Ben Lomond, Inc. v. Fairbanks North Star Borough Bd. of Equalization

Decision Date26 August 1988
Docket NumberNo. S-2220,S-2220
Citation760 P.2d 508
PartiesBEN LOMOND, INC., Appellant, v. FAIRBANKS NORTH STAR BOROUGH BOARD OF EQUALIZATION, Appellee.
CourtAlaska Supreme Court
OPINION

Before MATTHEWS, C.J., and RABINOWITZ, BURKE, COMPTON and MOORE, JJ.

RABINOWITZ, Justice.

This appeal was filed despite the lack of a final judgment. 1 The appeal is therefore improper; however, we treat it as a petition for review under Appellate Rule 402. See City of Kenai v. Ferguson, 732 P.2d 184, 192 n. 16 (Alaska 1987); Kendall v. State, Div. of Corrections, 692 P.2d 953, 954 n. 1 (Alaska 1984); Leege v. Strand, 384 P.2d 665, 666-67 (Alaska 1963). The petition is limited to the question of whether Ben Lomond, Inc. ("Lomond") has an interest in real property subject to taxation by the Fairbanks North Star Borough ("Borough"). We find this issue appropriate for review "because a controlling question of law is presented on which there is substantial ground for difference of opinion and present review will materially advance the ultimate termination of the litigation." Hagberg v. Alaska Nat'l Bank, 585 P.2d 559, 560 (Alaska 1978) (footnote omitted). We hold that Lomond possesses taxable interests in its leasehold of the land on which it built military housing (the Cool Homes Project) and in the buildings themselves.

FACTS.

In April 1984, the United States issued a request for proposals by private developers to build 300 units of housing on Eielson Air Force Base, a federal military enclave. Lomond submitted the successful proposal.

On January 7, 1985, Lomond and the United States executed a "Land Lease of Property on Eielson Air Force Base, Alaska, Military Reservation" ("Land Lease"). 2 Under the terms of the Land Lease, Lomond leased "57.81 acres, more or less" for a term of twenty-three years, for which it paid "rental in the amount of One Dollar and No Cents ($1.00) for the entire lease term, the sum and sufficiency of which is hereby acknowledged." Lomond is thus the lessee of federal land under the Land Lease; the United States is the lessor.

Lomond and the United States also apparently executed a "Lease of Project Between the United States of America and Ben Lomond, Inc." ("Project Lease"). 3 The Project Lease leased back to the United States "the housing project consisting of the residential buildings, structures, and other improvements constructed on land at Eielson Air Force Base, Alaska, and said underlying lands...." The Project Lease provides a twenty year term to run concurrently with the last twenty years of the Land Lease. 4 Under the Project Lease, Lomond is the lessor, while the United States became the lessee. The United States agreed to pay to Lomond "an annual rent of $3,600,000.00 ... payable monthly in arrears" as well as "an annual 'Housing Maintenance Rental' of $216,000.00 ... payable monthly in arrears, for maintenance, repair, replacement, and redecoration."

The Land Lease was authorized under 10 U.S.C. § 2667, which provides:

(a) Whenever the Secretary of a military department considers it advantageous to the United States, he may lease to such lessee and upon such terms as he considers will promote the national defense or be in the public interest, real or personal property that is--

(1) under the control of that department;

(2) not for the time needed for public use; and

(3) not excess property, as defined by section 3 of the Federal Property and Administrative Services Act of 1949 (40 U.S.C. 472).

....

(e) The interest of a lessee of property leased under this section may be taxed by State or local governments. A lease under this section shall provide that, if and to the extent that the leased property is later made taxable by State or local governments under an Act of Congress, the lease shall be renegotiated.

The Project Lease was authorized under the Military Construction Authorization Act of 1984, Section 801, codified as 10 U.S.C. § 2828. That Act inaugurated a test program "to determine if leasing is more cost effective to the [United States] than the traditional method of constructing [military] housing with appropriated funds...." While it does not refer specifically to taxation, there is no indication that 10 U.S.C. § 2828 was intended to supersede the provision of 10 U.S.C. § 2667 which provides for taxation of private interests.

Condition 13 of the Land Lease provides:

[t]hat the Lessee [Lomond] shall pay to the proper authority, when and as the same become due and payable, all taxes, assessments, and similar charges which, at any time during the terms of this lease, may be taxed, assessed, or imposed, upon the Lessee's interest in the leased premises. In the event any taxes, assessments, or similar charges are imposed, with the consent of Congress upon property owned by the Government and included under this lease (as opposed to the leasehold interest of the Lessee therein), they shall be paid (1) by the Government, in which event this lease shall then be renegotiated to increase the consideration provided above in the amount of such taxes, assessments, or similar charges paid by the United States, or (2) at the option of the Government, by the Lessee.

Lomond is also responsible for any taxes assessed under the Project Lease. Article VII provides, in pertinent part:

Lessor [Lomond] shall pay all taxes, general or special, all public rates, dues, and special assessments of every kind which shall become due and payable or which are to be assessed against or may be levied upon said Premises during the term of this Lease.

The Borough issued a notice of assessment to Lomond for 1986. It valued Lomond's possessory interest in the leased land at $1,551,416 and improvements on the land at $13,855,765 for a total assessed value of $15,407,181.

PROCEEDINGS.

Lomond filed an appeal to the Fairbanks North Star Borough Board of Equalization ("Board"). Lomond argued that it had no taxable interest in property at Eielson Air Force Base because the land was federal property, and, alternatively, that if it did have an interest in the property, that interest was "so limited by the contractual relationship to the federal government as to be without value for property tax purposes." The Board upheld the assessment against Lomond.

Lomond subsequently appealed to the superior court under AS 29.45.210(d). 5 The superior court upheld the Board's determination of the value of Lomond's property interests for tax purposes. The court remanded the matter, however, to the Board because "the Borough may have assessed the government's reversionary interest in the land on the basis of a 40-year lease, but the land lease term is only for 23 years." Lomond filed a motion for reconsideration; it was denied.

Lomond then filed a notice of appeal to this court, asserting that the Board exceeded statutory and constitutional limits in assessing property taxes against Lomond for the Cool Homes Project. The Board held a hearing on the issue remanded by the superior court, Cool Homes, Inc. v. Fairbanks North Star Borough, No. 4FA-87-1093 CI, Slip Op. at 2 (Superior Court Jan. 5, 1988), and again upheld the assessor's findings based upon a forty year lease. Cool Homes, Lomond's subsidiary and successor in interest, appealed to the superior court. 6 In regard to this second appeal, the superior court vacated "the Board's findings ... to the extent that they derive from a calculation based on a forty year lease [instead of the actual twenty-three year lease]," and remanded the issue for findings consistent with its opinion.

DISCUSSION.

The only issue we address is whether Lomond has a taxable interest in the land and/or the buildings in the Cool Homes Project. 7 This court may substitute its judgment for the Board's and the superior court's in determining the legal question of Lomond's interest. Noey v. Department of Envtl. Conservation, 737 P.2d 796, 800 (Alaska 1987); Kelly v. Zamarello, 486 P.2d 906, 916 (Alaska 1971).

The Land.

Lomond has a twenty-three year leasehold interest in the 57.81 acres on Eielson Air Force Base on which the Cool Homes Project is now situated. Eielson Air Force Base is a federal military reservation, reserved to the United States under Section 11 of the Alaska Statehood Act.

Any property interest of the federal government in the Cool Homes Project--or any other property within a federal reservation--is exempt from taxation by state or local authorities. AS 29.45.030(a)(1); 8 FNSB Ord. 3.08.020(c). 9 However, any private interest in such land is "taxable to the extent of the interest." AS 29.45.030(a)(1). This statutory provision tracks the state constitution: "Private leaseholds, contracts, or interests in land or property owned or held by the United States, the State, or its political subdivisions, shall be taxable to the extent of the interests." Alaska Const. Art. IX, § 5. The federal statute under which the Land Lease was authorized also provides that "[t]he interest of a lessee of property leased under this section may be taxed by State or local governments." 10 U.S.C. § 2667(e). Further, condition 13 of the Land Lease itself distinguishes between the taxation of any "property owned by the Government and included under this lease (as opposed to the leasehold interest of the Lessee [Lomond] therein)...."

The Buildings.

Lomond owns the buildings on the leased land. The Agreement to Lease 10 provides that

[i]t is understood by the parties that such Improvements are and will remain the property of the Developer during existence of this Agreement to Lease. Upon completion of construction of such Improvements and their acceptance for use by the Government, the Government and Developer shall enter into the Lease of Project....

The Project Lease provides that the Government will lease from Lomond ...

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1 books & journal articles
  • State property tax implications for military privatized family housing program.
    • United States
    • Air Force Law Review No. 56, December 2005
    • 22 Diciembre 2005
    ...e.g., NEB. ADMIN. CODE, Title 316, oh. 24, § 029.04 (2004). (86) Ben Lomond, Inc. v Fairbanks North Star Borough Board of Equalization, 760 P.2d 508 (Alaska (87) Military Construction Authorization Act of 1984, Pub. L. No. 98-115, § 801, 97 Stat. 757 (1983). (88) Ben Lomond, Inc., 760 P.2d ......

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