THE SUPREME COURT OF FLORIDA
Case No.: SC 11- 1445
LEONARD J. ACCARDO and LYNN M. ACCARDO, et al.,
Petitioners,
vs.
GREGORY S. BROWN, Property Appraiser for Santa Rosa
County, Florida, and STAN C. NICHOLS, Tax Collector
for Santa Rosa County,
Respondents.
PETITIONERS’ REVISED INITIAL BRIEF ON THE MERITS
ON REVIEW FROM THE FIRST DISTRICT COURT OF APPEAL OF
FLORIDA
Case Below: 1D10-4072
DANNY L. KEPNER
Florida Bar No: 174278
SHELL, FLEMING, DAVIS & MENGE
Post Office Box 1831
Pensacola, Florida 32591-1831
Telephone: (850) 434-2411
Facsimile: (850) 435-1074
Email: [email protected]
TALBOT D’ALEMBERTE
Florida Bar No.: 0017529
PATSY PALMER
Florida Bar No.: 0041811
D’ALEMBERTE & PALMER, PLLC
Post Office Box 10029
Tallahassee, Florida 32302-2029
Telephone: (850) 325-6292
Email:
Counsel for Petitioners
ii
TABLE OF CONTENTS
TABLE OF CONTENTS .......................................................................................... ii
TABLE OF AUTHORITIES .................................................................................... iv
INTRODUCTION ...................................................................................................... 1
STATEMENT OF THE CASE AND THE FACTS ............................................... 1
SUMMARY OF ARGUMENT ................................................................................. 9
STANDARD OF REVIEW ....................................................................................... 11
ARGUMENT .............................................................................................................. 11
I. FROM THE ORIGINAL ACQUISITION BY ESCAMBIA COUNTY,
THE LEGISLATIVE DECISIONS ON TAXATION OF LEASES
HAVE BEEN RESPECTED BY THIS COURT .......................................... 11
A. The 1980 Legislation Should Be Applied as It Is Written ......................... 11
B. Leaseholds of Government Property Are Treated Differently
In Other Districts ......................................................................................... 21
II. THE PETITIONERS’ LEASES DO NOT PROVIDE A BASIS FOR
A FINDING OF EQUITABLE OWNERSHIP ............................................. 23
A. Petitioners Do Not Have Equitable Ownership in the Land ....................... 25
1. While Citing Robbins, the Opinion Below Actually Conflicts
With That Case .............................................................................. 27
2. While Citing Hialeah, the Opinion Below Actually Conflicts
With That Case .............................................................................. 30
B. The Leases Grant Petitioners No Equitable Interest in the Land ................ 33
iii
III. THE UNITED STATES CONSTITUTION PROHIBITS OWNERSHIP
OF NAVARRE BEACH PARCELS BY PRIVATE PERSONS OR
ENTITIES ........................................................................................................ 36
A. Pursuant to the Federal Grant, Escambia County Owns the
Land and Is Powerless to Convey Ownership to Petitioners ...................... 36
B. Santa Rosa County Has No Power to Grant Leases That
Convey Ownership of the Land to Petitioners ............................................ 38
IV. THE TAX COLLECTOR LACKS STANDING TO CHALLENGE
THE CONSTITUTIONALITY OF STATUTES TAXING
LEASEHOLDS OF COUNTY PROPERTY ................................................ 43
V. NO LIEN FOR TAXES EXISTS ON PETITIONERS’
LEASEHOLDS, THE LAND, OR THE IMPROVEMENTS ..................... 44
CONCLUSION ........................................................................................................... 47
CERTIFICATE OF SERVICE ................................................................................ 49
CERTIFICATE OF COMPLIANCE ...................................................................... 50
iv
TABLE OF AUTHORITIES
Cases Page
1108 Ariola, LLC v. Jones,
71 So. 3d 892 (Fla. 1st DCA 2011), rev. granted, SC11-2231 ................... passim
Accardo v. Brown,
63 So. 3d 798 (Fla. 1st DCA 2011) ............................................................ passim
Alabama v. Texas,
347 U.S. 272 (1954) .............................................................................................39
Archer v. Marshall,
355 So. 2d 781 (Fla. 1978) ..................................................................................13
Ashwander v. Tenn. Valley Auth.,
297 U.S. 288 (1936) ............................................................................................39
B.W.B. Corp. v. Muscare,
349 So. 2d 183 (Fla. 3d DCA 1977) ............................................................. 26, 28
Bell v. Bryan,
505 So. 2d 690 (Fla. 1st DCA),
rev. den., 513 So. 2d 1060 (Fla. 1987) ........................................................ passim
Bell v. Bryan,
519 So. 2d 1024 (Fla. 1st DCA 1988) ........................................................ passim
Bowman v. Saltsman,
736 So. 2d 144 (Fla. 5th DCA 1999) ............................................................ 27, 29
Broward County v. Eller Drive L.P.,
939 So. 2d 130 (Fla. 4th DCA 2006),
rev. den., 952 So. 2d 1189 (Fla. 2007) ................................................................22
Butte City Water Co. v. Baker,
196 U.S. 119 (1905) ............................................................................................39
v
Cason v. Florida Department of Management Services,
944 So. 2d 306 (Fla. 2006) ..................................................................................46
Dicks v. Colonial Fin. Corp.,
85 So. 2d 874 (Fla. 1956) .............................................................................. 37, 38
Eastern Airlines, Inc. v. Department of Revenue,
455 So. 2d 311 (Fla. 1984) ...................................................................................36
Escambia County v. Bell,
717 So. 2d 85 (Fla. 1st DCA 1998) .....................................................................44
Estate of Sweet v. First Nat'l Bank of Clearwater,
254 So. 2d 562 (Fla. 2d DCA 1971),
rev. den., 259 So. 2d 717 (Fla. 1972) ........................................................... 26, 28
Fernandez v. Vazquez,
397 So. 2d 1171 (Fla. 3d DCA 1981) ..................................................................33
First Union National Bank v. Ford,
636 So. 2d 523 (Fla. 5th DCA 1993) ............................................................ 22, 28
Florida Department of Revenue v. City of Gainesville,
918 So. 2d 250 (Fla. 2005) ..................................................................................42
Frissell v. Nichols,
94 Fla. 403, 114 So. 431 (1927)...........................................................................34
Hernando County v. Department of Revenue,
2011 WL 6957570 (Fla. Div. Admin. Hrgs. 2011) .............................................21
Hialeah, Inc., v. Dade County,
490 So. 2d 998 (Fla. 3d DCA 1986),
rev. den., 500 So. 2d 544 (Fla. 1986) .......................................................... passim
Johnson v. Metzinger,
116 Fla. 262, 156 So. 681 (1934) ........................................................................34
Leon County Educational Facilities Authority v. Hartsfield,
698 So. 2d 526 (Fla. 1997) .......................................................................... passim
vi
Markham v. Broward County,
825 So. 2d 472 (Fla. 4th DCA 2002) ...................................................................42
Metropolitan Dade County v. Brothers of the Good Shepherd,
714 So. 2d 573 (Fla. 3d DCA 1998) ....................................................................27
Oliver v. Mercaldi,
103 So. 2d 665 (Fla. 2d DCA 1958) ....................................................................34
Parker v. Hertz Corp.,
544 So. 2d 249 (Fla. 2d DCA 1989) ....................................................................22
Robbins v. Mount Sinai Medical Center,
748 So. 2d 349 (Fla. 3d DCA 1999),
rev. den., 767 So. 2d 459 (Fla. 2000) ........................................................... passim
School Board of Hernando County v. Mazourek,
46 So. 3d 65 (Fla. 5th DCA 2010) ................................................................ 21, 22
School Board of Hernando County v. Mazourek,
Case #H-27-CA-2009-000529 (2009) ................................................... 21, 22, 23
Sisco v. Rotenberg,
104 So. 2d 365 (Fla. 1958) ..................................................................................29
State Dept. of Revenue v. Gibbs,
342 So. 2d 562 (Fla. 1st DCA 1977) ...................................................................46
State v. Escambia County,
52 So. 2d 125 (Fla. 1951) ....................................................................................12
Straughn v. Camp,
293 So. 2d 689 (Fla. 1974) ...................................................................................13
The Crossings at Fleming Island Community Development Center v. Echeverri,
991 So. 2d 793 (Fla. 2008) ............................................................................ 43, 44
Thompson v. First National Bank of Hollywood,
321 So. 2d 466 (Fla. 4th DCA1975) ....................................................................38
vii
Trumbull Chevrolet Sales Co., Inc. v. Seawright,
134 So. 2d 829 (Fla. 1st DCA 1961),
cert. den., 143 So. 2d 491 (Fla. 1962) .................................................................37
Van Brocklin v. Tennessee,
117 U.S. 151 (1886) .............................................................................................39
Volusia County v. Aberdeen at Ormond Beach, L.P.,
760 So. 2d 126 (Fla. 2000) ..................................................................................11
Waldorff Ins. and Bonding, Inc. v. Eglin Nat’l Bank,
453 So. 2d 1383 (Fla. 1st DCA 1984) .......................................................... 27, 28
Ward v. Brown,
919 So. 2d 462 (Fla. 1st DCA 2005),
rev. den. 923 So. 2d 1165 (Fla. 2006) .......................................................... passim
Williams v. Jones, 326 So. 2d 425 (Fla. 1976) ........................................................13
Constitutional Provisions
U.S. Const., Art. IV, Section 3, cl. 2 ........................................................................39
Article VII, Section 3 (a), Constitution of Florida ..................................................... 6
Statutes and Session Laws:
§ 196.199 Florida Statutes ...................................................................................6, 14
§ 196.199(2)(b) Florida Statutes ...................................................................... passim
§ 196.199(7) Florida Statutes ............................................................................ 16, 30
§ 196.199(8) Florida Statutes ...................................................................................45
§ 196.199(8)(a) Florida Statutes ....................................................................... 44, 46
§ 197.432(9) Florida Statutes ...................................................................................45
§ 199.023(1)(d) Florida Statutes ..........................................................................6, 14
§ 199.023(1)(d) Florida Statutes (2005) .......................................................... passim
§ 689.10, Florida Statutes ........................................................................................37
Chapter 199, Florida Statutes ........................................................................... passim
Chapter 80-368, Laws of Florida ............................................................ 6, 13, 14, 17
Chapter 85-342, Laws of Florida. ............................................................................14
viii
Chapter 24500, Laws of Florida, Special Acts of 1947 ............................................. 3
Chapter 25-810, Laws of Florida, Special Acts of 1949 .....................................6, 13
Other Authorities
Black’s Law Dictionary, 4th Ed ...............................................................................40
Florida Attorney General Opinion 86-193 ...............................................................15
Florida Department of Revenue Rule 12D-13.046 ..................................................16
1
INTRODUCTION
This case arose with the entry of summary judgment for the Respondents,
taxation officials of Santa Rosa County.1 It is before the Court on a certificate of
great public importance by the First District Court of Appeal. The Petitioners here
are lessees of public property on Santa Rosa Island in Santa Rosa County. A
companion case where petitioners hold Santa Rosa Island leases from Escambia
County – 1108 Ariola v. Jones, Case Number SC11-2231 – is also before the Court
on a slightly different certified question from the First District. That case
addresses issues common to both cases, and will be referred to as the “companion
case.” The petitioners’ initial brief on the merits filed in the companion case is
adopted by reference in this case.
STATEMENT OF THE CASE AND THE FACTS
This case seeks review of a decision rendered by the First District Court of
Appeal, Accardo v. Brown, 63 So. 3d 798 (Fla. 1st DCA 2011) (A:1) which
concluded with these words:
We accordingly affirm the trial court's order. Given the significance
1 The record on appeal from the trial court consists of three divisions. Each
division has a number of volumes. References to the record are made with an “R”
indicating the record, followed by a number, indicating the division, a “V”
indicating the volume of that division, and the page number of the document, e.g.
(R1, V1, 110). The first division was previously supplemented, and references
thereto are made with “RSupp.” followed by the page number. References to the
Appendix are made with an “A:” followed by the tab and page number of the
appended document, e.g. (A:3, p.4).
2
of the issues presented herein, we certify to the Florida Supreme Court
the following as a question of great public importance:
WHETHER SECTION 196.199(2)(b), FLORIDA STATUTES, IS
INAPPLICABLE TO THE REAL PROPERTY AT ISSUE
BECAUSE APPELLANTS ARE THE EQUITABLE OWNERS OF
THAT PROPERTY?
This question properly focuses on the statute, which was enacted in 1980.
After referring to a definition in the intangible tax chapter, the statute states in part:
Such leasehold or other interest shall be taxed only as intangible
personal property pursuant to chapter 199, Florida Statutes 2005, if
rental payments are due in consideration of such leasehold or other
interest.2
§ 196.199(2)(b), Fla. Stat. (emphasis added).
All the Petitioners lease or sublease property from the county and all make
rental payments. The background of these lease transactions is important.
Deed to County; Leases of County Property. The Petitioners are private
lessees, assignees, or sub-lessees of 887 parcels of county-owned property on
Navarre Beach. While improvements have been built on most, a number of parcels
involved in this action have no improvements.
The chain of title is important: Santa Rosa Island was deeded to Escambia
2 The statute also states: “If no rental payments are due pursuant to the agreement
creating such leasehold or other interest, the leasehold or other interest shall be
taxed as real property. Nothing in this paragraph shall be deemed to exempt
personal property, buildings, or other real property improvements owned by the
lessee from ad valorem taxation.” (Emphasis added.)
3
County by the United States in 1947 (A:3). The deed required Escambia County to
“retain” the land for public purposes. The deed stated that Escambia shall use the
property for such purpose “as it shall deem to be in the public interest or be leased
by it from time to time in whole or part to such persons and for such purposes as
shall be deemed in the public interest.” (A:3).
The federal deed gave Escambia County authority to use or lease the lands,
“but [they were] never to be otherwise disposed of or conveyed” by the county to
private persons. (A:3, p.2). Since 1956, Santa Rosa County has leased Navarre
Beach (east of Pensacola Beach) from Escambia County; this lease is for 99 years
and includes a provision for automatic renewal. (A:4).
Legislative and County determination to lease to private interest. After
legislative action in 19473, the Escambia County Commission determined that
leases to private parties served a public purpose – a determination backed by both
legislative action and a decision of this Court – and leased property on Pensacola
Beach (near the western end of Santa Rosa Island) to private lessees through its
agency, the Santa Rosa Island Authority (“SRIA”).4
The 1949 legislative
3 Chapter 24500, Special Acts of 1947, Laws of Florida.
4
Copies of specific plaintiffs’ leases were attached to the First Amended
Complaint, and seven others were attached, as examples, to the affidavit of Dennis
Tackett. (RSupp., 2372). A copy of each plaintiff’s lease was included within two
4
determination that the leases should not be taxed has been revised over the years,
and that history is more fully set forth in Point I of the Argument, below.
Leases have some common terms and some that differ. Examination of the
leases from the county and of the affidavit of Dennis Tackett (RSupp., 2372)
demonstrate that there are some lease terms common to all the Petitioners’ leases,
but some leases contain a range of different terms.
Similarities in Petitioners’ Leases. All of the Petitioners’ leases require the
lessees to construct (at the lessees’ expense) specified improvements, and some
leases set forth a specified period of time within which to do so. Some of the
parcels do not yet have improvements.
All of the Petitioners’ leases provide that legal title to any building or any
improvement of a permanent character erected on the premises vests in the lessor
Santa Rosa County either “forthwith” or at the lease’s termination.
The leases all require lessees to repair or rebuild any building or
improvement damaged or destroyed by any cause so the building or improvement
is in as good and tenable condition as it was before the damage or destruction.
Under all leases, lessees may not remove any building or improvement of a
compact discs (“CDs”) submitted to the trial court prior to the summary judgment
hearing. (R1, V11, 1786).
5
permanent character from the leased premises and, on default, lessees shall forfeit
all rights of possession of the leased property.5 None of the leases grants any
Petitioner an option ever to purchase or otherwise acquire legal title to the land or
the leasehold improvements.
Differences in Petitioners’ Leases. Apart from these similarities, there are
substantial differences in many of the lease terms. This is true of such important
elements as the length of the lease6, the right to assign,
7 and the right to renew.
8
The renewal procedure also differs from lease to lease, some having an
option to renew and others having automatic renewal.9
5 All of the leases provide that, upon expiration or sooner termination of a lease,
the lessee shall have 15 days to remove all personal property, and that the lessee
must surrender possession of the land and improvements in as good state and
condition as reasonable use and wear permit.
6 Most of the leases at issue are for 99-year terms. Many of those have an option
for a 99-year renewal, initiated by the lessee giving Santa Rosa County written
notice of the election to renew at least six months before expiration of the original
term. Some leases have 40-year terms, with a similar option to renew for 40 years. 7 Some leases prohibit any assignments, subleases, or transfers of the lessees’
leasehold interest without prior written consent of the lessor. Some allow the
lessees to assign their leasehold interest, but prohibit sublease of the premises
without the lessor’s prior consent.
8 Some leases contain no renewal provision at all, and still others provide for a
renewal of 25 years. 9 Most of the leases granting lessees an option to renew require affirmative action
by the lessees to exercise their option to renew. Some leases declare that the lease
"shall renew automatically." Others have a "renewal option" subject to provisions
6
Legislative enactments involving the taxation of county leases. State and
County property is immune from taxation, but city property is exempt only where
“it is owned by a municipality and used exclusively by it for municipal or public
purposes.” Article VII, Section 3 (a), Constitution of Florida.
Though state- and county-owned properties are immune where the property
is leased to private interests, the Florida Legislature nonetheless has the power to
waive that immunity and set a method of taxation for the leases of county property.
Taxation of county-owned land leased to private interests. Under the
original legislative policy, adopted in 1949, the Santa Rosa Island leases were not
subject to taxation.10
In 1971, in a radical change, the Legislature made the
leasehold interests subject to local ad valorem taxes. This policy remained until
1980, when the Legislature enacted Chapter 80-368, Laws of Florida, later codified
in Florida Statutes § 196.199 and § 199.023(1)(d).11
The 1980 legislation defined leasehold or other interests of an initial term of
of the county-to-county lease (the renewal of which is "automatic"). No Petitioner's
lease uses words such as "perpetual," "for infinity," or "forever" to describe the
length of the lease term.
10
Chapter 25-810, Laws of Florida, Special Acts of 1949.
11
This section was repealed, but at the time of repeal § 196.199(2)(b) was
amended to retain the reference to § 199.023(1)(d)(2005). Copies of the statutes
are included at tab 6 of the Appendix.
7
less than 100 years in governmentally owned properties as “intangible personal
property,” if the leaseholds were undeveloped or predominantly used for
commercial or residential purposes, and if rent was payable for the leasehold.
Subsection 196.199(2)(b) directs that such leasehold or other interests are to be
taxed only as intangible personal property, while improvements and personal
property owned by a lessee are to be taxed as real property.
For a period following the 1980 legislation, the leases were taxed as the
Legislature directed and litigation involving government leases on Santa Rosa
Island resulted in appellate decisions upholding that construction of the law.12
In 2004, a Circuit Court in Santa Rosa County first approved the theory
around which much of the subsequent litigation has taken place – the theory that
the “benefits and burdens” of Navarre Beach residential leases somehow
established equitable ownership of leasehold improvements “for purposes of ad
valorem taxation,” an ownership that did not allow the seven lessee-plaintiffs full
control of the property and carried duties (such as payment of rent) that are
incompatible with ownership. This judgment was affirmed by a divided panel of
the First District Court of Appeal in Ward v. Brown, 919 So. 2d 462 (Fla. 1st DCA
2005), rev. den. 923 So. 2d 1165 (Fla. 2006). The opinion and Judge Benton’s
12
The Bell v. Bryan cases – Bell v. Bryan, 505 So. 2d 690 (Fla. 1st DCA), rev.
den., 513 So. 2d 1060 (Fla. 1987) (“Bell I”) and Bell v. Bryan, 519 So. 2d 1024
(Fla. 1st DCA 1988) (“Bell II”) – are discussed below.
8
dissent are discussed in the Argument below.
In 2006, for the first time, the Santa Rosa Property Appraiser included in the
tax assessments the land within Petitioners’ leaseholds13
and the Tax Collector
issued notices to collect taxes on both the land and the improvements. The
Petitioners instituted suit and both Respondents raised constitutional challenges to
Florida Statutes §§ 196.199(2)(b) and 199.023(1)(d) (2005) (R1, V11, 1787-95).
Petitioners moved to strike the affirmative defense, arguing that constitutional
officers do not have standing to challenge a law. (R1, V11, 1838-41).
The Trial Court proceedings. After discovery was conducted, cross motions
were filed and heard, resulting in an Order Granting Defendants’ Motion for
Summary Judgment and Denying Plaintiffs’ Motion for Summary Judgment and
Entry of Final Judgment (hereafter, “Judgment”). (A:2). In addition to ordering
that Petitioners could be required to pay local real estate taxes, the trial court
denied the motion to strike (A:2, pp.8-10); and held that the statutes are
unconstitutional. (A:2, pp.10-12). The order also approved the use of tax
certificates for the enforcement of such taxes. (A:2, p.6).
The District Court of Appeal decision. When the Judgment reached the First
13
In an earlier deposition, Respondent Brown, the Property Appraiser, had testified
that, in his opinion, the land involved in the Navarre Beach leases was owned as
follows: Escambia County has title, Santa Rosa County has equitable ownership,
and lessees are not to be taxed on the land, because the counties have the
ownership interests. (R3, V70, 62-63, 85-86).
9
District Court of Appeal, it was affirmed and the Court, relying on Ward v. Brown,
found that these lessees were “equitable owners of the property for ad valorem tax
purposes,” although it declined to address the standing or constitutionality issues.
Accardo, 63 So. 3d at 799 (A:1, p.2). The First District certified the question of
great public importance, Id., 63 So. 3d at 802 (A:1, p.9), and this Court accepted
jurisdiction.
SUMMARY OF ARGUMENT
The certified question in this case asks whether the statute, Section
196.199(2)(b), Fla. Stat., is inapplicable because the Petitioners are equitable
owners of the property. Petitioners do not agree that they are equitable owners;
they are lessees with no option to ever become owners of the property.
The statute is rather straightforward: It provides that, where there is a lease
of government property, used for residential purposes, upon which rental payments
are made, “such leasehold or other interest shall be taxed only as intangible
personal property....” The question certified should answer itself, for Section
196.199(2)(b) says that the leasehold or other interest14
held by a lessee of
government property, leased for an initial term of less than 100 years and on which
14
Fla. Stat. §199.023(1)(d) (2005), which is incorporated into 196.199(2)(b),
includes “all leasehold or other possessory interests in real property” owned by the
government, within the definition of “intangible personal property.”
10
rent is paid, can be taxed only as intangible personal property. The statute
precludes taxing the land if a leaseholder is declared to have an “other interest,”
such as “equitable ownership,” if the lessee is not an actual owner of the property
under Florida law.
In Point I of the Argument, Petitioners submit that the decision on how the
leasehold interest shall be taxed is a proper exercise of legislative power.
Moreover, there are property appraisers (and courts) in other Florida counties who
are applying the statute as it is written; in those cases, the leasehold interests,
including improvements, are taxed solely as intangible personal property.
Point II demonstrates that the leases in this case – most of them quite
different from those in Ward v. Brown – do not provide the basis for a
determination of equitable ownership.
Point III submits that, under the federal deed, the County does not have the
power to give ownership, including equitable ownership, to private interests.
Point IV argues that the tax collector has no authority to challenge
legislation that directs the method of taxation, and Point V shows that there can be
no lien on the property, to enforce collection of taxes.
The Petitioners respectfully adopt and incorporate by reference the
arguments contained in petitioners’ initial brief on the merits recently filed in the
companion case, 1108 Ariola v. Jones, Case Number SC11-2231.
11
STANDARD OF REVIEW
This proceeding seeks review of the decision of the First District Court of
Appeal, which affirmed the summary final judgment entered in the Circuit Court for
Santa Rosa County, Florida. The standard of review is de novo. Volusia County v.
Aberdeen at Ormond Beach, L.P., 760 So. 2d 126, 130 (Fla. 2000).
ARGUMENT
I.
FROM THE ORIGINAL ACQUISITION BY ESCAMBIA COUNTY,
THE LEGISLATIVE DECISIONS ON TAXATION OF LEASES HAVE
BEEN RESPECTED BY THIS COURT.
A. The 1980 Legislation Should Be Applied as It Is Written.
The critical issue in this case is whether the legislative direction to tax the
government leases only as intangible property can be displaced by a court-invented
concept – “equitable owner of the property for ad valorem taxation purposes.” The
essence of this point is that, although legislative policy has shifted from time to
time, this Court has always recognized the power of the Legislature to set the
policy. The question therefore is not whether the current legislative policy is the
best policy but, rather, whether the Legislature still has the power which was
exercised and upheld when the 1949 Legislature provided exemption from taxation
and again when the 1971 Legislature elected to have the leases taxed on an ad
valorem basis. In 1980, the Legislature elected to have the leases taxed “only” as
12
intangible property and that decision should be respected, just as the Court has
upheld earlier policies adopted by general law.
History of Santa Rosa Island. Much of the early history of government
dealings on the island was recounted by Justice Chapman in State v. Escambia
County, 52 So. 2d 125 (Fla. 1951). That opinion described the Santa Rosa Island
as a place with “attractive beaches” and observed:
If adequate facilities were afforded for the use of the beaches (the
island) could be used as a recreational center for the general public …
[and] would, if developed, attract many tourists at all seasons of the
year to the area, thereby promoting the business and economic
interests of the community.”
Id. at 126, 127 (emphasis added).
In validating the revenue bonds at issue there, the Court quoted extensively
from the 1947 act, noting that it was aimed at promoting, among other facilities,
“hotels, restaurants, eating places, cottages, homes, dwellings, tourist camps and
other places of lodging and eating places of all kinds…” Id. at 127 (emphasis
added).
The Court rejected the argument that challenged the public purpose, and
observed that there was abundant case authority for the development of facilities to
promote recreation in Florida. Id. at 129.
Exemption from taxes was an important feature of the development of Santa
13
Rosa Island15
and was the policy of the Legislature, adhered to by both Escambia
and Santa Rosa taxing authorities.
The Legislature adopts various approaches to taxation of government
leases. Over the years, there have been shifts in legislative policy and the
application of the law by tax officials; and although there has been some confusion
in court decisions, this Court has consistently upheld legislative policy
determinations made by general law.16
The 1971 Legislature made a significant departure from the policy
established in 1947 and subjected the leaseholds to local ad valorem taxation. This
legislative determination to repeal the exemption was upheld in Straughn v. Camp,
293 So. 2d 689 (Fla. 1974).
The next chapter of the saga occurred when lessees challenged the
constitutionality of the statutes taxing the leasehold interests and this Court held
that the Legislature had the power to classify those interests as real property so as
to impose a tax burden. Williams v. Jones, 326 So. 2d 425 (Fla. 1976).
The 1980 legislative act. In 1980, the Legislature enacted Chapter 80-368,
15
In 1949, this was made explicit by enactment of Chapter 25-810, Laws of
Florida, Special Acts of 1949. See: Straughn v. Camp, 293 So. 2d 689 at 691, 692
(Fla. 1974).
16
In a 1978 case, Archer v. Marshall, 355 So. 2d 781 (Fla. 1978), the Court did
invalidate a special act.
14
Laws of Florida, later codified in Florida Statutes §§ 196.199 and 196.023(1)(d).17
The subsection controlling taxation in this case is 196.199 (2)(b) which states:
b) Except as provided in paragraph (c), the exemption provided by
this subsection shall not apply to those portions of a leasehold or
other interest defined by s. 199.023(1)(d), Florida Statutes 2005,
subject to the provisions of subsection (7). Such leasehold or other
interest shall be taxed only as intangible personal property pursuant to
chapter 199, Florida Statutes 2005, if rental payments are due in
consideration of such leasehold or other interest. All applicable
collection, administration, and enforcement provisions of chapter 199,
Florida Statutes 2005, shall apply to taxation of such leaseholds. If no
rental payments are due pursuant to the agreement creating such
leasehold or other interest, the leasehold or other interest shall be
taxed as real property. Nothing in this paragraph shall be deemed to
exempt personal property, buildings, or other real property
improvements owned by the lessee from ad valorem taxation.
(Emphasis added.)
To completely understand the statute, we have to examine Section
199.023(1)(d), Florida Statutes 2005 which provides the definition. This section
adds language to that adopted with the 1980 amendment, Chapter 80-368, Laws of
Florida so that, in 2005, Section 199.023(1)(d) read:
…[A]ll leasehold or other possessory interests in real property owned
by the United States, the state, any political subdivision of the
state,…which are undeveloped or predominantly used for residential
or commercial purposes and upon which rental payment are due.
(Emphasis added, the word “other” being added by Chapter 85-342, Laws of
Florida.)
17
This section was repealed, but at the time of repeal, Section 196.199(2)(b) was
amended to retain the reference to Section 199.023(1)(d)(2005).
15
The legislative intent is clearly set forth both in the taxing statute
(“leasehold or other interest”) and in the definition, that (“…all leasehold or other
possessory interests”) “shall be taxed only as intangible personal property.”
The Petitioners’ leaseholds all are on county property that is either
undeveloped or used for residential or commercial purposes, and rental payments
are due under their leases.
The statutes should be read as they are written. The legislature has directed
that the leasehold or other possessory interests be taxed as intangible personal
property and the courts are not free to invent a new creature that nullifies the
legislative directive.
The Florida law on taxation of leases of property owned by the state or its
political sub-divisions is governed by very clear principles: Where leases of
government property, such as Petitioners,’ require rental payments, they are to be
taxed solely as intangibles.
The law was clear to the Attorney General of Florida when he issued an
advisory opinion to the Executive Director of the Department of Revenue in 1986,
stating that Chapter 80-368 should be interpreted “… to provide for the taxation of
leasehold interests in governmentally owned property as intangible personal
property pursuant to Ch. 199, FS.”18
(Florida Attorney General Opinion 86-193,
18
Florida AGO 86-193 went on to observe: “Formerly leasehold interests in
16
emphasis added.)
The legislation is also clear to the Florida Department of Revenue, which
has promulgated Rule 12D-13.046, entitled “Taxation of Governmental Property
Under Lease to Non-Governmental Lessee.” The rule states:
When property is owned by a governmental unit and is leased to a
non-governmental lessee and has not been exempted from taxation,
the tax should be assessed to the non-governmental lessee. If no
rental payments are due pursuant to the agreement creating the
leasehold estate, or if the property meets the requirements of Section
196.199(7), the leasehold shall be taxed as real property. . . . If rental
payments are due, the leasehold estate shall be taxed as intangible
personal property in accordance with Chapter 199, F.S., and
delinquencies shall be processed as in the case of other intangible
personal property.
Id. (emphasis added). 19
The Department also provides a form for lessees to use
when submitting payment of intangible taxes on government leasehold property,
Form DR-601G, which repeats the language of the Rule (A:7).
In this case, none of the Petitioners’ leases falls into the 100-year or bond-
financed exception and all leases require payment of rent. The court below
government property were subject to ad valorem taxation when not used for public
purposes.”
19
Section 196.199(7), mentioned in the Rule, provides an exception, even when
rent is paid: Where the property is “originally leased for 100 years or more,
exclusive of renewal options, or property which is financed, acquired, or
maintained utilizing in whole or in part funds acquired through the issuance of
bonds … [it] shall be deemed to be owned …”
17
reached its decision by ignoring clearly established legislative policy.
Litigation following the 1980 amendment. There have been a number of
cases relating to the Santa Rosa Island property since the 1980 amendment.
After the Legislature’s enactment of Chapter 80-368, Laws of Florida, the
Property Appraiser for Escambia County (of which Navarre Beach was then a
part), took the position that leaseholders on Santa Rosa Island were the beneficial
owners of their leasehold improvements.
The Property Appraiser’s position was that the lessee/petitioner owns all
beneficial interests in the improvements upon the subject land and should be
deemed to own the improvements for purposes of Chapter 80-368. Therefore, he
argued, the improvements should be taxed as ad valorem real property. See
attachment to affidavit of Merrell Fairchild, submitted with Petitioners’ second
request for judicial notice in this action. (RSupp., 2327-28.)
In the litigation that followed the Adjustment Board’s decision, counsel for
the Tax Collector argued that, although legal title to the leasehold improvements
was vested in Escambia County, they “can be sold, mortgaged . . . or used as the
taxpayer sees fit,” and were therefore actually owned by the lessees. (RSupp.,
2334-5.)
In Bell I, the First District affirmed summary judgment for the leaseholders,
addressing the contention of the taxing authorities that the lessees “owned” the
18
improvements, although legal title was vested in Escambia County. After referring
to Escambia County’s ownership, Judge Nimmons wrote: “We can find no basis
in law or reason for determining that the improvements on the real property are not
as much a part of the leasehold as the real property itself.” Id. at 691-92.
In the second Bell case, the Tax Collector (and the Property Appraiser who
had intervened), acknowledged that legal title to the land, the buildings, and other
improvements was vested in Escambia County, but argued that the real property
taxes they assessed were not on the lessees’ leasehold estates. The officials’
position was that the lessees’ interests in the real property improvements on the
demised premises had been converted into “ownership.” (RSupp., 2342-63.)
This second case was reviewed in Bell II, which relied upon Bell I. Judge
Shivers wrote to affirm the dismissal of the Tax Collector’s suit based on the
conclusion that the “assessments made . . . were against their leasehold interests,
which by Florida law are defined as intangibles . . .” Bell II, 519 So. 2d at 1024
(emphasis added).
The taxing officials argued in the Bell cases that the leaseholders were
beneficial owners of the improvements and that the improvements should be taxed
as real property, pursuant to the last sentence in Section 196.199(2)(b), Florida
Statutes. It is implicit in the Bell decisions that the appellate court considered and
rejected the “equitable” or “beneficial” ownership argument in holding that
19
Escambia owned the improvements. In fact, the First District panel that decided the
companion case specifically concluded that the equitable ownership issue had been
considered in Bell I. See, 1108 Ariola, LLC v. Jones, 71 So. 3d 892, 898 (Fla. 1st
DCA 2011), rev. granted, SC11-2231 (“the ground that the issue of equitable
ownership was not before the court in Bell I…has been disproved in this case…”)
From 1988 through 2000, the Escambia and Santa Rosa property appraisers
and tax collectors continued to regard the lessees’ interests as intangible personal
property, and thus not subject to real property taxes.
Then, for the tax year 2001, Respondent Brown, as Santa Rosa County
Property Appraiser, appraised the improvements on a limited number of Navarre
Beach leases as real property.20
The improvements were placed on Santa Rosa’s
2001 tax roll and the former Santa Rosa Tax Collector issued 2001 tax notices for
those real property taxes. Litigation led to the decision in Ward v. Brown, 919 So.
2d 462 (Fla. 1st DCA 2005), rev. den., 923 So. 2d 1165 (Fla. 2006).21
In contrast to the Bell cases, Ward – which held that there was equitable
ownership for purposes of taxation – was not a unanimous decision. Judge Benton
pointed out in dissent that Bell I dealt with the issue of “equitable ownership,”
20
Navarre Beach became part of Santa Rosa County in 1991.
21
Donald Partington, counsel for lessees in the Ward case, testified by affidavit
that no evidence of the lower court proceedings in the Bell cases was presented to
the trial court in Ward. (RSupp., 2369-71).
20
stating, “We rejected exactly the same ‘novel proposition’ in Bell (citation omitted)
and should do so again, as a matter of stare decisis.” Ward, 919 So. 2d at 465.
Judge Benton spelled out the nature of the Bell I decision:
The majority opinion contends that Bell v. Bryan “is not controlling
because the issue of equitable ownership was not addressed.” . . . But
nothing else could have been addressed in Bell v. Bryan. Legal title
has never been in question. The issue in Bell v. Bryan, like the issue
here, was neither more or less than whether the lessees owned real
property improvements for ad valorem tax purposes.
Id. at 470 (emphasis added).
Judge Benton’s dissent addressed the fundamental question of ownership
and, in a statement quite similar to that of Judge Nimmons in Bell I, concluded
that, as provided in the leases, the property belonged to the government:
In my view, moreover, even if we were to ignore a quarter century’s
practice, the real property improvements, like the land, are the
property of the sovereign, are subject to the same leases the land is,
and are no more amenable to local ad valorem taxes than the land
itself.
Id. at 465 (emphasis added).
Petitioners respectfully submit that Ward22
was wrongly decided and that
Judge Benton’s opinion – an opinion that respects precedent as well as the
legislative policy decision – is the proper conclusion. The Bell cases state the law
correctly, and Petitioners’ leasehold improvements are not subject to local ad
22
Ward distinguished Bell I by stating that equitable ownership had not been
presented there (919 So. 2d 464, n. 2); but that statement in Ward “has been
disproved.” 1108 Ariola, 71 So. 3d at 898.
21
valorem tax. As we will see next, other courts depart from the reasoning of Ward
and Accardo.
B. Leaseholds of Government Property Are Treated Differently in Other
Districts.
Case authority from the Fifth District. Although Petitioners do not know
how government leases are treated in all areas of the state, it is clear that the Fifth
District of Florida operates under rules that conflict with those of the First District.
It also appears that property appraisers within the Fifth District construe the 1980
law as it is written.
In School Board of Hernando County v. Mazourek, 46 So. 3d 65 (Fla. 5th
DCA 2010), the Second District upheld a trial court decision contrary to the First
District decision reviewed in this case. Although the case resulted in a per curiam
affirmance, and therefore could not be the basis for conflict jurisdiction, it is useful
to examine the reasoning of the trial court,23
because it demonstrates that other
courts understand the clear meaning of the statute. Indeed, it is significant that the
Hernando Property Appraiser was the defendant and the school board was
23
A certified copy of the trial court Order of Dismissal with Prejudice in School
Board of Hernando County v. Mazourek, Case No. H-27-CA-2009-000529 (2009),
is included in the request for judicial notice Petitioners are filing herewith, and a
copy is also in the Appendix at (A:5). Its reasoning has been cited in a
recommended hearing order in an administrative hearing in Hernando County v.
Department of Revenue, 2011 WL 6957570 (Fla. Div. Admin. Hrgs. 2011).
22
attempting to have Brooksville Regional Hospital, a for-profit county-leased
facility, taxed on a basis other than the intangible tax, as directed by the
Legislature. In response to the pleadings of the school board, “[t]he Property
Appraiser point[ed] out that the 1980 Legislature reclassified most leasehold
interests in real property as intangible personal property and directed that they be
assessed by the State Department of Revenue at the intangible personal property
tax rate. . . . ”24
Among the theories advanced by the school board was the theory of
equitable ownership. In rejecting that claim, Judge Merritt analyzed the cases in
which equitable ownership had been argued,25
and said:
The cases which have determined that a taxpayer has “equitable
ownership” in lease property involve very long leases (over 100 years
or 99 years renewing perpetually), a sale/lease-back arrangement
where the “tenant” is really the owner of the property, or a lease of
vacant land where the tenant builds the improvements and the lease
specifically acknowledges the tenant’s ownership of the
improvements until termination of the lease.
School Board of Hernando County, Order of Dismissal with Prejudice, (A:5, p.9).
24
Order of Dismissal With Prejudice, (A:5, p.5).
25
The cases analyzed by Judge Merritt include Hialeah, Inc. v. Dade County, 490
So. 2d 998 (Fla. 3d DCA 1986), rev. den., 500 So. 2d 544 (Fla. 1986); Leon
County Educational Facilities Authority v. Hartsfield, 698 So. 2d 526 (Fla. 1997);
First Union National Bank v. Ford, 636 So. 2d 523 (Fla. 5th DCA 1993); Robbins
v. Mount Sinai Medical Center, 748 So. 2d 349 (Fla. 3d DCA 1999), rev. den., 767
So. 2d 459 (Fla. 2000); Broward County v. Eller Drive L.P., 939 So. 2d 130 (Fla.
4th DCA 2006), rev. den., 952 So. 2d 1189 (Fla. 2007); and Parker v. Hertz Corp.,
544 So. 2d 249 (Fla. 2d DCA 1989). (A:5, pp.9-10).
23
In granting the property appraiser’s motion for judgment on the pleadings,
Judge Merritt said:
The Court does not pass upon the efficacy of social policy wherein the
state, county, or subdivisions thereof may have reason to lease its
property to private entities for the benefit or partial benefit of the
public, such as for the provision of hospital services within the
community, even if such purposes are proprietary to some extent and
not in the nature of a fundamental government function and wholly
public purpose. That is not the province of the Court unless
constitutionally violative. However, the “immunity” enjoyed by the
State and County . . . which is so fundamental an attribute of property
of the state and county . . . could well be posited as the very
mechanism or carrot which enables such decisions to be made as the
best interests of the public may from time to time require.
Id. (A:5, p.13).
II.
THE PETITONERS’ LEASES DO NOT PROVIDE A BASIS FOR A
FINDING OF EQUITABLE OWNERSHIP
Point I dealt with the statutes applicable here, particularly Section
196.199(2)(b), because of the district court’s certification. As previously indicated,
Petitioners do not concede that they are equitable owners of the leasehold property,
based upon the cases cited in the First District opinion. In the companion case,
1108 Ariola, a different panel of the First District certified what we believe, with
respect, to be the question that needs to be answered first in this case:
Whether the appellant-leaseholders are equitable owners of the
leasehold improvements on the subject real property when they have
neither a perpetual lease of the underlying property nor an option to
24
purchase such property for nominal value.
(See, A:8).
The present case involves taxation of both improvements and the land, but
the inquiry as to whether equitable ownership exists, is vital to both cases. If the
foregoing question is answered in the negative in 1108 Ariola, no further
consideration regarding the application of the statute would be required in the
instant case. This point addresses the issue of whether the leases here – leases that
have a variety of terms – can be the basis for a finding of equitable ownership.
The Statement of Facts, above, demonstrates that the leases at issue here do
not convey the right to future ownership and provide no basis for a finding of
equitable ownership.
Indeed, all the leases contain provisions that are entirely inconsistent with
ownership. If there were ownership, there would be no payment of rent, the
leaseholders would have no obligation to construct, insure, or replace the property,
and they would be free to move the improvements to another location. The leases
do not give them the rights that ownership would provide. Moreover, as Judges
Nimmons and Benton have written, the leases place ownership of the
improvements in the county.
This new creature, “equitable ownership for purposes of ad valorem
taxation,” is simply an invention of courts below, an attempt to displace a
25
legislative policy judgment with a new concept, unapproved by the Legislature,
and unknown in the common law.
A. Petitioners Do Not Have Equitable Ownership in the Land.
The First District has decided that, although the Petitioners do not have title
to the land or improvements, they can be taxed because they are “equitable owners
for ad valorem taxation purposes.”
Sections 199.023(1)(d) (2005) and 196.199(2)(b), Florida Statutes, do not
allow that option; instead, they declare that these leaseholds are taxed only as
"intangible personal property." The taxing authorities attempt, through alchemy, to
turn leases into ownership.
Respondents’ argument that Petitioners are “equitable owners” of the land is
based on the doctrine of “equitable conversion,” which is derived from common
law. The doctrine arose out of agreements for deed under the terms of which the
purchaser obtained possession of the property and all “burdens and benefits” of
ownership, but the seller retained legal title to secure payment of the purchase
price. Once the seller was paid in full, a deed was executed, giving the purchaser
title to the property. These “agreements for deed” were held to convey equitable or
beneficial interest in the property to the purchaser, with the seller deemed to hold
only “naked title,” “legal title,” or “bare title” to the property. Under such
circumstances, the purchaser was held to be the “equitable owner” of the property.
26
Many Florida cases have recognized and applied the equitable conversion doctrine.
The Legislature has deemed a contract for deed to be a mortgage.
But no lessee here has entered into an arrangement with Santa Rosa County
that in any way resembles an agreement for deed or a mortgage. There is no future
date when a debt is to be paid off and legal title to land or improvements is to be
delivered to the lessee. The leases call for monthly payments of rent, not principal
and interest like an installment sales agreement or mortgage.
The leases require that lessees will surrender possession of the land and
improvements in good condition and repair upon the expiration of the lease. All of
Petitioners’ leases provide that legal title to any building or improvement of a
permanent character erected on the premises shall vest in Santa Rosa County,
subject to the terms of the leases. The leases all contain clauses requiring the
lessees to repair or rebuild any building or improvement damaged or destroyed by
fire, windstorm, water, or any cause so as to place the same in as good and tenable
condition as it was before the event causing such damage or destruction. Further,
pursuant to the lease agreements, no Petitioner may remove any building or
improvement of a permanent character from the leased premises. Clearly, the
ultimate benefit of ownership remains in the County, not in the lessees. See, B.W.B.
Corp. v. Muscare, 349 So. 2d 183 (Fla. 3d DCA 1977); Estate of Sweet v. First
Nat’l Bank of Clearwater, 254 So. 2d 562 (Fla. 2d DCA 1971), rev. den., 259 So.
27
2d 717 (Fla. 1972); Waldorff Ins. and Bonding, Inc. v. Eglin Nat’l Bank, 453 So.
2d 1383 (Fla. 1st DCA 1984); Bowman v. Saltsman, 736 So. 2d 144 (Fla. 5th DCA
1999).
1. While Citing Robbins, the Opinion Below Actually Conflicts With
That Case.
The opinion in the court below relied upon and quoted from Robbins v. Mt.
Sinai Medical Center, Inc., 748 So. 2d 349 (Fla. 3d DCA 1999), rev. den., 767 So.
2d 459 (Fla. 2000), in its discussion of the general concept of leasehold “benefits
and burdens” that might lead to a determination that a lessee is an equitable owner
of the leased property. Accardo, 63 So. 3d at 801 (A:1, pp. 7-8). In fact, the ruling
in Accardo expressly and directly conflicts with the decision of the Third District
in Robbins.
In Robbins, the non-profit lessee of certain medical equipment filed suit
seeking a declaration that it was the equitable owner of the equipment, in the hope
that the property could be found exempt from ad valorem taxation. The trial court
accepted the argument, finding lessee to be the equitable owner of the equipment,
because it insured the equipment, maintained and repaired it, was liable for taxes
(under the leases), and had the option at the end of the leases to purchase the items
for fair market value.
The Third District discussed the cases of Leon County Education Facilities
Authority v. Hartsfield, 698 So. 2d 526 (Fla. 1997), Metropolitan Dade County v.
28
Brothers of the Good Shepherd, 714 So. 2d 573 (Fla. 3d DCA 1998), and Hialeah,
Inc. v. Dade County, 490 So. 2d 998 (Fla. 3d DCA), rev. den., 500 So. 2d 544 (Fla.
1986). Making the point that the leases in Robbins did not allow the lessee to
purchase the equipment for nominal value at the end of the term, the district court
reversed the summary judgment, concluding that the leases did not convey
equitable title to the lessee.
The decision below directly conflicts with Robbins, and, by indicating that
Hialeah supported its ruling, it expressly conflicts with these correct statements of
the law in Robbins:
…Florida courts have only granted a lessee equitable ownership of
leased property when that lessee retained an option to purchase the
leased property for nominal value. See Leon County Educational
Facilities Authority, 698 So. 2d at 527 (lessee who could purchase a
dormitory and food service project for one dollar deemed the project's
equitable owner); First Union National Bank of Florida v. Ford, 636
So. 2d 523 (Fla. 5th DCA 1993) (lessee named equitable owner of
leased property because title would pass automatically to lessee upon
full payment of debt); Hialeah, Inc. v. Dade County, 490 So. 2d 998
(lessee deemed equitable owner because lessee could purchase the
property for $100 upon full payment of debt).
Robbins, 748 So. 2d at 351.
Here, there is no option to purchase the improvements or the land at any
price, let alone a nominal one. There is an express and direct conflict with Robbins
that needs to be resolved. Robbins is supported by the cases it cites in the quotation
and discussion above, but also by B.W.B. Corp., Estate of Sweet, Waldorff Ins., and
29
Bowman. Petitioners urge the Court to approve the statement in Robbins, quoted
above, to recognize that equitable conversion, resulting in equitable ownership by
the lessee, cannot result from these leases, and to quash the decision of the First
District in the present action.
Before leaving the discussion of Robbins, petitioners acknowledge that the
court below expressed the view that, in the absence of an option to purchase, the
ability of some lessees to renew their leases for “additional ninety-nine year terms”
should be treated as a legal equivalent to a purchase. Accardo, 63 So. 3d at 801
(A:1, p.8). Because in Sisco v. Rotenberg, 104 So. 2d 365, 368 (Fla. 1958), this
Court declined to construe a similar lease renewal provision to allow more than
one renewal (“due to [courts’] disfavor of…perpetual leases”), the decision in this
case cannot rest on an assumption by the court below that multiple renewals will
be permitted.
It is rather obvious that at the end of the lease term -- being allowed to
continue paying rent and to renew the burdens of the lease which are discussed at
p.27 above -- are not the legal equivalent of becoming legal owner by paying a
nominal amount, as the law requires for equitable ownership to exist. Robbins. The
reasoning used by the court below cannot withstand careful analysis.
There is another reason why this Court should disapprove the district court’s
conclusion that the renewal of a ninety-nine year lease is grounds for taxing a
30
lessee as an owner of the property. The Florida Legislature addressed that very
argument in the 1980 enactment, by including the following in Section 196.199(7):
“Property which is originally leased for 100 years or more, exclusive of renewal
options, …shall be deemed to be owned for purposes of this section.” (Emphasis
added). By the very words the legislature chose to use here, a ninety-nine year
lease with a renewal option is not deemed to be owned by the lessee.
To accept the decision below would, in essence, approve an amendment to the
statute, so that it would read: “Property which is originally leased for 100 years or
more, inclusive of renewal options…shall be deemed to be owned for purposes of
this section.” It cannot be seriously questioned that all the First District has done
here is “deem” that Petitioners are owners -- for the sole purpose of taxation,
relying on the renewal options. Besides the inappropriate intrusion into the
Legislature’s domain, the court below also treats those with a renewal provision for
only 40 years or 25 years or with no right of renewal at all, exactly the same as a
lessee with a ninety-nine year renewal. The decision cannot stand.
2. While Citing Hialeah, the Opinion Below Actually Conflicts
With That Case.
The opinion below included a quote from Hialeah (490 So. 2d at 1000),
centered on the perspective that if “government merely holds legal title as
security,” the lessee is treated as the equitable owner. Accardo, 63 So. 2d at 802
(A:1, pp. 8-9). The word “security” is crucial to the analysis and helps to
31
demonstrate the express and direct conflict between the instant case and Hialeah.
A review of the facts in the earlier case is instructive. The City of Hialeah
bought property from a private corporation, and leased it back to the company to
run a horse racetrack. The city borrowed the purchase money from two banks and
gave notes and a mortgage to secure payment. The city then charged the
corporation, Hialeah, Inc., a lease fee equivalent to the combined loan payments it
owed to the banks. Hialeah, 490 So. 2d at 998-99.
In fact, the company made those payments directly to the banks, and covered
all other expenses relative to the property. Id., at 999. Of major significance is the
fact that the corporation was obligated to pay the lease payments even if the
improvements were destroyed or the property taken by eminent domain. Id. Once
the corporation had paid the city’s debt, it could acquire title to the property
(market value over $11.4 million) for a nominal sum ($100). Hialeah, 490 So. 2d
at 1001.
The Third District reviewed these facts and concluded that “the instant
agreement [i.e., the lease] was made for the purpose of securing money and
therefore must be deemed a mortgage.” Hialeah, 490 So 2d at 1001. Thus, Hialeah,
Inc. was deemed to be the equitable owner of the property, and the city was the
holder of bare legal title “as security” for the debt. Id. The corporation was
therefore liable for ad valorem taxes.
32
The lease agreements in the present case are not mortgages. The lessees have
no option to purchase the property (or the improvements thereon) for a nominal
value because they are not paying a mortgage debt -- they are paying mere lease
fees. Both the trial court and the district court were in error to rely on Hialeah; it
does not support a finding of equitable ownership by the petitioners here.
Leon County cited Hialeah with approval because the transaction in Leon
County had virtually the same features, but with a role reversal: The government
agency (the Authority) leased the property from a private company, SRH, which
arranged the financing.26
This Court held that the Authority, as lessee, was the
equitable owner because it had “virtually all the benefits and burdens of
ownership” and therefore the property was immune from taxation. Leon County,
698 So. 2d at 530.
Although this Court in Leon County did not refer to the lease as a mortgage,
as the Third District did in Hialeah, it is clear that the same pattern was present in
both cases: legal title in one entity for financing purposes, a lease granted to the
26
The Court found: 1) SRH held only “bare title” to the property; 2) SRH had been
created for the sole purpose of securing financing; 3) the only purpose for SRH
was to act as a “conduit” to collect the rental payments from the lessee and use
them to retire the certificates of participation that had been issued to finance the
project; the legal owner had absolutely no “burdens and benefits” of ownership; 4)
any net proceeds in excess of the amount owed the certificate holders were to be
paid to the lessee; 5) the lessee had the option to purchase the property for one
dollar ($1.00) upon satisfaction of the indebtedness; and 6) the lessee had been
created through legislation that was clearly intended to exempt this type of project
from ad valorem taxation.
33
entity ultimately destined to own it, lease payments made directly to the lessor’s
creditors to satisfy its purchase money obligation, and an option for lessee to
purchase legal title for a nominal sum, after the lessor’s debt had been satisfied.
The holding in the present case likewise directly and expressly conflicts with Leon
County.
B. The Leases Grant Petitioners No Equitable Interest In The Land.
Historically, a lease has been viewed as providing the lessee with only a
possessory interest during the lease term. The lessee was never considered an
equitable owner of the property covered by the lease.
Most leases (including those at issue here) contain covenants fully protective
of the owner’s fee simple interest in the leased premises. Such standard covenants
include provisions requiring a lessee to: (1) maintain the property in good
condition and repair; (2) keep the property insured against casualty losses; (3)
maintain liability insurance to protect the lessor and lessee; and (4) pay any taxes
assessed on the property. On the benefit side, a lease grants the lessee the right of
possession and control of the premises during the lease term.
Unless the document says otherwise, a lease grants to the lessee the right to
rent the premises and retain the rental income, to sublease the property, and to
assign the leasehold to a third party. “[U]nder common law a tenant has the right to
assign his leasehold interest without the consent of the lessor.” Fernandez v.
34
Vazquez, 397 So. 2d 1171, 1172 (Fla. 3d DCA 1981), citing Frissell v. Nichols, 94
Fla. 403, 114 So. 431 (1927).
In the absence of an express agreement to the contrary, a tenant has a
property right in the premises that may stand as security for a loan. See, e.g.,
Oliver v. Mercaldi, 103 So. 2d 665, 667 (Fla. 2d DCA 1958), citing Johnson v.
Metzinger, 116 Fla. 262, 156 So. 681 (1934) (“The Supreme Court of Florida has
specifically recognized the mortgaging or pledging of leasehold interests in
realty.”). Respondent Brown agreed that none of these provisions is unusual in the
context of lease agreements between private parties. (R1, V15, Brown 46-49).
The existence of petitioners’ rights to assign, rent or mortgage their
leaseholds do not bestow upon them any ownership interest. These are ordinary
benefits which cannot serve to transform these leases into a conveyance of
ownership. The District Court erred in so ruling.
The question of when a court may declare the existence of equitable
ownership is treated extensively in the initial brief of the petitioners’ companion
case, 1108 Ariola v. Jones, Case No. SC11-2231, which discussion and argument
is respectfully adopted and incorporated herein by reference.27
Finally, any suggestion that equitable principles require a finding of
ownership in the lessees must be based on a determination that the record title
27
Petitioners intend to file a motion to consolidate these two cases, to be briefed
separately, but to be considered by the Court, together.
35
owner is not to be considered the actual owner of the premises. In this case, the
First District did not address that very basic point, except to quote Hialeah
regarding the government holding title as “security,” which of course is not the
case here. Accardo, 63 So. 3d 802 (A:1, pp.8-9).
Petitioners pose the following question: What is the equity of a situation
where there are three different approaches to taxation of the Santa Rosa Island
government leases: One group of lessees is taxed on the principles established by
the Bell v. Bryan cases, which recognize the legislative decision to treat the leases
only as intangible personal property (see, 1108 Ariola, 71 So. 3d at 897); a second
group (in Escambia County) is taxed on improvements only (Id.); and the third
group (in Santa Rosa County) has both land and improvements taxed as though the
lessees were owners.
The summary judgment order gives no guidance on those issues. The
opinion of the First District here is at least forthright: It discloses and labels the
new creature: Equitable ownership for ad valorem tax purposes. Accardo, 63 So.
3d at 801-2 (A:1, pp.7-8).
The difficulty with this is that the Legislature has decided that the leases are
to be treated only as intangibles and a court is not free to conjure up a concept that
displaces the legislative determination. This Court has stated clearly that: “In the
field of taxation particularly, the Legislature possesses great freedom in
36
classification.” Eastern Airlines, Inc. v. Department of Revenue, 455 So. 2d 311,
314 (Fla. 1984). It is not the role of the county property appraiser, nor the courts, to
create a new classification, which is what has happened here. The decision below
should be quashed.
III.
THE UNITED STATES CONSTITUTION PROHIBITS OWNERSHIP OF
NAVARRE BEACH PARCELS BY PRIVATE PERSONS OR ENTITIES.
A. Pursuant to the Federal Grant, Escambia County Owns the Land and
Is Powerless to Convey Ownership to Petitioners.
The land at Navarre Beach was deeded from the United States to Escambia
County in 1947, by a Deed of Conveyance limiting what Escambia could do with
the property. (R2, V2, 232-3; A:3, pp.1-2). The deed allows the County to convey
the property “back to the Federal Government, or to the State of Florida or any
agency thereof.” But if the county retains it, the property:
shall...be used...for such purpose as it shall deem to be in the public
interest or be leased by it...to such persons and for such purposes as it
shall deem to be in the public interest and upon such terms and
conditions as it shall fix...but never to be otherwise disposed of or
conveyed by it...
Escambia County, through the SRIA, leased the property known as Navarre
Beach to Santa Rosa County, with stipulations that its purpose was “island
development” and that the lessee could grant leases for residential, recreational,
and commercial purposes, “provided the leases shall be substantially on the same
37
terms, covenants and conditions, as like leases then in use by the lessor.” (R2, V2,
237; A:4, p.3).
Thus, Escambia County and Santa Rosa County, as its lessee, both have
power to lease to private persons, when the particular county determines it is in the
public interest, but neither county can “otherwise” dispose of or convey the
property to private persons. Neither county can grant a perpetual lease to a private
person. A fundamental principle of property law is that a person or entity cannot
convey better ownership interest or title than he has, nor can one claim better title
than he receives. Dicks v. Colonial Fin. Corp., 85 So. 2d 874, 876 (Fla. 1956);
Trumbull Chevrolet Sales Co., Inc. v. Seawright, 134 So. 2d 829, 841 (Fla. 1st
DCA 1961), cert. den., 143 So. 2d 491 (Fla. 1962). A deed or conveyance vests in
the grantee all interest the “grantor had power to [convey],” unless a contrary
intention appears in the instrument.
§ 689.10, Fla. Stat.
Escambia could give Santa Rosa no more ability or power to deed to private
persons or “otherwise” dispose of or convey than Escambia had – which was no
power. Because Santa Rosa had no power to dispose of the Navarre Beach land or
convey the land to private persons, it could not make them equitable owners of the
land.
Under the U.S. Deed of Conveyance, a lessee from Santa Rosa County
38
cannot claim ownership of the land – which the deed says lessees may never
receive. If the County cannot convey ownership and the lessees cannot claim
ownership, there is only one logical conclusion: Petitioners have no ownership
interest in the land they are leasing.
B. Santa Rosa County Has No Power to Grant Leases That Convey Ownership
of the Land to Petitioners.
Santa Rosa clearly had the power to grant leases to private persons, and was
expected to do so. But it had no power to dispose of or convey the land. Thus,
Santa Rosa cannot grant perpetual leases to private persons.
The Ward opinion cited Thompson v. First National Bank of Hollywood, 321
So. 2d 466 (Fla. 4th DCA 1975), where a perpetual lease was described, to quote
Ward, “as a conveyance in fee, reserving rent.” 919 So. 2d at 464. Santa Rosa had
no power to grant a perpetual lease of the land (“a conveyance in fee”) to any of
the Petitioners. A contrary ruling would directly contradict U.S. Supreme Court
precedent and a Florida statute limiting transfer to only those interests the grantor
has. Dicks, 85 So. 2d at 876. In fact, the Ward majority did not address Santa
Rosa’s lack of power to convey the land to private persons; the case dealt only with
taxation of improvements.
In relying on the lease terms to declare Petitioners the owners of this land,
subject to local county taxation, the court below ignored the prohibition set out in
the Deed of Conveyance. This is not an option. The Property Clause of the U.S.
39
Constitution provides that “[t]he Congress shall have Power to dispose of and
make all needful Rules and Regulations respecting the Territory or other Property
belonging to the United States...” U.S. Const., Art. IV, Section 3, cl. 2. The term
“property” in the clause has been defined to include “all ... real property rightfully
belonging to the United States.” Ashwander v. Tenn. Valley Auth., 297 U.S. 288,
331 (1936). Congress has power “without limitation” to dispose of federal
property. Alabama v. Texas, 347 U.S. 272, 273 (1954).
Congress alone can determine to whom the “soil of the United States” will
be sold and under what conditions. Van Brocklin v. Tennessee, 117 U.S. 151, 167
(1886). Therefore, an individual or entity may not dispose of federally owned
property unless Congress has conferred such power, expressly or implicitly. Butte
City Water Co. v. Baker, 196 U.S. 119, 126 (1905). Here, the deed declared
expressly that the county may never dispose of or convey the Santa Rosa Island
lands to private persons. Thus, Congress reserved to itself the ability to convey to
private persons any land described in the deed. Escambia did not receive fee
simple title; the United States did not convey to Escambia the right to convey the
land to private persons. Florida courts have no authority to nullify Congress’
decision.
In its opinion, the First District acknowledged:
Appellants…contend that the Deed of Conveyance prohibits
ownership of the property at issue by private persons…Appellants are
40
correct…
…
…Escambia County is, as Appellants argue on appeal, prohibited
through the Deed of Conveyance from selling the property.
Accardo, 63 So. 3d at 801 (A:1, pp.7-8). Having made these admissions, the
district court attempted to avoid the inevitable conclusion that Petitioners could not
be required to pay local taxes on something they did not own. (See, Bell I and II).
Petitioners are not “legal owners” of the property, the court said, but the issue
presented was “whether they are equitable owners of the property for ad valorem
taxation purposes,” and the Deed of Conveyance, it declared, has “no bearing on
this issue.” Id. This is profoundly wrong.
The Deed of Conveyance language is in no way limited to “legal”
ownership. It says the property is “[n]ever to be otherwise disposed of or
conveyed…” The county cannot otherwise (that is, other than a lease) dispose of or
convey the property to a private person or entity.
If Petitioners have equitable ownership of any kind it must be real
ownership. In fact, Black’s Law Dictionary, 4th Ed., defines “equitable owner” as:
One who is recognized in equity as the owner of property, because the
real and beneficial use and title belong to him, although the bare legal
title is vested in another…One who has a present title in land which
will ripen into legal ownership upon the performance of conditions
subsequent…there may therefore be two “owners” in respect of the
same property, one the nominal or legal owner, the other the
beneficial or equitable owner.
The District Court specifically quoted from the case of Hialeah, Inc. v. Dade
41
County, 490 So. 2d 998, 1000 (Fla. 3d DCA 1986), rev. den., 500 So. 2d 544 (Fla.
1986), as follows -- “‘[P]roperty is not government owned under applicable taxing
statutes where the government merely holds legal title as security and a taxpayer is
the beneficial owner in equity.’” Accardo, 63 So. 3d at 802 (A:1, pp.8-9). So the
court below said the property can be taxed because the lessee has become the
beneficial owner and that it is “not government owned.” If petitioners’ parcels are
not government owned, it is rather evident that the District Court is saying that the
lease agreements “otherwise disposed of or conveyed” that ownership to the
lessees, in direct and admitted contravention of the limitation set out in the Deed of
Conveyance. Such a conveyance is a legal impossibility. As shown in the earlier
quote, the court below said that the Deed of Conveyance prohibits ownership of
the property at issue by private persons.
Petitioners cannot be taxed on property it is impossible for them to own, and
the First District, through the statements quoted above, has agreed that such
ownership is prohibited here. Petitioners are lessees, not owners, of the land
because neither Escambia nor Santa Rosa had the authority to convey ownership to
them. The decision below ascribing such ownership is in error.
The Supremacy Clause, U.S. Supreme Court decisions, and Florida court
rulings demonstrate that neither the trial court nor the District Court had the power
to judicially declare or grant to Petitioners an ownership interest in Navarre Beach
42
lands. There is no basis for levying or collecting taxes on the land without such a
declaration; the leases grant nothing more than possession for a definite period of
time.
Another reason petitioners cannot be taxed on the land by Respondents is
that county-owned land is immune from taxation, even when leased for non-
governmental purposes. Markham v. Broward County, 825 So. 2d 472 (Fla. 4th
DCA 2002). The district court recognized that immunity, citing Florida
Department of Revenue v. City of Gainesville, 918 So. 2d 250 (Fla. 2005), but
declared that that immunity “has no bearing on this issue…” because petitioners
are equitable owners and do not have legal ownership of the property. Accardo, 63
So. 3d at 801 (A:1, p.7). Again, it must be pointed out that this same court also
adopted Hialeah’s statement that property is not government owned if the
government merely holds legal title and the taxpayer is the beneficial owner in
equity. Accardo, 63 So. 3d at 802 (A:1, pp.8-9).
Justification for taxing petitioners must be based upon ownership -- whether
legal or equitable -- and as the First District conceded, the Deed of Conveyance
prohibits ownership of the property by private persons. Petitioners cannot be
owners because the county, which does own the land, has no power to “otherwise
dispose of or convey” the land to its lessees. Therefore the property cannot be “not
government owned;” the county continues as owner and the land remains immune
43
from local taxation. Appraising and placing the land on the tax rolls and sending
notices to petitioners for 2006-2009 real property taxes on the land were unlawful
actions.
IV.
THE TAX COLLECTOR LACKS STANDING TO CHALLENGE THE
CONSTITUTIONALITY OF STATUTES TAXING LEASEHOLDS OF
COUNTY PROPERTY
In his affirmative defense, the Tax Collector asserted that “the exemption
sought by Plaintiffs” violates the Florida Constitution. The “exemption” referred
to is Florida Statute § 196.199(2)(b), which Bell I held -- in 1987 -- to apply to
Santa Rosa Island leaseholds. 505 So. 2d at 691. As discussed earlier, Fla. Stat. §
199.023(1)(d) (2005) provides the intangible property definition that applies here,
so it is these two statutory provisions that the defendant sought to have declared
unconstitutional.
Petitioners moved to strike the affirmative defense because the Tax
Collector has no standing to challenge the constitutionality of the very statutes he
is obligated to follow in carrying out the duties of his office. The trial court denied
the motion to strike (R1, V13, 2156-58; A:2, pp.8-10), but the First District
declined to address the questions of standing or the constitutionality of the statues.
Accardo, 63 So. 3d at 799 (A:1, p.2).
Petitioners rely on this Court’s decision in The Crossings at Fleming Island
44
Community Development Center v. Echeverri, 991 So. 2d 793 (Fla. 2008). The
Tax Collector is a public officer, obligated to follow legislative directives, and has
no standing per The Crossings case, to challenge a statute he is obligated to
enforce.28
V.
NO LIEN FOR TAXES EXISTS ON PETITIONERS’ LEASEHOLDS, THE
LAND, OR THE IMPROVEMENTS.
Florida Statutes declare, unequivocally, that no tax lien exists on the
leaseholds or on the government’s property. A parallel point is made in the
argument submitted by the petitioners in the companion case and Petitioners here
adopt that argument.
The trial court declared that “the Tax Collector has the right to sell tax
certificates on these equitably owned interests of the Plaintiffs,” (Judgment, A:2,
p.6), a conclusion contrary to statutes and to unambiguous directives from this
Court and a previous First District decision. Section 196.199(8)(a), Florida
Statutes, provides that taxes assessed on leasehold interests in governmental
property “shall not become a lien on same, or the property itself, but shall
28
Escambia County v. Bell, 717 So. 2d 85, 88 (Fla. 1st DCA 1998) (“The tax
collectors, like other county officers are constitutional officers whose duties are
imposed by, and their powers derived from, statutes.”) (citation omitted).
45
constitute a debt due and shall be recoverable by legal action or by the issuance of
tax executions that shall become liens upon any other property in any county of
this state of the taxpayer who owes said tax.”
Section 197.432(9), Florida Statutes, prohibits creation of a lien on property
owned by the government which has become subject to taxation due to its
lease to a nongovernmental lessee. That section reads, in part:
A certificate may not be sold on, nor is any lien created in, property
owned by any governmental unit the property of which has become
subject to taxation due to lease of the property to a nongovernmental
lessee. The delinquent taxes shall be enforced and collected in the
manner provided in §196.199(8).
That section does provide an exception for leaseholds taxed as real property
under §196.199(2)(b), Florida Statutes, and for which no rental payments are due
under the agreement that created the leasehold. Taxes in that situation do become
a lien on the leasehold, to be collected through tax certificates and other devices,
per § 197.432(9). Section 196.199(2)(b), Florida Statutes, provides that: “If no
rental payments are due pursuant to the agreement creating such leasehold or other
interest, the leasehold or other interest shall be taxed as real property.” Of course,
these Petitioners do pay rent.
All the Petitioners’ leases require Petitioners to make rental payments on
their leases, and Petitioners’ leaseholds are not taxable as real property. These two
statutes establish that no tax liens exist for the Tax Collector to enforce against the
46
leaseholds, the land, or the improvements. Therefore, no tax certificates may be
sold, which of course precludes issuance of tax deeds.
This Court, in Cason v. Florida Department of Management Services, 944
So. 2d 306, 314 (Fla. 2006), made clear that, “when...a leaseholder of State
property is subject to ad valorem taxation, the penalty for non-payment falls on the
leaseholder and not the State.” A county is a subdivision of the state and property
owned by a county has the same immunity as property owned by the state. The
Cason opinion continues:
[E]ven when the State has leased its property to a non-governmental
entity and the property is used for non-governmental purposes, the
Legislature has specifically prohibited the issuance of a tax certificate
or a lien on the property itself. Thus, under no circumstances can the
State lose its property when the lessee fails to pay ... ad valorem taxes.
Id.
Therefore, even if this Court concludes that Petitioners are the equitable
owners of either the land or the improvements on the leasehold estates, the Tax
Collector has no lien to enforce against that property and no right to issue tax
certificates (or tax deeds) for the collection of the taxes that have been levied.
Section 196.199(8)(a), Florida Statutes, as stated in State Dept. of Revenue v.
Gibbs, 342 So. 2d 562 (Fla. 1st DCA 1977), and verified in Cason, provides the
only available means of collecting such taxes. The trial court erred in ruling
otherwise.
47
CONCLUSION
The certified question -- “Whether Section 196.199(2)(b), Florida Statutes,
is inapplicable to the real property at issue because appellants are the equitable
owners of that property?” -- begins with a faulty premise. It should be restated as
follows: “Are the Petitioners equitable owners of the land and improvements they
lease from the county?” That question has a negative answer, thereby eliminating
the need to respond to the certified question regarding the statute.
The district court acknowledged that (1) the Deed of conveyance prohibits
ownership of the property by private persons; (2) county property is immune from
taxation; (3) Petitioners have no option to purchase the property for a nominal sum
at the end of the lease term; and (4) Petitioners can be taxed only if the property is
“not government owned,” with its title being held merely as “security.” Here, the
county does not hold title as security; there is no document whereby lessees have
become equitable owners, nor can there be because of the federal deed prohibition.
By its own statements, the court below has established that Petitioners are not
owners.
Despite these admissions, the court declared that Petitioners possess a form
of non-ownership, called “equitable ownership for ad valorem tax purposes,”
because they have 99-year leases that can be renewed. The Legislature adopted the
present statute with full awareness of the Santa Rosa Island leases, and it
48
determined that leases of, or other possessory interests in, government property
where rent is paid, with an initial term of less than 100 years, exclusive of renewal
options, should be taxed only as intangible personal property. The decision under
review gives local taxing officials authority to levy taxes where none is allowed
under the statute.
The Legislative policy decision should be respected by the Property
Appraisers and the Courts. It is clear that in other areas of Florida, lessees of
government property who pay rent pay intangible tax, not local ad valorem tax.
The district court opinion should be quashed.
Finally, should taxing be allowed, the Legislature has declared that no lien
exists for the Tax Collector to use for enforcement of the tax.
49
CERTIFICATE OF SERVICE
I hereby certify that a true and correct copy of the foregoing has been
furnished to Elliott Messer and Thomas M. Findley, of Messer, Caparello & Self,
P.A., 2618 Centennial Place, Tallahassee, FL 32308 and Roy V. Andrews, of
Lindsay, Andrews & Leonard, P.A., PO Box 586, Milton, FL, 32572 by electronic
mail this 10thth day of August, 2012.
/s/ Danny L. Kepner
DANNY L. KEPNER
Florida Bar No: 174278
SHELL, FLEMING, DAVIS & MENGE
Post Office Box 1831
Pensacola, Florida 32591-1831
Telephone: (850) 434-2411
Facsimile: (850) 435-1074
Email: [email protected]
and
TALBOT D’ALEMBERTE
Florida Bar No.: 0017529
PATSY PALMER
Florida Bar No.: 0041811
D’ALEMBERTE & PALMER, PLLC
Post Office Box 10029
Tallahassee, Florida 32302-2029
Telephone: (850) 325-6292
Email:
50
CERTIFICATE OF COMPLIANCE
I HEREBY CERTIFY that the foregoing Initial Brief of Appellants has been
prepared using Times New Roman 14-point font in compliance with the font
requirements of Fla. R. App. P. 9.210.
/s/ Danny L. Kepner
DANNY L. KEPNER
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