Opinion ID: 1788426
Heading Depth: 2
Heading Rank: 2

Heading: Tax Exemptions for Municipal Use of Municipal Property Under the 1968 Constitution

Text: The 1968 constitutional revision effected changes in the exemption from ad valorem taxation for property used for municipal purposes. Unaltered since its adoption in 1968, article VII, section 3(a) provides in full: All property owned by a municipality and used exclusively by it for municipal or public purposes shall be exempt from taxation. A municipality, owning property outside the municipality, may be required by general law to make payment to the taxing unit in which the property is located. Such portions of property as are used predominantly for educational, literary, scientific, religious or charitable purposes may be exempted by general law from taxation. This provision differs from its antecedents in the 1885 Constitution in two significant ways. First, as stated above, it does not require legislative authorization to activate the self-executing exemption for property owned and used exclusively by the municipality for municipal or public purposes. In other words, no longer was the exemption contingent upon the Legislature declaring that an activity served a municipal purpose and was therefore tax exempt. See Mikos, 374 So.2d at 460 (holding change in statutory language on exemption irrelevant because provision is self-executing and therefore does not require statutory implementation); see generally 2 Tax Section, The Florida Bar, Florida State and Local Taxes, ¶ 5.03[4], at 215 (1984) (describing exemption in article VII, section 3(a) as unique, ... mandatory and self-executing). Second, the self-executing exemption requires use of the property by the municipality that owns it, whereas article XVI, section 16 of the 1885 Constitution did not require ownership and use by the municipality as long as the property was held and used exclusively for municipal purposes. A tax exemption for portions of property used predominantly for municipal purposes, regardless of ownership, still requires legislative authorization under the express terms of article VII, section 3(a). The requirement that the property be both owned and used exclusively by the municipality was seen as a response to the 1965 decision in Daytona Beach Racing & Recreational Facilities District v. Paul, 179 So.2d 349, 353 (Fla.1965), holding that municipal property leased to a corporation for a racetrack served a public purpose because it contributed to the economic well-being of the community, rendering the lessees' interest in the property exempt from ad valorem taxation. See Volusia County v. Daytona Beach Racing & Recreational Facilities Dist., 341 So.2d 498, 501 (Fla.1976) (Perceiving decisions [such as Daytona Beach Racing ] as creating inequities in the tax structure, the draftsmen of the Constitution of 1968 limited the municipal purpose exemption to `property owned by a municipality and used exclusively by it for municipal or public purposes.'); Bonnie Roberts, Ad Valorem Taxation of Leasehold Interests in Governmentally Owned Property, 6 Fla. St. U.L.Rev. 1085, 1091-92 (1978) (stating that Daytona Beach Racing dealt a substantial blow to the legislature's attempt to tax leasehold interests, and that the drafters of the 1968 Constitution attempted to deal with the problem by limiting the constitutional grounds on which an exemption could be based). Effectuating the intent of the framers and voters, we held in Volusia County that property leased from a municipality and used to generate a profit was not exempt from ad valorem taxation under article VII, section 3(a). See 341 So.2d at 502 (stating that the corporation's use of the leasehold on governmental property to make profits for its stockholders is determinative). The decision in Volusia County marked one step in a series of cases in which this Court developed a separate and more restrictive test under article VII, section 3(a) for private interests in municipal property. Under this test, a tax exemption is constitutionally permitted only if the use by the private entity could properly be performed or served by an appropriate governmental unit, or which is demonstrated to perform a function or serve a purpose which would otherwise be a valid subject for the allocation of public funds. Sebring Airport Auth. v. McIntyre, 783 So.2d 238, 246-48 (Fla.2001) (quoting Roberts, supra, at 1092). In Sebring Airport Authority we applied this standard, known as the governmental-governmental test, to invalidate a statutory tax exemption granted under section 196.012(6) for profitmaking endeavors such as convention and visitor centers, sports facilities, concert halls, arenas and stadiums. We have also applied the governmental-governmental test to uphold ad valorem taxation of property leased from an airport authority by food, drink, and merchandise vendors, [9] as well as property leased from a governmental authority for both residential and commercial uses. [10] Sebring Airport Authority ultimately established that for private leaseholds of municipal property, the governmental-governmental test governs eligibility for the constitutional tax exemption in article VII, section 3(a). See 783 So.2d at 248 (Pursuant to this `governmental-governmental' standard, article VII, section 3(a) does not permit municipal property leased to private entities for governmental-proprietary activities to be tax exempt.). Our review of the history of article VII, section 3(a) and the pertinent case law demonstrates that the test for private interests in municipally owned property was never intended to apply to property both owned and used exclusively by a municipality for municipal or public purposes. For property both owned and used exclusively by the municipality, the question becomes whether municipal or public purposes under article VII, section 3(a) of the 1968 Constitution is as broad as municipal purposes under the corresponding provisions of the 1885 Constitution as interpreted in decisions such as McDavid and Saunders. As discussed above, article VII, section 3 does not provide a definition of municipal or public purposes, just as its antecedent provisions in the 1885 Constitution did not define municipal purposes. The 1968 provision added the term public purposes, but this addition neither broadened nor narrowed the exemption. This Court had previously held that public purposes, the term specified in a statutory tax exemption for governmental property, was synonymous with municipal purposes. See Daytona Beach Racing, 179 So.2d at 353; Gwin v. City of Tallahassee, 132 So.2d 273, 276 (Fla.1961). Thus, although the framers of article VII, section 3(a) sought to limit the holding in Daytona Beach Racing, they did so by requiring both ownership and exclusive use of the property by the municipality rather than by narrowing the definition of municipal purposes. In our decisions since 1968 on tax exemptions under article VII, section 3(a) for property both owned and used exclusively by a municipality, we have not elaborated on the meaning of municipal or public purposes. In Ford v. Orlando Utilities Commission, 629 So.2d 845, 846 (Fla.1994), this Court concluded that property located outside Orlando but owned and used by the city for an electrical power plant was used for a valid municipal purpose. We held that under the clear and unambiguous language of article VII, section 3(a), the property was exempt from taxation. Id. at 847. [11] In Mikos, we held that property owned and held as open space or reserved for future needs was constitutionally exempt from ad valorem taxation under article VII, section 3(a). See 374 So.2d at 460. This Court recognized that property owned by a municipality is not exempt from taxation if it is used for a private purpose, but held that vacant land held by a municipality is presumed to be in use for a public purpose if it is not actually in use for a private purpose on tax assessment day. Id. at 460-61. [12]