Title: City of Richmond v. SunTrust Bank

State: virginia

Issuer: Virginia Supreme Court

Document:

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PRESENT:  Kinser, C.J., Lemons, Millette, Mims, McClanahan, and 
Powell, JJ., and Koontz, S.J. 
 
CITY OF RICHMOND 
 
 
 
 
 
 
 
 
OPINION BY 
v. 
Record No. 102409 
 
   JUSTICE LEROY F. MILLETTE, JR. 
 
 
 
 
 
 
         March 2, 2012 
SUNTRUST BANK 
 
FROM THE CIRCUIT COURT OF THE CITY OF RICHMOND 
Beverly W. Snukals, Judge 
 
 
The question presented by this appeal is whether a 
municipal corporation has the authority to tax a non-exempt 
entity for an exempt entity's ownership interest in property 
owned by the two entities as tenants in common.  We hold that 
it does not. 
I. 
A. 
 
SunTrust Bank and the Richmond Redevelopment and Housing 
Authority (RRHA) own two properties – 901 and 1001 Semmes 
Avenue – in the City of Richmond as tenants in common.  
SunTrust holds undivided interests of 62% and 80.27%, and the 
RRHA holds undivided interests of 38% and 19.73%.  To define 
their rights and obligations with respect to their ownership 
interests, SunTrust (then Crestar Bank) and the RRHA executed 
two operating agreements, one for each property.  In pertinent 
part, the operating agreements provide that SunTrust "shall 
have the exclusive right to use and occupy the [properties]" 
and that it "shall have sole and exclusive management and 
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control over, and shall make all decisions affecting, the 
business, management, leasing, operation and disposition of the 
[properties], as fully and completely as if [it] owned the 
entire fee simple interest[s] in the [properties] and subject 
only to the rights of [the RRHA]."  The operating agreements 
further provide that "[n]o rent or other charges shall be 
payable by [SunTrust] or its Affiliates to the [RRHA] as a 
result of their possession of the [properties]." 
B. 
 
Before 2009, the City taxed SunTrust only for its 
ownership interests in the properties.  (The RRHA was not taxed 
for its ownership interests because property owned by a 
political subdivision of the Commonwealth is exempt from 
taxation under Code § 58.1-3606.)  In 2009, however, the City 
determined that SunTrust was liable not only for the taxes on 
its ownership interests, but also for the taxes on the RRHA's 
ownership interests.  The City accordingly corrected the 
assessments against SunTrust for the years 2006 through 2009 to 
reflect that it was liable for taxes on both its ownership 
interests and the RRHA's.1 
 
 
                                                 
 
1 An assessment may only be corrected "within three years 
from the last day for which such assessment is made."  Code 
§§ 58.1-3980(A), -3981(D). 
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C. 
 
SunTrust filed an "Application for Correction of Erroneous 
Assessment of Real Property Taxes," pursuant to Code § 58.1-
3984.  On cross-motions for summary judgment, the circuit court 
ruled that the City had no authority to tax SunTrust for the 
RRHA's ownership interests in the properties and, consequently, 
granted SunTrust partial summary judgment.  The City, while 
preserving its right to appeal the circuit court's ruling, then 
reached an agreement with SunTrust on the amount to be 
refunded; and the circuit court entered a final order in accord 
with that agreement. 
 
The City now appeals. 
II. 
A. 
 
Whether the City has the authority to tax SunTrust for the 
RRHA's ownership interests in the properties is a question of 
law, which we review de novo.  Marble Techs., Inc. v. City of 
Hampton, 279 Va. 409, 416, 690 S.E.2d 84, 87-88 (2010).  The 
factual findings made by the circuit court as to the nature of 
the relationship between SunTrust and the RRHA, however, are 
presumed to be correct, and will not be set aside unless they 
are plainly wrong or without evidence to support them.  County 
of Mecklenburg v. Carter, 248 Va. 522, 526, 449 S.E.2d 810, 
812-13 (1994). 
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B. 
 
For a tax to be valid, it must be supported by express 
legislative authority.  Woodward v. City of Staunton, 161 Va. 
671, 673, 171 S.E. 590, 591 (1933); see also Hampton Nissan 
Ltd. P'ship v. City of Hampton, 251 Va. 100, 105, 466 S.E.2d 
95, 98 (1996) ("[A] city can derive its taxing power only 
through positive grants of authority from the General 
Assembly.").  As this Court has explained: 
 
"Taxes are imposed by the State in the exercise 
of its sovereign power.  This power is exerted 
through the legislature, and an executive officer who 
seeks to enforce a tax must always be able to put his 
finger upon the statute which confers such authority.  
Taxes can only be assessed, levied and collected in 
the manner prescribed by express statutory authority.  
Tax assessors have no power to make an assessment 
except in the manner prescribed by law, and if the 
statute prescribes a method of assessment which is 
invalid, the assessor has no power or authority to 
adopt a method of his own which would have been legal 
if it had been prescribed by the legislature." 
 
Woodward, 161 Va. at 673, 171 S.E. at 591 (quoting Commonwealth 
v. P. Lorillard Co., Inc., 129 Va. 74, 82, 105 S.E. 683, 685 
(1921)). 
C. 
 
The City advances three arguments for why it has the 
authority to tax SunTrust for the RRHA's ownership interests in 
the properties.2  We address these arguments in turn and 
                                                 
 
2 The City makes a fourth argument, based on an expansive 
reading of Code § 58.1-3200, in its reply brief.  At oral 
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conclude that they are either without merit or procedurally 
barred. 
1. 
 
The City first contends that it has the authority to tax 
SunTrust for the RRHA's ownership interests because, pursuant 
to the operating agreements, SunTrust has the exclusive right to 
use and possess the properties as if it were the fee simple 
owner.  In making this argument, the City cites no statutory 
authority; instead, it relies on City of Norfolk v. Perry Co., 
108 Va. 28, 61 S.E. 867 (1908).  There, we upheld a tax imposed 
by a municipal corporation upon two perpetual leaseholders for 
property owned by the municipal corporation, explaining that 
the leaseholders were "the substantial and real owners of the 
property" because they "ha[d] the right of possession, use and 
occupation forever."  Id. at 30, 61 S.E. at 868.  In so ruling, 
we observed that, "as a general rule, in the absence of a 
covenant the landlord under an ordinary lease is responsible 
for taxes on the property leased by him; but this general rule 
can have no application to the case of a perpetual 
leaseholder."  Id. 
 
We reject the City's argument based on Perry.  That case 
is simply inapposite here because SunTrust is not a perpetual 
                                                                                                                                                           
argument, however, the City's counsel correctly conceded that 
the argument runs contrary to well-established rules of 
statutory construction.  We therefore do not address it. 
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leaseholder; indeed, it is not a leaseholder at all.  The RRHA, 
as the circuit court found, did not lease the properties to 
SunTrust.  Rather, the RRHA and SunTrust own the properties as 
tenants in common — a fact that the City conceded below and 
concedes on the first page of its opening brief.  As a tenant 
in common, SunTrust has the right to use and possess the 
properties without any agreement with the RRHA.  Graham v. 
Pierce, 60 Va. (19 Gratt.) 28, 38 (1869) ("[E]very tenant in 
common has a right to possess, use and enjoy the common 
property without being accountable to his co-tenants for rents 
or profits, except under the statute [now Code § 8.01-31] for 
so much as he may receive beyond his just share or 
proportion."). 
2. 
 
Next, the City argues that it has the authority to tax 
SunTrust for the RRHA's ownership interests, since SunTrust 
does not use the properties for a "public purpose."  As support 
for this contention, the City points to Article XIII, Section 
183(a) of the 1902 Constitution of Virginia, which exempted 
from taxation "property lawfully owned by counties, cities, 
towns, or school districts, used wholly and exclusively for 
county, city, town or public school purposes." 
 
We conclude that the City's "public purpose" argument is 
incorrect for two reasons.  First, neither the current 
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Constitution nor Code requires that property owned by a 
subdivision of the Commonwealth be used for a "public purpose" 
in order to be exempt from taxation.  See Va. Const. art. X, 
§ 6(a)(1); Code § 58.1-3606.  Second, even if there were still a 
"public purpose" requirement, that would only mean that the 
RRHA — not SunTrust — could be taxed by the City.  In each of 
the "public purpose" cases cited by the City, a tax was imposed 
on a municipal corporation, not on a private business.  See 
City of Norfolk v. Bd. of Supervisors, 168 Va. 606, 611, 192 
S.E. 588, 589 (1937) (municipal-owned waterworks taxed by 
county); Commonwealth v. City of Richmond, 116 Va. 69, 70-71, 
81 S.E. 69, 70 (1914) (municipal-owned waterworks taxed by the 
Commonwealth). 
3. 
 
Lastly, the City contends that it has the authority to tax 
SunTrust for the RRHA's ownership interests in the properties 
under Code § 58.1-3203, which states in relevant part:  "All 
leasehold interests in real property which is exempt from 
assessment for taxation from the owner shall be assessed for 
local taxation to the lessee."  According to the City, "[t]he 
practical effect of the [operating] [a]greements was to create 
a leasehold interest by SunTrust in the [RRHA's] undivided 
ownership interest in the [p]roperties." 
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We find this contention procedurally barred.  In granting 
SunTrust's motion for partial summary judgment, the circuit 
court held that the operating agreements are not leases and 
that SunTrust and the RRHA are tenants in common.  The City did 
not assign error to these rulings; thus, they will not be 
reviewed on appeal.  Rule 5:17(c); State of Maine v. Adams, 277 
Va. 230, 241-42, 672 S.E.2d 862, 868 (2009) ("A party who asks 
this Court to consider whether a circuit court's holding was 
erroneous is required to assign error to the challenged holding 
so that it may be identified properly for our consideration."). 
III. 
 
The City has failed to "put [its] finger upon the statute 
which confers" upon it the authority to tax SunTrust for the 
RRHA's ownership interests in the properties.  Woodward, 161 
Va. at 673, 171 S.E. at 591 (internal quotation marks and 
citation omitted).  We therefore hold that it has no such 
authority and will, accordingly, affirm the circuit court's 
judgment. 
Affirmed.