1108 Ariola, LLC v. Chris Jones, etc. ( 2014 )

Supreme Court of Florida
_____________
No. SC11-2231
_____________
1108 ARIOLA, LLC, et al.,
Petitioners,
vs.
CHRIS JONES, etc., et al.,
Respondents.
[March 20, 2014]
CANADY, J.
In this case, we consider whether the improvements on certain leaseholds in
Pensacola Beach on Santa Rosa Island that were created under leases granted by
Escambia County are subject to the intangible personal property tax rather than the
ad valorem real property tax.
In 1108 Ariola, LLC v. Jones, 71 So. 3d 892, 897-98 (Fla. 1st DCA 2011),
the First District Court rejected the claim of the petitioner taxpayers that the
improvements were not subject to ad valorem taxation. The First District
concluded that the taxpayers are the equitable owners of the improvements and that
the improvements are therefore subject to ad valorem taxation. Id. at 893. In so
holding, the court specifically relied on its earlier decision in Ward v. Brown, 919
So. 2d 462 (Fla. 1st DCA 2005), which concerned the ad valorem taxation of the
improvements on certain perpetual leaseholds on the portion of Santa Rosa Island
located at Navarre Beach in Santa Rosa County. 1108 Ariola, LLC, 71 So. 3d at
897-98. By subsequent order, the First District Court certified the following
question as one of great public importance:
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 REAL
PROPERTY NOR AN OPTION TO PURCHASE SUCH
PROPERTY FOR NOMINAL VALUE.
We determined to exercise our discretionary jurisdiction under article V,
section (b)(4), Florida Constitution. For clarity, we now rephrase the certified
question as follows:
WHETHER A LESSEE CAN HAVE EQUITABLE OWNERSHIP—
FOR PURPOSES OF AD VALOREM TAXATION—OF
IMPROVEMENTS ON REAL PROPERTY ONLY IF THE LESSEE
HAS A PERPETUAL LEASE OF THE UNDERLYING REAL
PROPERTY OR THE RIGHT ULTIMATELY TO PURCHASE THE
PROPERTY FOR NOMINAL VALUE.
For the reasons we explain, we answer the rephrased certified question in the
negative and approve the decision reached by the First District. We address a
-2-
related question concerning equitable ownership in Accardo v. Brown, No. SC11-
1445 (Fla. Mar. 20, 2014).
I.
Like the properties located in Santa Rosa County that are the subject of the
First District’s decision in Ward and of our decision in Accardo, the Escambia
County properties at issue here are located on lands conveyed to Escambia County
by the United States in 1947. The First District summarized the relevant facts as
follows:
All of the leases at issue are for 99-year initial terms. Although
many of these leases include renewal options, some contain no
renewal option, and none of the leases are automatically renewable. . .
. [A]ll of appellants’ leases here provide that legal title to any
building or improvement of a permanent character erected on the
premises shall vest in Escambia County, subject to the terms of the
leases. The leases require the lessee to make improvements on the
property and to repair and maintain those improvements. The leases
provide that a leaseholder must rebuild any damaged or destroyed
improvement so as to place it in its former condition and that no
leaseholder may remove any improvement of a permanent character
from the leasehold.
Despite these restrictions, the leaseholders have significant
benefits: they may mortgage or otherwise encumber their leaseholds
without prior approval of the lessors; they have the ability to convey
their leasehold interests by a sublease or assignment; they have the
right to rent their leasehold interests for the production of income; and
they receive the full benefit of any capital gains or appreciation in the
values of their properties. Although there are some variations in the
leases, in this proceeding, the parties treated these leases as identical
for purposes of determination of the issues in this case.
1108 Ariola, LLC, 71 So. 3d at 895.
-3-
II.
The petitioner taxpayers argue that they have no equitable ownership interest
in the properties at issue because the rights and obligations associated with the
leaseholds are similar to those associated with ordinary leases. Their primary
argument is that because they have neither the opportunity to acquire legal title to
the improvements nor the right to perpetual renewal of their leases, they cannot be
deemed the equitable owners of the improvements. The petitioners offer some
additional arguments that we have determined do not merit discussion.
III.
In Accardo, we explain at length the significance of the doctrine of equitable
ownership in Florida’s law regarding ad valorem taxation and discuss the
interaction of the equitable ownership doctrine with the statutory provisions—§
196.199(2), (7), Fla. Stat. (2006); §199.023(1)(d), Fla. Stat. (2005)—providing for
the taxation as intangible personal property of certain leasehold and other
possessory interests in property owned by a government entity. No. SC11-1445 at
4-6. In Accardo, we conclude that the taxpayers there are equitable owners who
hold “virtually all the benefits and burdens of ownership of both the improvements
and the land.” Id. at 16. We reject the “argument that equitable ownership can
exist under a leasehold only where there is a right ultimately to acquire legal title.”
Id. at 17. Although we have recognized that equitable ownership may exist where
-4-
a lessee under a lease for a limited term has the right to acquire legal title for
nominal consideration, that right is not always a feature of equitable ownership.
Our holding in Accardo that the taxpayers in that case are the equitable
owners of both the improvements and the underlying land, turns on the fact that the
leases are perpetually renewable. In contrast, this case presents leaseholds that are
not perpetually renewable. 1 We conclude, however, that this distinction—along
with the absence of the right to obtain legal title for a nominal consideration—is
not sufficient to remove the improvements on the properties at issue here from the
scope of the equitable ownership doctrine.
Florida law recognizes that regardless of how legal title is held, the
improvements on lands owned by a governmental entity may—for ad valorem tax
purposes—be “owned” by the lessee of the lands. The final sentence of section
196.199(2)(b) provides that “[n]othing in this paragraph shall be deemed to exempt
personal property, buildings, or other real property improvements owned by the
lessee from ad valorem taxation.” Of course, the reference to “owned by the
lessee” must be viewed in the context of Florida’s law concerning equitable
ownership and thus cannot be restricted to the holders of legal title to
improvements. And nothing in the text of the statute or in the broader legal
1. The record does show, however, that some of the leases at issue are
perpetually renewable.
-5-
context suggests that this provision for the ad valorem taxation of “improvements
owned by the lessee” is limited to circumstances where the lease of the land is
perpetually renewable or the lessee has the right to acquire legal title for a nominal
consideration.
Long ago, we held in Gay v. Jemison, 52 So. 2d 137, 138-39 (Fla. 1951),
that improvements constructed by a lessee on government owned lands under a
seventy-five-year lease were to be treated as property owned by the lessee. Our
reasoning in Gay focused on the fact that the “probable useful life of the buildings”
would not exceed the limited term of the leasehold. Id. at 138. Although the issue
in Gay was the application of the state sales tax, the reasoning of Gay concerning
the ownership of leasehold improvements on lands subject to a lease for a limited
term is properly applied in the ad valorem taxation context. See also Offutt
Housing Co. v. Cnty. of Sarpy, 351 U.S. 253, 261 (1956) (holding that the lessee
of federal lands under seventy-five-year lease was properly considered the owner
of the improvements for purposes of state taxation where the lessee would “enjoy[]
the entire worth of the buildings and improvements”). Here, the petitioner
taxpayers have presented this Court no specific argument concerning the useful life
of the improvements.
We thus reject the petitioner taxpayers’ primary argument that the district
court’s conclusion that they are the equitable owners of the improvements is
-6-
defeated by the fact that they have neither the right ultimately to acquire title nor
the right to perpetually renew their leases. We also reject the petitioners’ general
argument concerning their rights and obligations under the leases for the same
reasons we reject a similar argument in Accardo.
IV.
The petitioner taxpayers have failed to present any argument establishing
that they do not hold “virtually all the benefits and burdens of ownership” of the
improvements at issue. Leon Cnty. Educ. Facilities Auth. v. Hartsfield, 698 So. 2d
526, 530 (Fla. 1997). The rephrased certified question is answered in the negative
and the decision reached by the First District is approved.
It is so ordered.
POLSTON, C.J., and PARIENTE, LEWIS, QUINCE, LABARGA, and PERRY,
concur.
NOT FINAL UNTIL TIME EXPIRES TO FILE REHEARING MOTION, AND
IF FILED, DETERMINED.
Application for Review of the Decision of the District Court of Appeal - Certified
Great Public Importance
First District - Case No. 1D10-2050
(Escambia)
Danny L. Kepner of Shell, Fleming, Davis & Menge, Pensacola, Florida; Talbot
D’Alemberte and Patsy Palmer of D’Alemberte & Palmer, PLLC, Tallahassee,
Florida; Robert Bruce George and Katie L. Dearing of Liles, Gavin, Costantino,
George & Dearing, P.A., Jacksonville, Florida,
-7-
for Petitioners
J. Elliott Messer, Thomas Marshall Findley, and Robert J. Telfer, III of Messer,
Caparello & Self, P.A., Tallahassee, Florida,
for Respondents
Edward P. Fleming and Randall Todd Harris of McDonald Fleming Moorhead,
Pensacola, Florida,
for Amicus Curiae Portofino Tower One Homeowners Association at
Pensacola Beach, Inc.
-8-