THE SUPREME COURT OF FLORIDA Case No.: SC LEONARD J. ACCARDO and LYNN M. ACCARDO, et al., Petitioners, vs.

Transcription

1 THE SUPREME COURT OF FLORIDA Case No.: SC 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: 1D DANNY L. KEPNER Florida Bar No: SHELL, FLEMING, DAVIS & MENGE Post Office Box 1831 Pensacola, Florida Telephone: (850) Facsimile: (850) TALBOT D ALEMBERTE Florida Bar No.: PATSY PALMER Florida Bar No.: D ALEMBERTE & PALMER, PLLC Post Office Box Tallahassee, Florida Telephone: (850) dalemberte@dalemberteandpalmer.com Counsel for Petitioners

2 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 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 B. Leaseholds of Government Property Are Treated Differently In Other Districts II. THE PETITIONERS LEASES DO NOT PROVIDE A BASIS FOR A FINDING OF EQUITABLE OWNERSHIP A. Petitioners Do Not Have Equitable Ownership in the Land While Citing Robbins, the Opinion Below Actually Conflicts With That Case While Citing Hialeah, the Opinion Below Actually Conflicts With That Case B. The Leases Grant Petitioners No Equitable Interest in the Land ii

3 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 B. Santa Rosa County Has No Power to Grant Leases That Convey Ownership of the Land to Petitioners IV. THE TAX COLLECTOR LACKS STANDING TO CHALLENGE THE CONSTITUTIONALITY OF STATUTES TAXING LEASEHOLDS OF COUNTY PROPERTY V. NO LIEN FOR TAXES EXISTS ON PETITIONERS LEASEHOLDS, THE LAND, OR THE IMPROVEMENTS CONCLUSION CERTIFICATE OF SERVICE CERTIFICATE OF COMPLIANCE iii

4 TABLE OF AUTHORITIES Cases Page 1108 Ariola, LLC v. Jones, 71 So. 3d 892 (Fla. 1st DCA 2011), rev. granted, SC 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 iv

5 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 (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 v

6 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)... 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 vi

7 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 Article VII, Section 3 (a), Constitution of Florida... 6 Statutes and Session Laws: Florida Statutes...6, (2)(b) Florida Statutes... passim (7) Florida Statutes... 16, (8) Florida Statutes (8)(a) Florida Statutes... 44, (9) Florida Statutes (1)(d) Florida Statutes...6, (1)(d) Florida Statutes (2005)... passim , Florida Statutes...37 Chapter 199, Florida Statutes... passim Chapter , Laws of Florida... 6, 13, 14, 17 Chapter , Laws of Florida vii

8 Chapter 24500, Laws of Florida, Special Acts of Chapter , Laws of Florida, Special Acts of , 13 Other Authorities Black s Law Dictionary, 4th Ed...40 Florida Attorney General Opinion Florida Department of Revenue Rule 12D viii

9 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 SC 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). 1

10 of the issues presented herein, we certify to the Florida Supreme Court the following as a question of great public importance: WHETHER SECTION (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 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)(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.) 2

11 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 , 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 3

12 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). 4

13 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 lease 6, 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 5

14 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 , Laws of Florida, later codified in Florida Statutes and (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 , Laws of Florida, Special Acts of This section was repealed, but at the time of repeal (2)(b) was amended to retain the reference to (1)(d)(2005). Copies of the statutes are included at tab 6 of the Appendix. 6

15 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 (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. 7

16 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 leaseholds 13 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 (2)(b) and (1)(d) (2005) (R1, V11, ). Petitioners moved to strike the affirmative defense, arguing that constitutional officers do not have standing to challenge a law. (R1, V11, ). 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). 8

17 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 (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 (2)(b) says that the leasehold or other interest 14 held by a lessee of government property, leased for an initial term of less than 100 years and on which 14 Fla. Stat (1)(d) (2005), which is incorporated into (2)(b), includes all leasehold or other possessory interests in real property owned by the government, within the definition of intangible personal property. 9

18 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 SC

19 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 11

20 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 12

21 Rosa Island 15 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 , 15 In 1949, this was made explicit by enactment of Chapter , Laws of Florida, Special Acts of 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. 13

22 Laws of Florida, later codified in Florida Statutes and (1)(d). 17 The subsection controlling taxation in this case is (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 (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 (1)(d), Florida Statutes 2005 which provides the definition. This section adds language to that adopted with the 1980 amendment, Chapter , Laws of Florida so that, in 2005, Section (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 , Laws of Florida.) 17 This section was repealed, but at the time of repeal, Section (2)(b) was amended to retain the reference to Section (1)(d)(2005). 14

23 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 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 , 18 Florida AGO went on to observe: Formerly leasehold interests in 15

24 emphasis added.) The legislation is also clear to the Florida Department of Revenue, which has promulgated Rule 12D , 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 (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 bondfinanced 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 (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 16

25 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 , 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 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., ) 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., ) In Bell I, the First District affirmed summary judgment for the leaseholders, addressing the contention of the taxing authorities that the lessees owned the 17

26 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 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., ) 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 (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 18

27 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, SC ( 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 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., ). 19

28 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 Ward 22 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 Ariola, 71 So. 3d at

29 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), 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 (Fla. Div. Admin. Hrgs. 2011). 21

30 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 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). 22

31 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 (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 23

32 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 24

33 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 (1)(d) (2005) and (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. 25

34 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. 26

35 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. 27

36 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 28