Iron County v. State Tax Commission, 52596

Decision Date12 November 1968
Docket NumberNo. 52596,52596
Citation437 S.W.2d 665
PartiesIRON COUNTY, Missouri, and Selwyn Light, Assessor of Iron County, Missuri, (Plaintiffs) Respondents, v. STATE TAX COMMISSION of Missouri, Hunter Phillips, Carl E. Davis and J. Ralph Hutchison, Commissioners of the State Tax Commission of Missouri, the Ruberoid Company, a corporation, and City of Annapolis, Missouri, a municipal corporation,(Defendants) Appellants.
CourtMissouri Supreme Court

Urban Bergbauer, Pros, Atty. of Iron County, Ironton, Howard Elliott, Edward D. Weakley, Boyle, Priest, Elliott & Weakley, St. Louis, for respondents, Iron County and Swlwyn Light.

Dick H. Woods, John K. Bestor, George E. Gibson, Stinson, Mag, Thomson, McEvers & Fizzell, Kansas City, for appellants, The Ruberoid Co., a Division of General Aniline & Film Corp., and the City of Annapolis.

Arnold Brannock, Jefferson City, for appellant, State Tax Commission.

Norman H. Anderson, Atty. Gen., Jefferson City, John H. Denman, Asst. Atty. Gen., amicus curiae, for defendants-appellants.

George S. Hecker, Shepley, Kroeger, Fisse & Hecker, St. Louis, amicus curiae, for Remmert-Werner, Inc.

FINCH, Judge.

This is an appeal from a judgment of the Circuit Court of Iron County overruling a decision by the State Tax Commission and restoring an assessment by the County Assessor of a leasehold interest of the Ruberoil Company (Ruberoid) in property owned by the City of Annapolis (City). We have jurisdiction because Iron County, a political subdivision, is a party and because construction of the revenue laws is involved.

Ruberoid and City entered into a lease dated October 1, 1963, pursuant to the Industrial Development Act, §§ 71.790--71.850, 1 RSMo 1961 Supp., and V.A.M.S. 2 City contracted to issue industrial revenue bonds in the principal amount of $5,000,000. From the proceeds thereof it agreed to purchase 82.75 acres owned by Ruberoid for $25,000 and, with the remainder of the bond proceeds, to pay for construction thereon of a manufacturing and industrial plant (including machinery and equipment suitable for extraction, processing, storage and sale of ores, minerals and related products) for use by Ruberoid as lessee. The land and plant were referred to as the facility.

The basic term of the lease was for twenty years, with options to renew for fifteen successive terms of five years each. The industrial revenue bonds to be issued by City likewise were payable over this twenty-year period, and the rental payments were calculated and pledged to pay the interest and principal payments on the bonds as they came due. These rental payments, commencing September 15, 1965, and ending March 15, 1983, aggregated $7,047,318.90, which exactly equaled the principal and interest on the $5,000,000 bond issue. The lease provided for payment of additional rentals of $1,000 per year, to be increased to $8,000 per year if City should issue general obligation bonds to construct or acquire a municipal waterworks system. The increased amount was not to extend beyond December 31, 1982, and was subject to redection of not to exceed $1,000 per year if state, county, school or city ad valorem taxes were assessed against the facility. The renewal options all called for annual rentals of $1,000. In addition, Ruberoid was to pay for all insurance, repairs, maintenance and utilities. Ruberoid also agreed to pay all taxes and assessments general and special, if any, assessed against the facility or tenant's interest therein under the lease. The City agreed to cooperate with Ruberoid to contest any such assessments and Ruberoid was given the right in its name or City's name, or both, to contest any such assessments.

The lease provided further that if the City became empowered under the laws of Missouri to sell or otherwise dispose of the facility, Ruberoid would have, after August 1, 1973, an option to purchase. The option price was fixed at the full amount then required to redeem all outstanding revenue bonds (taking into account any sums on hand at the time in the principal and interest account for that purpose) plus ,1.00. If all bonds had been retired when the option was exercised, the option price was to be $1.00.

The assessment here in question was made as of January 1, 1965. At that time the facility had not been completed and was not in operation. It became operational in August. 1965.

The Assessor was not furnished any valuation data by Ruberoid. He obtained from the City the details of expenditures of bond money for the facility. These totaled $4,204,300 up to January 1, 1965. From that sum he eliminated 3% to 4% as a proper amount representing expenditures for items such as jurisdictional disputes and changes in plans which would not contribute to true value. Then , in order to arrive at the value of the leasehold or possessory interest, he undertook to determine the value of the fee owned by the City subject to such possessory right. In view of the terms of the option to purchase, he considered that the fee interest of the City had little value but he nevertheless assigned thereto a value of 10% of the overall true value established for the facility. The deduction for these items approximated $586,000, leaving a true value of Ruberoid's leasehold interest as of January 1, 1965, of $3,618,000. He then took 30% of that sum to arrive at an assessed value of $1,085,400. This assessment was upheld by the Iron County Board of Equalization.

Ruberoid appealed to the State Tax Commission, which, after a hearing, ruled that Ruberoid's leasehold interest in the property was taxable but that this interest had a negative value as of January 1, 1965.

On appeal by Iron County and its Assessor, the Circuit Court held that the leasehold interest was taxable, that there was no competent and substantial evidence to support the finding of a negative value by the Tax Commission, and that the decision of the Tax Commission should be reversed and the assessment by the County Assessor reinstated. Appeal to this court followed.

Ruberoid asserts that the 82.75 acre tract, being owned by a municipal corporation, is exempt from taxation under Article X. § 6 of the Constitution of Missouri, 1945, and § 137.100(2) of the statutes. It further contends that this exemption also applies to the interest which Ruberoid has in the tract by reason of its lease. 3 The applicable portion of Article X, § 6 of the Constitution is as follows:

'All property, real and personal, of the state, counties and other political subdivisions * * * shall be exempt from taxation; * * *.'

Section 137.100(2) of the statutes provides as follows:

'The following subjects shall be exempt from taxation for state, county or local purposes:

'(2) Lands and other property belonging to any city, county or other political subdivision in this state, including market houses, town halls and other public structures, with their furniture and equipments and on public squares and lots kept open for health, use or ornament; * * *.'

It is clear that the interest of the City in the 82.75 acre tract is exempted from taxation by the above constitutional and statutory provisions. The question we must determine is whether these provisions also exempt the leasehold interest of Ruberoid therein from taxation.

The general rule with reference to exemption of privately owned leaseholds in publicly owned real estate is stated in 51 Am.Jur., Taxation, § 535, p. 536, as follows: 'Although there is authority otherwise, the general rule is that the exemption from taxation enjoyed by governmental bodies with respect to lands owned by them does not extend to the leasehold interest of a tenant of those lands.'

Likewise, in an Annotation 'Leasehold estate in exempt property as subject of tax or special assessment,' appearing in 23 A.L.R. 248, it is stated: 'It is generally held that the exemption from taxation enjoyed by governmental bodies with respect to lands owned by them does not extend to the leasehold interest of a tenant of those lands.'

This question is reviewed in an article entitled 'Property Taxation of Leases and Other Limited Interests' in 47 California Law Review 470. In that article, l.c. 474, it is stated: 'Nevertheless, it is firmly established, and has been for a great many years, that privately held possessory interests, such as those created by lease, in socalled publicly owned property are subject to tax notwithstanding the exemption of publicly owned property.'

At the outset, we recognize that in Missouri 'all property, except such as is specifically exempted by the Constitution and the statutes enacted pursuant thereto, is subject to taxation. State ex rel. Ziegenhein v. Mission Free School, 162 Mo. 332, 337, 62 S.W. 998, 999.' State ex rel. and to Use of Benson v. Union Electric Company of Missouri, 359 Mo. 35, 220 S.W.2d 1, 3. Furthermore, a tax-exempting statute is construed strictly against one who claims to be exempt. Tiger v. State Tax Commission, Mo., 277 S.W.2d 561; American Bridge Co. v. Smith, 352 Mo. 616, 179 S.W.2d 12, 157 A.L.R. 798.

In determining whether leaseholds are taxable in Missouri, we first must determine the nature of such a leasehold interest. Chapter 137 of the Missouri statutes covers the assessment and levy of taxes and provides for assessments of real property. Section 137.010(2) defines 'real property' for purposes of taxation, as follows:

'(2) 'Real property' includes land itself, whether laid out in town lots or otherwise, and all growing crops, buildings, structures, improvements and fixtures of whatever kind thereon, and all rights and privileges belonging or appertaining thereto; * * *.'

If the words 'all rights and privileges belonging or appertaining thereto' are construed to include interests such as leaseholds, then leaseholds, by statutory definition, are real property for purposes of taxation and are not personal property. That this court has so construed § 137.010(2) necessarily follows from the...

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