City of Fayetteville v. Phillips
| Decision Date | 17 June 1991 |
| Docket Number | No. 90-311,90-311 |
| Citation | 306 Ark. 87,811 S.W.2d 308 |
| Parties | The CITY OF FAYETTEVILLE, Arkansas, and the Board of Trustees of the University of Arkansas, Appellants, v. Sue PHILLIPS, Assessor, and Washington County Board of Equalization, Appellee. |
| Court | Arkansas Supreme Court |
Ginger P. Crisp, Fayetteville, Fred H. Harrison, Jeffrey A. Bell, Asst. Atty. Gen., Little Rock, Jerry E. Rose, Fayetteville, for appellants.
George E. Butler, Jr., Fayetteville, for appellee.
This appeal results from a decision of the Washington County Circuit Court that the appellants, the City of Fayetteville and the Board of Trustees of the University of Arkansas, are not entitled to an exemption from ad valorem taxes during the construction of a jointly-owned arts center.
In 1988, the appellants acquired real property in Fayetteville on which they planned to construct the Walton Arts Center. By application to the Washington County Assessor, the City and University sought an exemption from property taxation under article 16, § 5(b), of the Constitution of Arkansas, contending that the site for the Center is public property being used exclusively for public purposes. The appellee county assessor denied the application for exemption on the basis that the property was not currently being used for an exempt purpose, the possibility existed that the Center, when completed, would be available for private functions, and the Center would compete with similar facilities in the area which were not being taxed.
The appellants then applied for relief to the appellee, Washington County Board of Equalization, and the request for exemption was again denied. An appeal was taken by the appellants to the Washington County Court, which ruled after a hearing that the property was exempt from ad valorem taxation. The appellees then appealed to the circuit court, which found that the property was not exempt, and the appellants now appeal from that decision. Additionally, the appellees have cross-appealed that part of the circuit court's ruling holding that public property can, under some circumstances, be exempt from taxation during a period of construction. We affirm the decision of the trial court and deny the tax exemption to the appellants.
The facts are presented on stipulation of the parties and exhibits. The City and University entered into an Interlocal Cooperation Agreement in 1986 to finance, construct, and manage a center for the arts. Under the agreement, each contributed $4,500,000 for construction and an endowment to operate and maintain the facility. The primary source of the funds for the University's contribution was a private donation from Sam and Helen Walton of Bentonville. The City's contribution consisted of $1,000,000 from its general fund and $3,500,000 from a sales tax capital improvement bond issue backed by the City's portion of county sales tax revenues. The bond issue was approved by Fayetteville voters in October 1986.
A city block was designated as the site for the Walton Arts Center. The property in the north half of the block was purchased in May of 1988 and is the subject of the present appeal. By January 1, 1989, existing buildings on the property had been vacated, and it had been determined that asbestos abatement would be necessary before demolition of the buildings could begin. Asbestos abatement began in January 1989 and was completed in March 1989. Construction of new buildings was delayed pending the outcome of a condemnation suit concerning the property in the south half of the block. Later in the year, that suit was resolved in favor of the City and University, both in chancery court and on appeal to the Arkansas Court of Appeals.
The Center was designed to consist of two buildings, one to contain two classrooms equipped for art education and offices to be used by area non-profit organizations and Center staff, and a second to contain some additional offices, an exhibition gallery for fine arts, crafts and other exhibitions, a main hall equipped for theatrical productions, and a smaller auditorium outfitted for other arts presentations. A primary consideration in the planning of the Center was the provision of performance space for use by all segments of the public. According to the Center's executive director, any group or individual requesting use of the facility would be allowed to do so upon payment of a designated rental fee. The amount of rental fees were not determined initially, but were to be kept low in order to encourage maximum utilization of the Center. According to the record, no decision had been reached as to whether those groups and persons renting space would be required to open their events to the public, either on a paying or non-paying basis.
The plans called for operating funds to be derived from earnings on the endowment, rental rates, ticket sales, corporate and foundation grants, gifts and bequests, class registration fees, and state and federal grants. The programs to be offered by the Center would complement conferences and educational programs offered by the Continuing Education Center in Fayetteville, although they might attract the same segments of the general public who would otherwise attend arts programs at the Arts Center of the Ozarks, a private, non-profit arts center in the area whose property was not exempt from ad valorem taxation.
This case calls for an interpretation of the property tax exemption provision of our Constitution, article 16, § 5(b), which states:
The following property shall be exempt from taxation: public property used exclusively for public purposes; churches used as such; cemeteries used exclusively as such; school buildings and apparatus; libraries and grounds used exclusively for school purposes; and buildings and grounds and materials used exclusively for public charity.
(Emphasis supplied.)
In its letter opinion and Order, the circuit court, in reviewing the evidence submitted, made the following findings:
1. Property must be "actually and directly and exclusively" used for a public purpose to be entitled to an exemption from taxation.
2. The actual type of use to which property may ultimately be put is determinative as to questions involving entitlement to an exemption during construction. If the type of use contemplated by the entity seeking the exemption is exclusively public, as well as the actual character of the use to which the property can be put, the property will be entitled to tax-exempt status.
3. If a possibility exists that the property can or will be used for non-public purposes and that issue is raised by the taxing authority, the tax exemption will not be applied prospectively during construction of the facility.
4. Issues related to the use of the Walton Arts Center after construction are not ripe for a decision by the court.
5. The defendants have failed to meet the strict burden of proof imposed upon entities seeking an exemption from ad valorem taxation.
The appellants bring this appeal asserting two points for reversal: (1) The circuit court committed error in ruling that public property under construction for a public purpose shall be denied a tax exemption if there exists an issue as to whether the property may be used for a non-public purpose once completed; and (2) The court erred in finding the appellants had failed to meet their burden of proving that the Walton Arts Center was being used exclusively for public purposes on January 1, 1989. On cross-appeal, the appellees urge error in the circuit court's ruling that the property would have been exempted during the construction period had the appellants met their burden of proof.
As this Court has consistently held, taxation is the rule and exemption the exception. Exemptions from taxation must always be strictly construed, regardless of merit, in favor of taxation and against exemption. Hilger v. Harding College, 231 Ark. 686, 331 S.W.2d 851 (1960); Off-Street Parking Development Dist. No. 1 v. City of Fayetteville, 284 Ark. 453, 683 S.W.2d 229 (1985). As stated in Brodie v. Fitzgerald, 57 Ark. 445, 22 S.W. 29 (1893):
[E]xemptions, no matter how meritorious, are acts of grace, and must be strictly construed, and every reasonable intendment must be made that it was not the design to surrender the power of taxation or to exempt any property from its due proportion of the burden of taxation.
The prior cases underscore the limiting language of the constitutional...
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