Committee's authority, in recent years the courts expanded that authority, inter alia, in order to alleviate their own workload.

However, the question of retroactivity of the charge remained within the exclusive jurisdiction of the Administrative Affairs Court and in most cases a taxpayer who wanted to challenge his municipal property tax charges had to conduct parallel proceedings: one before the Municipal Property Tax Director, based on submissions which his authority extends to, and one before the Administrative Affairs Court concerning the question of retroactivity of the charge, where retroactive billing was included.  

Contradictory rulings of the Administrative Affairs Courts have recently been published in which petitions based on a prohibited retroactive rates charge were struck out on the grounds that before applying to the Court, the taxpayer must exhaust the objection and appeal track. So it was held for example, in Administrative Petition (Jerusalem Administrative Affairs Court) 3844-10-16 S. Dagan Industries Ltd. v. Mevaseret Zion Local Council (published in the Nevo legal database, 16.7.2018) and in Administrative Petition (Central Administrative Affairs Court) 31793-04-16 State of Israel - Ministry of Defense v. Brenner Regional Council (published in the Nevo legal database, 24.09. 2017).

In other words, according to these rulings, in those matters which their authority extends to, a taxpayer who wishes to challenge the municipal property tax charges imposed on him, including a retroactive charge, must first exhaust the objection and appeal proceedings before the Municipal Property Tax Director and the Appeals Committee, and only thereafter may he file an administrative petition attacking the legality of the retroactive charge. The courts appear to have adopted this position in order to contend on the one hand with the Appeal Law, which prescribes a closed list of submissions that confer authority on the Municipal Property Tax Director and the Appeals Committee, and on the other with the mounting burden on the courts, as well as to streamline proceedings and refer as many cases as possible to quasi-legal tribunals.  

However, this position of the court, which at first glance seems logical, causes confusion and uncertainty since in practice each taxpayer must decide for himself "in the moment of truth" how to proceed, and there is always the concern that should an administrative petition not be filed, then the local authority shall plead delay which shall lead to a postponement of the hearing. In other words: the law is unclear and not binding and therefore creates confusion, uncertainty and undermines legal harmony.

Moreover, the Administrative Affairs Court's position only postpones but does not preclude its adjudication of the retroactivity claim. The hearing is simply deferred until after the Appeal Committee's decision on the rest of the taxpayer's submissions.

To this should be added, that a ruling on the retroactivity claim in most cases derives from a decision on factual questions which the Municipal Property Tax Appeal Committee may certainly clarify and make a ruling on, which if the parties so wish, they can challenge by filing an administrative appeal in the Administrative Affairs Court.

It is therefore appropriate that the law be amended and that the authority of the Municipal Property Tax Director and the Appeal Committee be expanded so that they may also decide retroactivity claims. In this context, it should be emphasized that in contrast to claims concerning the legality of the charge or discrimination, a claim concerning its retroactivity is not complex from a legal standpoint, and therefore it makes little sense to leave it for the courts alone to decide. This is especially true given the unequivocal common law rules in this matter, according to which a retroactive charge is always invalid unless proven to be the result of fraud or culpability of the taxpayer. It should be noted that in any case, both "fraud" and "culpability of the taxpayer" are issues that require a factual determination to be made and therefore the Appeal Committee is the correct forum to adjudicate them.

And perhaps, in making the rulings in question, the Administrative Affairs Courts intended to confer authority on the Appeal Committee to also hear retroactive charging claims?

Until the legislature has had its say in the matter, each taxpayer shall act as he sees fit and each judge shall adjudicate according to his understanding and wishes. It appears that nowadays case law can be found which supports both positions, the one which maintains that it is first necessary to exhaust proceedings before the Municipal Property Tax Appeal Committee, and the other which postulates that the two proceedings should be conducted contemporaneously: one proceeding before the Appeal Committee and a parallel proceeding on the retroactivity claim before the Administrative Affairs Court.