Oklahoma Industries Authority v. Barnes
| Citation | 1988 OK 98,769 P.2d 115 |
| Decision Date | 20 September 1988 |
| Docket Number | No. 63087,63087 |
| Parties | OKLAHOMA INDUSTRIES AUTHORITY, Magnetic Peripherals, Inc., Lear Siegler, Inc., Little Giant Pump Company, Unit Parts Company, Plaintiffs-Appellants and Counter-Appellees, v. Joe B. BARNES, County Treasurer of Oklahoma County, George C. Keyes, County Assessor of Oklahoma County, Defendants-Appellees and Counter-Appellants, v. Jan Eric CARTWRIGHT, Attorney General of the State of Oklahoma, Defendant-Intervenor-Appellee. |
| Court | Supreme Court of Oklahoma |
On appeal from the District Court, Oklahoma County; Jack R. Parr, judge.
Various proceedings were brought by four industrial tenants of a tax-exempt public trust challenging and seeking refunds of ad valorem taxes paid under protest. The trial court ruled that a private leasehold interest in public-trust property does not qualify for an exemption and is hence taxable for ad valorem purposes; it then ordered the property placed on the tax rolls at the full value of the fee as though the lessees were the owners. The lessees and public trust appeal and the defendant-county brings a counter-appeal from the reduced valuation of one of the lessees' leasehold interest.
REVERSED AND REMANDED.
David E. Nichols, Peter T. Van Dyke, Lytle, Soule, Curlee, Harrington, Chandler & Van Dyke, Oklahoma City, for plaintiffs-appellants and counter-appellees.
Robert H. Macy, Dist. Atty., Phyllis L. Walta, Asst. Dist. Atty., Oklahoma City, for defendants-appellees and counter-appellants.
Michael C. Turpen, Atty. Gen. James B. Franks, Michael Scott Fern, Asst. Attys. Gen., Oklahoma City, for defendant-intervenor-appellee.
Oklahoma Industries Authority [OIA] and four of its lessees appeal from the trial court's decision that a private leasehold interest in tax-exempt property may be assessed an ad valorem tax based on the full value of the fee. Three issues are presented for review: May a private leasehold estate in tax-exempt public-trust property be taxed to the lessee? If the tax is proper, at what rate should it be assessed? and Have the four lessees properly preserved their right to appeal from the tax assessments for 1980 through 1983? We answer the first question in the negative and the third in the affirmative. Because we hold that no ad valorem tax may be imposed on leasehold property, we need not reach the second question.
OIA, a public trust created under 60 O.S.1981 § 176, leased tax-exempt land individually to Magnetic Peripherals, Inc. [MPI], Lear Siegler, Inc. [LSI], Unit Parts Company [Unit Parts] and Little Giant Pump Company [Little Giant] [collectively called lessees]. The lessees are private corporations which operate for profit. The four leases contain renewal options, but do not provide that the lessee may purchase the property for a nominal sum. OIA remains the landowner after the lease expires.
The Oklahoma County Tax Assessor placed these properties on the ad valorem tax rolls in 1980. OIA and the lessees unsuccessfully protested this assessment before the Oklahoma County Board of Equalization. They then appealed to the district court. The defendants below were the county treasurer, the county assessor, and the Attorney General who intervened [referred to collectively as "County"].
The valuation of the four leasehold interests did not increase in 1981 except for MPI's interest. The latter was the only lessee who protested the 1981 assessment to the Board of Equalization. All four lessees sought in 1981 relief from the tax assessment before the Board of Tax Roll Corrections, which in June of 1982 moved to continue the lessees' complaint. None of the lessees filed protests with the Board of Equalization for the 1982 or 1983 tax years. All of the taxes which have been assessed against these properties have been paid under protest. The district court declared that a private party's leasehold in tax-exempt public-trust property is subject to ad valorem tax at a rate based on the fee's value. The court opined that as a OIA and the lessees bring this appeal from the trial court's judgment, and the County counterappeals from the reduced valuation of LSI's leasehold interest.
separate, identifiable legal interest a leasehold does not stand exempt by any provision of the state constitution. The district court also reduced the value of LSI's leasehold interest and found that because Unit Parts did not protest its valuation before the Equalization Board in 1980, it could not protest the value before the court.
In a 1979 opinion the Attorney General dealt with the issue of taxability of a private party's tenancy in public-trust property and concluded that such leasehold constitutes a separate estate which is subject to ad valorem tax. 1 Our opinion in State ex rel. Cartwright v. Dunbar 2 did not reach the question now before us.
In Part I of our opinion we discuss whether, under the legislative scheme presently in force, leasehold interests may be taxed separately from the fee estate. In Part II we will examine whether relieving leasehold interests from ad valorem burden constitutes a constitutionally impermissible de facto tax exemption.
TAXABLE STATUS OF LEASEHOLD ESTATES UNDER THE STATUTORY
Ad valorem taxability of property is governed in part by 68 O.S.1981 § 2404. This section provides:
"All property in this State, whether real or personal, except that which is specifically exempt by law, and except that which is relieved of ad valorem taxation by reason of the payment of an in lieu tax, shall be subject to ad valorem taxation."
Real and personal property subject to taxation is defined in 68 O.S.1981 §§ 2419 and 2420. These sections provide in pertinent part:
§ 2419. "Real property, for the purpose of ad valorem taxation, shall be construed to mean the land itself, and all rights and privileges thereto belonging or in any wise appertaining ... and all buildings, structures and improvements or other fixtures of whatsoever kind thereon...."
§ 2420. "Personal property, for the purpose of taxation, shall be construed to include:
(a) All goods, chattels and effects.
(b) All improvements ... upon lands, the title to which is vested in any ... [entity] whose property is not subject to the same mode and rule of taxation as other property; and all improvements on leased lands that do not become a part of the reality. * * * "
Once an interest in property is statutorily classified as taxable, it becomes assessable. Art. 10, § 8, Okl.Const. 3 The power to tax is reposed in the lawmaking department. Legislative freedom to select some classes or species of property for taxation is restricted only by explicit constitutional inhibitions. 4 Where the legislature has validly omitted certain classes of property from taxation, the judiciary cannot direct that an assessment be imposed. 5 Under the taxing scheme presently in While a lessee's possessory interest may doubtless be a valuable species of property, its characterization as an asset of great market value does not transform that interest, absent some statutory authority, into a separate legal estate that is subject to taxation. To be taxable, an interest in real property must fall within an established legislative classification. 7
force, tax liability for all cognizable interests in land is borne by the fee owner. 6 Each parcel of property is treated as a unit; one value is assigned to it and one tax assessed. What the County calls for here is a change in the statutory scheme which would permit the assessment to be made against the user in possession who would acquire taxable status. This cannot be done. The statutory scheme calls for assessment of land for ad valorem purposes against the person or entity identified by the record as the fee owner, based on that owner's taxable status
Our canvass of the pertinent legislation does not reveal any specific reference to leasehold interests in public-trust property. Because every tax statute must be given strict construction, its application cannot be extended to embrace something not specifically included in the language. 8 County assessors have always treated leaseholds as non-assessable. This construction has been recognized for many decades as the settled law of the state. 9
Private leaseholds from public trusts are not the only public land interests which stand excluded from taxation. The statutory regime presently in force is equally silent on the taxability of private leaseholds of school land. 10 The opposite is revealed by the Oklahoma Turnpike Authority Act, 69 O.S.1981 §§ 1701 et seq. Section 1714 of that act provides that the turnpike authority's real and personal property, when leased to private roadside concessionaries, shall be subject to taxation in the same manner as any privately owned property. Still another departure from the general regime took place in 1963, when the legislature enacted the Unit Ownership Estate Act (condominium act). 11 That act provides for a unit ownership system in certain real property. Before that enactment, the county assessor could not levy taxes against separate and distinct units of property in a condominium-type development.
Varied interests in real property are recognized in several jurisdictions as separately assessable. Taxability of leasehold estates in those jurisdictions rests upon specific constitutional or statutory provisions which deal with tax exemptions. 12 Some courts give equitable reasons for separating the leasehold interests from the fee and for imposing an assessment upon the former. 13 Other courts note that when a public entity leases its real estate, a valuable privately held possessory interest is created. These courts conclude that there is no just reason why the owners of such While some of these cases' reasoning may be found appealing because it parallels our own predilections, the judiciary cannot challenge the wisdom, need or...
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