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Bluebeard's Castle, Inc. v. Government of the Virgin Islands

February 28, 2003

BLUEBEARD'S CASTLE, INC.; CASTLE ACQUISITIONS, INC.
v.
GOVERNMENT OF THE VIRGIN ISLANDS; ROY MARTIN, IN HIS OFFICIAL CAPACITY AS TAX ASSESSOR, APPELLANTS



On Appeal from the District Court of the Virgin Islands Division of St. Thomas and St. John D.C. Civil Action No. 01-cv-00155 (Honorable Thomas K. Moore) Argued November 8, 2002

Before: Scirica, Alito and Rendell, Circuit Judges

The opinion of the court was delivered by: Scirica, Circuit Judge

PRECEDENTIAL

OPINION OF THE COURT

In this appeal involving the assessment of real property taxes in the Unites States Virgin Islands, we address the special relationship between federal and territorial law. The District Court enjoined the Virgin Islands tax assessor from employing a certain tax assessment method, concluding it violated federal law. Contending that any claims can only arise under territorial law, the Government of the Virgin Islands maintains the District Court lacked federal subject-matter jurisdiction. We hold that plaintiff has properly pled a federal claim.

I.

Plaintiff Equivest St. Thomas, Inc.*fn1 is a United States Virgin Islands corporation that owns commercial property in St. Thomas, Virgin Islands. Plaintiff challenges the tax assessment of three of its hotel resort properties, Bluebeard's Castle, Bluebeard's Beach Club, and the Elysian Resort. For the 2000 tax year, the Government of the Virgin Islands assessed these three properties at more than $98 million, resulting in a tax bill of approximately $740,000. Plaintiff contends the assessment greatly exceeds the properties' actual value of less than $40 million.

Federal statutory law, and its Virgin Islands corollary, mandate that Virgin Islands real property must be assessed at "actual value."*fn2 48 U.S.C. S 1401a; 33 V.I. Code Ann. S 2404. According to defendant Virgin Islands Tax Assessor Roy Martin, the Virgin Islands primarily employed replacement-cost value and declaration value in assessing the properties, methods he conceded do not reflect fair market value. Plaintiff contends that reliance on replacement-cost and declaration value violates federal statutory and Virgin Islands law. Plaintiff brought this action under 42 U.S.C. S 1983, seeking to enjoin defendants "from assessing real property taxes for commercial property in the Virgin Islands other than in strict accordance with 48 U.S.C. S 1401a and 33 V.I.C. S 2404."*fn3

Finding that plaintiff was likely to prevail on the merits and had met the other requirements for preliminary relief, the District Court enjoined the Government of the Virgin Islands "from collecting property taxes against the hotel properties owned by Equivest St. Thomas, Inc. until the tax assessor can establish at a trial on the merits that the property taxes on those properties have been assessed on their actual value." Equivest St. Thomas, Inc. v. Gov't of the V.I., 208 F. Supp. 2d 545, 553 (D.V.I. 2002).

At this time, the Government of the Virgin Islands does not contest the District Court's resolution of the merits. Instead, the government contends the District Court lacked jurisdiction because this dispute arises not under federal law, but solely under Virgin Islands law.*fn4

II.

a.

Property taxes are generally governed by state law. As we discuss, the importance to the states of their tax systems is such that comity mandates that federal courts are ordinarily powerless to entertain challenges to state taxation, even under 42 U.S.C. S 1983. Fair Assessment in Real Estate Assoc. v. McNary, 454 U.S. 100, 116 (1981).

But the Virgin Islands is not a state;*fn5 it is a territory subject to Congress's broad power under Article IV, section 3, clause 2 of the United States Constitution to govern territories.*fn6 See Examining Bd. of Eng'rs, Architects and ...


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