First Union Nat. Bank of Florida v. Ford

• Decision Date: 10 September 1993
• Docket Number: No. 92-2022,92-2022
• Citation: 636 So.2d 523
• Parties: 18 Fla. L. Weekly D1958 FIRST UNION NATIONAL BANK OF FLORIDA and Brevard County, a political subdivision of the State of Florida, Appellants, v. Jim FORD, Property Appraiser, Appellee.
• Court: Florida District Court of Appeals

Page 523

636 So.2d 523

18 Fla. L. Weekly D1958

FIRST UNION NATIONAL BANK OF FLORIDA and Brevard County, a political subdivision of the State of Florida, Appellants, v. Jim FORD, Property Appraiser, Appellee.

No. 92-2022.

District Court of Appeal of Florida Fifth District.

Sept. 10, 1993.

Rehearing Denied Oct. 19, 1993.

Joe Teague Caruso of Law Offices of Joe Teague Caruso, P.A., Merritt Island, for appellee.

W. SHARP, Judge.

First Union National Bank of Florida and Brevard County appeal from a final judgment denying the Bank an exemption from ad valorem taxes for real estate and improvements constructed on it, for the years 1990 and 1991. The realty is titled in the Bank, leased to the County, and used by the County as its primary governmental and administrative offices. The trial court ruled that the County only had a leasehold interest in the property and was not its "equitable owner." Therefore, the Bank, which holds legal title to the property, could be assessed ad valorem taxes on the realty and improvements since it is not an exempt entity pursuant to section 196.192(1). That statute provides:

Subject to the provisions of this chapter:

(1) All property owned by an exempt entity and used exclusively for exempt purposes shall be totally exempt from ad valorem taxation.

We disagree and reverse.

The facts in this case are not in dispute. The parties conducted a nonjury trial pursuant to a joint stipulation as to the parties' rights and obligations concerning the property and the pertinent documents which created them. ¹ In summary, the County engaged in a financing arrangement whereby individual investors purchased certificates of participation to raise sufficient funds to build a center in which to house its county government offices. ² The real property in this lawsuit was donated by the prior owner. The center has been completed and is being used exclusively for County government functions.

Until the individual certificate holders are reimbursed for their principal investments, plus interest, the property is subject to a complicated trust and lease arrangement. Title to the land is held by the Bank and the Bank acts as trustee for the individual investors. All rent payments made by the County pursuant to the lease with the Bank, are paid to the Bank, solely for the benefit of the individual investors. The Bank pays the individual investors prorated principal and interest twice annually.

The Bank was paid a one time fee of $50,000 for acting as the trustee in this arrangement. However, if the lease is terminated prior to the projected twenty-five year period, a prorata part of the $50,000 will be refunded to the County. Any expenses in servicing the certificate holders are to be paid by way of supplemental rent payments. Any sums received by the Bank in excess of funds owed to the certificate holders belongs to the County.

The lease term runs from year to year, but unless terminated, it is automatically renewed until 2014, when it will expire. That is the date the certificate holders will be paid in full on the projected payout basis. At that time, the Bank must convey legal title to the property in fee to the County.

The lease also provides that if the County fails to appropriate funds to pay rent or if it fails to comply with its other obligations under the lease, the Bank must sell the property or relet it, and use all of the proceeds to pay the certificate holders. If there is any excess, the balance must be paid to the County. The County also has the option, pursuant to the lease, to prepay the sums owed the certificate holders. The Bank must then convey title to the County.

The lease also provides that the property will be occupied and used by the County solely for County governmental purposes. The County has the sole obligation to maintain the property and buildings, and to provide insurance for the improvements. It also is liable for all taxes (if any are due and payable) on the property.

Based on our analysis of the trust and lease involved in this case, we conclude that the County has retained sufficient rights and duties regarding the realty and its improvements, to make it the equitable owner. We disagree with the trial court that the $50,000 payment to the Bank, or the interest payable to the certificate holders over the projected twenty-five year period, makes the Bank the owner of this property for any purpose other than holding bare legal title. Pursuant to this lease and trust, neither the Bank nor the certificate holders have a right nor prospect of ever occupying or using the land and buildings. Even a mortgagee who has the right to foreclose on mortgaged property, has more rights than do the Bank and certificate holders in this case.

All the certificate holders can hope for is recovery of their principal investment plus interest, which was not demonstrated below as being excessive, based on current money-markets. All the Bank can hope to receive is a fee for acting as trustee over a twenty-five year period, which also was not shown by the record below to be excessive for the services projected to be rendered over that time period. At trial it was established that the County accepted bids from other financial institutions to serve as trustee, pursuant to this arrangement, and the Bank's was the best offer received.

In Florida, we have found no appellate decisions concerning the ad valorem taxation of real estate and improvements subject to a similar lease-trust arrangement. However, two recent out-of-state cases involving similar situations support our conclusion in this case. See Mayhew Tech Center, Phase II v. County of Sacramento, 4 Cal.App. 4th 497, 5 Cal.Rptr.2d 702 (1992); Texas Department of Corrections v. Anderson County Appraisal District, 834 S.W.2d 130 (Tex.App.1992). Both cases hold that the states retained equitable ownership of the real estate and improvements and they were not subject to ad valorem taxation. The improvements on the properties in both cases had been built with funds raised from certificate holders or investors, and the title to the property was vested in private, for-profit corporations. In the Texas case, the state built a prison and leased it back to use as a state prison. In the California case, the state built, leased and occupied a facility for the Franchise Tax Board in Sacramento.

The court concluded in Mayhew that most of the property rights regarding the property and improvements were vested in the state, as they would have been in a normal purchase financed by a loan and secured by a deed of trust.

In other words, any equity in the property belongs to the State. As in a conditional sale setting, the State holds beneficial ownership both in a practical and legal sense because it has possession and use of the property to the complete exclusion of all others, subject only to its own default and the remedies which would result.

Mayhew, 5 Cal.Rptr.2d at 706. Both cases conclude that the state should be treated as the taxable owner of the properties, and as such, is immune from taxation under the respective applicable state constitutions.

Appellee property appraiser argues that Mayhew and Anderson do not provide us with solid precedent in this case because they were decided with reference to specific and unique state constitutional provisions without parallel in Florida. However, Article VIII, section 1(a) of the Florida Constitution (1968) provides: "The state shall be divided by law into political subdivisions called counties." As was true under Florida's prior constitutions, counties are considered to be parts of the state. As such, it has long been established by case law that they are immune from state, municipal, or other special districts' attempts to tax them. See Dickinson v. City of Tallahassee, 325 So.2d 1 (Fla.1975); Hillsborough County Aviation Authority v. Walden, 210 So.2d 193 (Fla.1968); State ex rel. Charlotte County v. Alford, 107 So.2d 27 (Fla.1958); Park-N-Shop, Inc. v. Sparkman, 99 So.2d 571 (Fla.1957); Orange County, Fla. v. Florida Department of Revenue, 605 So.2d 1333 (Fla. 5th DCA 1992), result approved, 620 So.2d 991 (Fla.1993); Sarasota-Manatee Airport Authority v. Mikos, 605 So.2d 132 (Fla. 2d DCA 1992), rev. denied, 617 So.2d 320 (Fla.1993). Cf. Lewis v. The Florida Bar, 372 So.2d 1121 (Fla.1979); 50 Fla.Jur.2d Taxation Sec. 3:35. Absent a waiver in the state constitution itself, which does not exist, counties do not need to qualify for statutory tax exemptions pursuant to Chapter 196, because the legislature lacks the power to tax them by passing statutes.

Appellee also argues that the concept of equitable ownership for tax purposes should not be applied to counties, and that the presumption of inclusion of all property in the state as subject to taxation should be applied here. We reject both propositions. The concept of taxing the equitable owners of real property in Florida rather than the holder of the bare legal title is well-established. See Bancroft Investment Corp. v. City of Jacksonville, 157 Fla. 546, 27 So.2d 162 (1946); Mikos v. King's Gate Club, Inc., 426 So.2d 74 (Fla. 2d DCA 1983); 50 Fla.Jur.2d Taxation (1983); Op.Atty.Gen. 073-152 (1973). It is just and equitable to apply that doctrine in an appropriate case, whether the result is to uphold or to overturn the tax. If only applied so as to result in taxation of property, that would redound to the detriment of the state, its subdivisions and agencies, and counter the principal of favoring tax immunity of the state when taxation of its property is at issue in a case. See Mayhew; Texas Department of Corrections. To the contrary, the general rule is that property belonging to the state is presumed to be immune from taxation unless there is a clear manifestation of intent to tax it. 84 C.J.S. Taxation Sec. 200 p. 386.

Appellee relies on two recent cases decided by our sister court, Ocean Highway and Port Authority v. Page, 609 So.2d...