Chun King Sales, Inc. v. St. Louis County
| Decision Date | 14 August 1959 |
| Docket Number | No. 37583,37583 |
| Citation | 256 Minn. 375,98 N.W.2d 194 |
| Parties | CHUN KING SALES, INC., Petitioner, Appellant, v. COUNTY OF ST. LOUIS, Respondent. |
| Court | Minnesota Supreme Court |
Syllabus by the Court.
1. Under Minn.Const. art. 9, § 1, public property used exclusively for any public purpose is exempt from taxation.
2. The state may tax public property not exclusively used for a public purpose. Where public property is held by a private person or corporation under a lease or contract for purchase for a term of 3 years or more, such property is considered for all purposes of taxation as property of the person so holding the same (M.S.A. § 273.19) and is required to share in the burden of taxation the same as all other property.
3. Pursuant to $298.22 (the so-called Iron Range Resources and Rehabilitation Act) the State of Minnesota provided financial assistance to Chun King Sales, Inc., a private corporation, in aiding the carrying on of a food packing industry. The transaction encompassed the purchase of real estate and buildings thereon to be used by Chun King in the development of said industry. The act which permitted the granting of financial assistance by the state comprehended that the general program would provide a market for products raised and relieve unemployment in a distressed area. In negotiating the transaction Chun King acquired title to the real estate. The state purchased the buildings and improvements thereon and made additional expenditures to the extent of $200,000. Chun King executed a deed to the real estate to the State of Minnesota which included a reverter provision that in the event Chun King became the purchaser of the buildings and improvements pursuant to a lease and contract for purchase title to the real estate would revert to Chun King Sales, Inc. Concurrent with the execution of the deed, the state and Chun King entered into a lease and contract for purchase covering a period of 5 years with an option by the state to renew the agreement for three 5-year periods and with an option for Chun King to purchase the plant and improvements at any time while the lease and contract or renewals thereof were in force but not later than January 1, 1971. In the event Chun King exercised its option to purchase, it was to be allowed cerdit for rentals or payments made under the terms of the contract and lease. The terms of the contract and lease were completely executed. Chun King acquired title to the property for $200,000, the amount the State of Minnesota had invested. Of that amount it was credited for the sum of $167,318.81 paid under the terms of the contract and lease, and by an additional payment of $32,686.19 it completed payment of the purchase price. Chun King occupied the premises from the date of the original agreement, January 1, 1951, until May 29, 1957, when the transaction was completely executed. During this time Chun King had control of the premises and operated the business thereon for its private profit.
Under these facts it is Held that where a lease or contract for purchase of real property is entered into between the commissioner of administration and a private corporation pursuant to § 298.22 and where lease and contract for purchase have been completely executed and ratified by both parties, the property involved is taxable under § 273.19, notwithstanding the provisions of § 16.02(13) limiting the authority of the commissioner of administration to execute a lease for not longer than a 2-year period.
4. Under the facts set forth in the foregoing paragraph it is further Held that where a private party goes into possession of state property under an agreement that it may have the option to purchase the same and where it is vested with the right to manage, control, and receive income and profits therefrom, the use of such property during the term of such occupancy is a private use not exempted from taxes under Minn.Const. art. 9, § 1.
5. The provisions of § 273.02 relating to assessment of omitted taxes are directory, and failure or omission of taxing authorities to comply with procedural steps therein provided does not constitute a defense in the absence of a showing that the taxpayer has been prejudiced and that the taxes on the property have been partially, unfairly, or unequally assessed.
Reavill, Jenswold, Neimeyer & Johnson, John D. Jenswold, Duluth, for appellant.
Miles Lord, Atty. Gen., Thomas J. Naylor, County Atty., Ralph J. Olson, Asst. County Atty., Duluth, for respondent.
This is an appeal from an order of the District Court of St. Louis County denying a petition for relief from assessment for real estate taxes. The appellant, Chun King Sales, Inc., purchased the plant and property involved from the State of Minnesota pursuant to a contract entered into with the Iron Range Resources and Rehabilitation Commission, which we will hereafter refer to as I.R.R.R.C.
It appears from the record that Chun King Sales, Inc., is a Minnesota corporation engaged in processing, packaging, and selling prepared food products. On September 18, 1950, it purchased certain industrial land located in Duluth for the sum of $8,830. The deed did not convey the buildings or other personal property. It recited that these had been concurrently sold to the State of Minnesota and were to remain personal property. The state, pursuant to an agreement with Chun King, had purchased the buildings and other personal property located on the site from the Universal Match Corporation for $51,170. 1 It appears that this arrangement was made in pursuance of authority granted by the legislature to the I.R.R.R.C. for the purpose of alleviating distress and unemployment in St. Louis County. It was comprehended that the Chun King Sales company would set up a proceesing plant, thereby providing a market for the agricultural products of that area and at the same time giving employment to people in that community.
On September 25, 1950, the State of Minnesota, through the commissioner of I.R.R.R.C., entered into an agreement whereby Chun King agreed to convey its title to the land involved to the state and the state agreed to purchase the buildings and other personal property for $51,170 and to spend an additional $148,830 on equipment and repairs. Pursuant to this agreement Chun King executed a deed to the State of Minnesota on September 25, 1950. This deed contained a reverter clause that if Chun King should purchase the building prior to January 1, 1971, the title to the land should revert to it. On the same date, September 25, 1950, the commissioner entered into a lease with Chun King covering both land and buildings. This lease was for a period of 5 years from January 1, 1951, and could be renewed by the state at its option for three successive terms. The lease contained rental provisions calling for rentals during the first 9 months at a flat rate and thereafter on a percentage of net sales with provisions for minimum payments. 2
The lease provided, however, that during the term of the lease or any renewal thereof but not later than January 1, 1971, Chun King could purchase the buildings at 'competitive bidding' for an amount not less than the highest bid offered and could get credit against the purchase price for the amount paid the state under the lease and contract. 3
Chun King took possession of the premises on January 1, 1951. At the expiration of the first 5-year period, the lease was renewed for an additional 5 years from December 31, 1956, the expiration date of the first leasehold period. Neither the agreement nor the lease made any provision for payment of real estate taxes.
On May 2, 1957, pursuant to the provisions of the agreement, the state at the request of Chun King advertised the plant for sale on competitive bids. Pursuant thereto the buildings and other personal property were sold by the state to Chun King on May 29, 1957, for the sum of $200,000. While nominally the sale was advertised on a competitive basis, it is obvious that Chun King had a preferred advantage by reason of the fact that under its agreement and lease with the state it was entitled to be credited with all of the payments it had made during the term of the lease and agreement. Pursuant to the agreement the bid of $200,000 representing the amount the state had invested in the property was made by Chun King. Of this amount Chun King paid $32,686.19 in cash since it was entitled to credit of the $167,318.81 previously paid.
It should be noted at this point that all of the conditions and agreements set forth in both the contract and lease entered into by the I.R.R.R.C. and Chun King were carried out and both contracts are executed.
On December 28, 1954, the commissioner of taxation requested that an omitted property assessment be entered against the property. 4 This was not done until March 16, 1956. The amount of the assessment was $30,749,17.
Chun King contends that the assessment of taxes is invalid for the reasons: (1) That Chun King during the pendency of the agreement and lease had no taxable interest in the property, and (2) that the property was public property used for a public purpose within the constitutional exemption.
It may be assumed from the facts that during the pendency of the agreement and lease the record title to the property was in the State of Minnesota.
In substance, the transaction giving rise to transfer of title to the state comprehended that the I.R.R.R.C. would finance Chun King to the extent of $200,000. There were no express statutory provisions in effect at the time which authorized I.R.R.R.C. to accept a mortgage to secure the money advanced nor to enter into a contract for deed. Apparently it was considered that the method used in expressing the undertaking of the parties would protect the interests of both within the limits of existing law.
1. It is well established that property owned by the state or...
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