Virginia Court rules Taxpayer Lacks Standing to Challenge Illegal Tax Exemption

In Roanoke, city residents with bad cases of NIMBY sued the city seeking to enjoin its decision permitting the Pinnacle Treatment Center to open a residential drug and alcohol treatment center in their neighborhood.  Pinnacle has upwards of 100 or more residential treatment centers around the country.  It leases its Roanoke property from a Chicago venture capital firm — CapGrow Ventures.  CapGrow exists to buy property suitable for residential drug and alcohol addiction treatment and leases those properties to treatment professionals who treat addicts and alcoholics.  Ain’t capitalism grand!  Then all sorts of people — rich, poor, white, black, brown, beige, professionals, straight, gay, trans, stay at home moms and dads, CEOs and even gangsters and city garbage collectors like my own roommates when I was in a 30 day rehab some years ago — congregate voluntarily or by court order for treatment.  Most are not exactly living their best lives when they arrive.  They look like something the cat drug in and most people probably don’t want them hanging around the neighborhood.   

As a resident, you get up early, shower and eat breakfast, and line up for all your closely monitored meds.  Of course, illicit drugs and alcohol are strictly prohibited.  They even take away your mouthwash.  Its not exactly jail but the place is closely monitored.  Normally, you arrive at your lowest point having indulged in your “drug of choice” long enough for somebody to be so sick of you and your damned drama that they somehow got you into the center.  Your only distraction is smoking cigarettes outside in the facility’s yard or driveway, while all the neighbors look on warily.  And the patients, having been deprived of their drug of choice, smoke constantly when not in group counseling or meeting one on one with a counselor.  Yeah, its like that.  Other than my time at Ft. Benning, Georgia where I learned to jump from airplanes in full combat gear, it was the best 30 days of my life.  I hated it like I hated jump school, but it saved me. 

Anyway, when city residents lost their zoning challenge, they tried something else.  Pinnacle is not tax exempt, though it could probably structure itself as a 501(c)(3) if it really wanted the tax subsidy.  Apparently, its for-profit status is worth more to its stakeholders.  So its not tax exempt. Neither that fact, nor understandable NIMBY-ism discounts the value of these places in my mind.  But if they are not tax exempt they should pay taxes like everybody else.

Well, the Roanoke tax commissioner, for unexplained reasons, decided not to tax Pinnacle Roanoke so one of the neighbors, Mary Pat Martin, sued for a declaratory judgment claiming the City Tax Commissioner’s de facto tax exemption is unlawful. Mary Pat looks like a kindly sweet widow, very well educated, just trying to live quietly without worry.  Her head must be spinning right now because the City even admitted by way of demurrer that Pinnacle should be taxed.  The Virginia Appellate Court agreed rather explicitly, noting that Pinnacle looks just like any other for profit entity subject to the city’s business tax.  “The circuit court heard arguments from both parties and in a “purely advisory capacity,” acknowledged the appearance of “an ongoing enterprise for which gross receipts tax should be paid.”   Talk about insult to injury. Still, the Court pretty much ruled that nobody has standing to challenge an improper or illegal grant of tax exemption.    Not even a kindly neighbor having to pay her own property taxes.

Ordinarily, payment of taxes does not confer a general right to challenge any government action alleged to be unlawful. Id. It is well established, however, that “local taxpayers possess the common law right ‘to challenge the legality of expenditures by local governments.’” Id. at 363 (quoting Goldman v. Landsidle, 262 Va. 364, 372 (2001)). This is so because of “‘the peculiar relationship of the taxpayer to the local government that makes the taxpayer’s interest in the application of municipal revenues direct and immediate,’ giving local taxpayers a personal stake in the outcome of the controversy.” Id. (quoting Goldman, 262 Va. at 372). Local taxpayer standing, however, “does not open the door to challenge any local government action,” id. at 364, and a plaintiff’s complaint “must do more than identify a policy that the plaintiff disagrees with,” McClary v. Jenkins, 299 Va. 216, 223 (2020) (citing Lafferty, 293 Va. at 364-65). A challenge to government expenditures, moreover, cannot rely on wholly speculative inferences about actual costs or expenditures of a challenged measure or on merely nominal costs of implementation that do not implicate the special relationship between local taxpayers and local revenue expenditures. Lafferty, 293 Va. at 364-65)

Here, Martin does not challenge the legality of an expenditure by a local government, but simply the failure to impose a tax by a local government on a third party. A decision to refrain from taxing an entity is not an expenditure. Martin has cited no authority establishing a taxpayer’s right to challenge the non-imposition or non-collection of a tax, and we decline to recognize such a right today. In addition, even if we were to treat such inaction as the potential equivalent of an expenditure, Martin’s complaint also lacks express allegations of costs or expenditures connected to the Commissioner’s determination about the property at issue. She alleges that she, “along with all city taxpayers, is directly affected pecuniarily by the Commissioner of Revenue’s failure to collect business taxes and transient taxes from CapGrow and Pinnacle,” reasoning that “if substantial business and transient occupancy taxes are not collected, then there is less money for the City to spend and either expenditures will have to decrease or taxes increase to meet the City’s expenses.” Without more, the effects she imagines are “wholly speculative.” “[V]ague, speculative, and conclusory allegations of a connection between the expenditure of local funds and the policy or action the taxpayer seeks to prohibit do not meet the requirements to establish local taxpayer standing.” See McClary, 299 Va. at 224. Martin has not alleged sufficiently definite facts that provide a justiciable interest to survive demurrer. She has not alleged a specific statutory right to relief, nor has she alleged an injury that is specific to her. Additionally, the allegations in the complaint are mere policy disagreements with the Commissioner’s decision regarding whether the taxes apply in Martin’s bare position as a taxpayer, lacking any connection to local government expenditure. Thus, we hold that she may not claim local taxpayer standing.

The Court didn’t discuss much law really, asserting that Mary Pat’s attorneys did not cite much law.  There is law out there and most of it against taxpayer standing after Bob Jones University.  I am into it because taxpayers should have standing to challenge tax exemption for hate groups.  Since that high water mark for taxpayer standing, most cases deny standing.  You can read an essay on taxpayer standing to challenge tax exemption here.  We need legislative standing of the sort granted to environmentalists and environmental organizations.  Surely, it cannot be the case that nobody can challenge a taxing authority’s improper grant of tax exemption.

darryll k. jones