Louisville Garage Corp. v. City of Louisville

• Decision Date: 03 December 1946
• Citation: 303 Ky. 553,198 S.W.2d 40
• Parties: LOUISVILLE GARAGE CORPORATION v. CITY OF LOUISVILLE et al.
• Court: Kentucky Court of Appeals

198 S.W.2d 40

303 Ky. 553

LOUISVILLE GARAGE CORPORATION v. CITY OF LOUISVILLE et al.

Court of Appeals of Kentucky

December 3, 1946

Appeal from Circuit Court, Jefferson County, Chancery Branch, First Division; Lawrence F. Speckman, Judge.

Action by the Home of the Innocents against the City of Louisville to enjoin collection of taxes on certain lands, in which defendant filed a cross-petition, making the Louisville Garage Corporation a party and asking that it be held liable for city taxes on improvements on land leased by it from plaintiff's predecessor in title. From a judgment declaring the improvements taxable as property of cross-defendant corporation, it appeals.

Affirmed.

Robert T. Burke and Burke, Sehlinger & Burke, all of Louisville, for appellant.

Gilbert Burnett, Director of Law, and Alex P. Humphrey, Asst Director of Law, both of Louisville, for appellee City of Louisville.

Thomas J. Wood and Doolan, Helm, Stites & Wood, all of Louisville for appellee Home of the Innocents.

REES Chief Justice.

This suit tests the right of the City of Louisville to levy and collect taxes on the improvements located on land owned by the Home of the Innocents, a charitable institution.

On September 1, 1922, the Louisville Garage Corporation leased from the Protestant Episcopal Orphans Asylum, for a term of fifty years, a lot 93 feet by 159 feet on Fifth Street between Chestnut and Broadway in Louisville, Kentucky. The Protestant Episcopal Orphans Asylum was a charitable organization, and on February 2, 1930, was merged with the Home of the Innocents. The contract of lease provided for the payment of rent in monthly installments in advance at the rate of $1,250 a year for the first five years, $1,500 a year for the next ten years, $1,750 a year for the next ten years $2,000 a year for the next ten years, and $2,400 a year for the last fifteen years. The lessee agreed to raze the existing improvements located on the lot, and to commence within one year and to complete within three years new improvements on the property at a cost to it of not less than $75,000. Pending the wrecking of the old structure and the erection of the new building, the lessee was to deposit $10,000 in securities with lessor's agent and in the event at least $75,000 was not expended on the new building within three years the $10,000 in securities was to be turned over to the lessor as liquidated damages. The lessee obligated itself to take out fire and tornado insurance in full value of the improvements and to continue the insurance in force during the entire term of the lease. In the event of destruction or damage by fire or tornado, the proceeds of the insurance must be used to reconstruct the improvements on the property. The lease contract contained this clause: 'The improvements on said property are to belong to lessor at the expiration of this lease without cost.' The lessee erected a two-story brick sales and service garage at a cost of more than $75,000 within the time specified in the contract. Some time after the completion of the building, the Louisville Garage Corporation leased the land and improvements to the Louisville Motors, Inc., which thereafter operated the sales and service garage on the premises. The City of Louisville assessed the improvements as of July 1, 1942, at $45,000 and the land at $18,600, and on June 11, 1945, issued tax bills on the improvements in the name of the Louisville Garage Corporation for the years 1943, 1944, and 1945 at the valuation of $45,000. During those years the Louisville Garage Corporation, under the lease contract of September 1, 1922, paid rent to the Home of the Innocents at the rate of $1,750 annually, and received an annual rental of $7,200 from its lessee, Louisville Motors, Inc. This litigation began when the Home of the Innocents brought an action against the City of Louisville to enjoin the collection of taxes on various tracts of land, including the lot on Fifth Street, which had been assessed in its name. In an amended answer and cross-petition the City made the Louisville Garage Corporation a party, and asked that it be held liable for city taxes on the improvements on the land leased by it from the Home of the Innocents. The Louisville Garage Corporation claimed immunity from taxation on the theory that the ownership of the improvements was not in it but was in a charitable institution, and the property therefore was exempt from taxation under section 170 of the Constitution of Kentucky. On final submission the chancellor held, on the authority of City of Louisville v. Presbyterian Orphans Home Society, 299 Ky. 566, 186 S.W.2d 194, and cases cited therein, that the land leased by the Home of the Innocents, a charitable institution, to the Louisville Garage Corporation was exempt from taxation, but that the improvements during the term of the lease belonged to the lessee and are taxable as its property. The Louisville Garage Corporation has appealed.

The general rule is, as stated by appellant, that in the absence of an agreement to the contrary the owner of real estate is the owner of improvements erected thereon by another. That there may be a severance of ownership of land and the improvements thereon, however, is recognized by this and other courts. Ratliff v. Utilities Elkhorn Coal Co., 299 Ky. 563, 186 S.W.2d 415; American Rolling Mill Co. v Carol Mining Co., 282 Ky. 64, 137 S.W.2d 725; Parsons v. Ball, 205 Ky. 793, 266 S.W. 649; People ex rel. Muller v. Board of Assessors, 93 N.Y. 308; Parker v. Redfield, 10 Conn. 490; Central Coal & Lumber Co. v. Board of Equalization, 70 Okl. 131, 173 P. 442; Commissioner v. Hills, 10 Cir., 115 F.2d 322. The General Assembly of Kentucky has recognized that there may be a severance of ownership for taxation purposes, and has provided for separate valuations of land and the improvements thereon when the property is listed for taxation. KRS 132.230. In prescribing the method of assessment in cities of the first class, the General Assembly provided that 'improvements owned by a tenant may be assessed in his name apart from the land.' KRS 91.310. In the recent case of Broadway & Fourth Avenue Realty Co. v. City of Louisville, 303 Ky. 202, 197 S.W.2d 238, we held that improvements erected by the lessee on land leased from a charitable institution for a term of ninety-nine years...