Opinion
DECEMBER 22, 1997
Syllabus
119 — TAXATION — Exemptions La. Const. Art. VII, Sec. 21
Property leased by Hospital Service District is entitled to exemption if used for a governmental purpose or one incidental thereto.
Honorable Jimmy D. Dean Assessor, LaSalle Parish P.O. Box 418 Jena, Louisiana 71342
Dear Mr. Dean:
You have requested an opinion of this office regarding a facility under construction by the LaSalle Hospital District #2, to be utilized as a combination physical therapy and home health care center. Specifically, you are interested in determining whether the facility property, both real and personal, should be added to the tax roll if the property is leased to tenants not directly affiliated with the Hospital Service District.
It is incumbent upon us to point out that the determination as to whether a particular taxpayer is exempt from the payment of ad valorem taxes is a factual determination which must be made by the assessor and the Louisiana Tax Commission. La. Const. Art. VII, Sec. 18(E); Atty. Gen. Op. Nos. 92-660, 89-599 and 76-114. However, even though this office does not have the authority to determine whether the particular property in question is entitled to an exemption, we can assist you by providing you with information regarding the applicable law which may be used in reaching your decision.
The jurisprudence of this state has consistently provided that constitutional and statutory exemptions from taxation must be strictly construed in favor of the taxing body, and against the taxpayer desiring or requesting the exemption. An exemption is an exceptional privilege and must be clearly, unequivocally and affirmatively established. Zapata Haynie Corp. v. Larpenter , 583 So.2d 867 (La.App. 1st Cir. 1991), writ denied.
La. Const. Art. VII, Sec. 21 pertinently provides:
"In addition to the homestead exemption provided for in Section 20 of this Article, the following property and no other shall be exempt from ad valorem taxation:
(A) Public lands; other public property used for public purposes." (Emphasis added).
Since LaSalle Hospital District #2 is a public entity, property owned by it is `public property'. Slay v. La. Energy Power Authority , 473 So.2d 51 (La. 1985). A determination must then be made as to whether the property is being used for a public purpose. Slay , supra. If the property is leased to a private entity strictly for private purposes, it is not entitled to an exemption and is subject to assessment. Schulingkamp v. Heaton , 455 So.2d 1181 (La.App. 4th Cir. 1984), writ denied.
"Allowing improvements on tax exempt property to be themselves tax exempt when used for a private purpose would lead to a very inequitable result in this City's tax scheme. To tax private lessees of private lands and not to tax private lessees of public lands would be unjust and inequitable. We do not believe the tax exemption scheme for public lands was intended to allow some more fortunate individuals to escape taxation by the fact that they lease and reside on public lands." Schulingkamp , supra.
Conversely, the fact that public property is leased to a private entity does not preclude it from being for a public purpose so as to be exempt. Atty. Gen. Ops. Nos. 92-408 and 89-599. It is incumbent upon you to consider the actual activities of the lessee(s), and the use of the particular property in question, as well as any other relevant factors, in order the determine if use of the property relates to a public purpose.
It is the opinion of this office that if property serves a governmental function or is reasonably related to a governmental function, then the property should be determined to be exempt from taxation. Atty. Gen. Ops. Nos. 92-408 and 89-599.
Please be advised that Atty. Gen. Op. No 89-599 determined that even if property will produce revenues which go toward financing governmental functions, that would not be sufficient to bring property within the purview of the exemption. Nor would such ancillary public benefits as increased employment opportunities, increased tourism, or aesthetic improvements to the area be considered such incidental governmental functions as to bring the property within the constitutional tax exemption.
For your further information and convenience, I am enclosing copies of the opinions mentioned herein. We trust the foregoing to be of assistance.
Yours very truly,
RICHARD P. IEYOUB Attorney General
BY: _____________________________ JEANNE-MARIE ZERINGUE BARHAM Assistant Attorney General
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Enclosures
Received: Released:
Jeanne-Marie Zeringue Barham Assistant Attorney General
Attachment
State of Louisiana DEPARTMENT OF JUSTICE
WILLIAM J. GUSTE, JR. 7TH FLOOR ATTORNEY GENERAL 2-3-4 LOYOLA BUILDING NEW ORLEANS 70112
OPINION NUMBER 92-660
OCTOBER 21, 1992
OPINION NUMBER 92-660
119 Taxation-Exemptions, general 122 Taxation-Exemption from Mr. Albert I. Donovan, Jr. property taxes — new industry Executive Counsel to the Governor Office of the Governor General discussion of factors Post Office Box 94004 to be considered by State Baton Rouge, LA 80804-9004 Board of Commerce and Industry and Governor in deciding to grant tax exemption to new industries.
Dear Mr. Donovan:
At the request of the Louisiana Tax Commission, you have solicited an opinion of the Attorney General to verify whether J.M. Manufacturing and Nan Ya Plastics qualify as new manufacturing establishments for the exemption of ad valorem taxes under Article VII, Section 21 (F) of the Louisiana Constitution of 1974. Section 21 (F) provides the following:
"(F) Notwithstanding any contrary provision of this Section, the State Board of Commerce and Industry or its successor, with the approval of the governor, may enter into contracts for the exemption from ad valorem taxes of a new manufacturing establishment, or an addition to an existing manufacturing establishment, on such terms and conditions as the board, with the approval of the governor, deems in the best interest of the state.
The exemption shall be for an initial term of no more than five calendar years, and may be renewed for an additional five years. All property exempted shall be listed on the assessment rolls and submitted to the Louisiana Tax Commission or its successor, but no taxes shall be collected thereon during the period of exemption.
The terms "manufacturing establishment" and "addition" as used herein mean a new plant or establishment or an addition or additions to any existing plant or establishment which engages in the business of working raw materials into wares suitable for use or which gives new shapes, qualities or combinations to matter which already has gone through some artificial process."
Initially, it should be noted that the authority to determine whether a particular taxpayer may be exempt from the payment of ad valorem taxes is a factual determination reserved by the constitution to the State Board of Commerce and Industry (Board), with the approval of the Governor. While the Attorney General does not have the authority to grant tax exemptions, we would like to provide our assistance to the appropriate decision-making authorities relative to this issue.
The primary purpose of this 10-year exemption is to induce industry to locate or expand in Louisiana and to create new jobs. Hence, any exemption granted must be for these stated purposes. This policy is expressed in the Board's Industrial Tax Exemption Program. In its "Description of the Law" section preceding its Rules, the Board states, in pertinent part:
"All new or expanding manufacturing operations are eligible to be considered for 10-year property tax exemption. The basic criteria are: 1) the operation must be manifestly manufacturing; 2) it must create employment; 3) it must be in the best interest of the state to grant the exemption; and 4) conforms to all rules of the Board of Commerce and Industry, particularly Rule 1.
* * *
A company considering applying for industrial tax exemption should keep in mind from the beginning of construction that the Board of Commerce and Industry places great weight on the observance of its Rule 1. This rule stresses the use of Louisiana manufacturers, Louisiana contractors, Louisiana laborers, and Louisiana suppliers when establishing or expanding an industrial facility."
Rule 1 further states, in part:
"It is a legal and moral obligation of the manufacturers receiving exemptions to favor Louisiana manufacturers, suppliers, contractors and labor, all other factors being equal."
Further, in order for a facility to qualify for tax exempt status under Section 21 (F), it must either be a new "manufacturing establishment" or and "addition" to an existing manufacturing establishment, as those terms are defined in said section.
Thus, to qualify, the two applicants must fall within the purview of the public policy for which the exemption was created (i.e. industry inducement and job creation) and be a new manufacturing establishment or an addition to an existing one.
The correspondence attached to your request indicates concern over the timeliness of the filing of applications for exemption. The Board's Rule 2 (a) requires the advance notification of intent to apply for tax exempt status to be filed at least ninety days prior to the beginning of construction or installation of facilities. A fee of one hundred dollars must accompany the advance application.
Rule 2 (b) requires the application for tax exemption to be filed within a minimum of six months after construction begins and/or not later than three months before completion of construction or beginning of operations, whichever occurs first. A fee based on a percentage of the amount of taxes to be exempted must be submitted with this application, said fee to be calculated by the applicant. If the fee submitted is incorrect, the Board reserves the right to return the application, which application will not be considered officially received and accepted until the appropriate fee is submitted. The application must be received four weeks prior to the Board meeting at which it will be considered.
According to the September 4, 1992 letter from Formosa Plastics Corporation, USA (Formosa), the parent company, construction of the J-M plant began in June of 1990, and was completed in April of 1991. Ms. Kay Wallace, Coordinator of the Industrial Tax Exemption Program, advised that the advance notice of intent and fee were timely filed with the Board in July of 1989. The application for exemption and corresponding fee were also timely filed in November of 1990.
Construction of the Nan Ya facility began in March of 1990. Board records reflect that the advance notice of intent and fee were timely filed in February of 1989. Construction was completed in November of 1991. The application for exemption and fee were timely filed in October of 1989.
Ms. Wallace advised that, while the fees submitted with the application were correct, the applications for tax exemption were incomplete and were returned to Formosa. The Board held the applications, duly filed, pending the submission of additional information. By letter dated August 31, 1992, the Board granted Formosa an extension until September 15, 1992, to file the completed applications. They were timely received as per letter from the Board dated September 15, 1992.
The Honorable J.P. Jewell, Jr. Assessor, of Point Coupee Parish, advised that he has delayed placing the two applicants on the tax roll, pending the Board's decision on the granting of the exemption. To date, no ad valorem taxes have been paid by the two applicants.
As previously stated, the advance notices of intent, the applications for tax exemption, and the appropriate fees were timely filed with the Board. Formosa was dilatory in providing the information necessary to complete the applications, but was granted an extension which was timely met.
Rule 13 (a) provides:
"The owner of a manufacturing establishment shall carefully document the beginning date of effective operation of the new plant or added facility, and also document the date that construction is essentially complete. The contractee must file that information with the Office of Commerce and Industry on the prescribed Project Completion Report form within thirty (30) days following the last day of the month after effective operation has begun or construction is essentially complete, whichever comes first. The Assistant Secretary for the Office of Commerce and Industry will indicate with a return of a copy of that report the effective date of the tax exemption contracts, which shall be December 31 of the year in which effective operation began or construction was essentially completed, whichever was sooner."
Rule 14 provides:
"Within six (6) months after construction has been completed, the owner of a manufacturing establishment shall file on the prescribed form an Affidavit of Final Cost showing complete cost of the exempted project. A fee of one hundred dollars ($100.00) shall be filed with the Affidavit of Final Cost for an on site inspection that will be conducted by a representative of the Office of Commerce and Industry. Upon request by the Office of Commerce and Industry, a map showing the location of all facilities exempted in the project will be submitted in order that the exempted property may be clearly identifiable."
Ms. Wallace advised that the Project Completion Report and the Affidavit of Final Cost are actually amendments to the executed contract of exemption. While the appropriate Rules specify a submission date, the Board has historically granted the applicant thirty days after the date of execution of the contract to submit same. Ms. Wallace further advised that it is very common for contracts of exemption to be executed after the applicant is in full operation due to delays in information gathering by the applicant. She estimates that at least two-thirds of the applicants fall into the same case scenario as J-M and Nan Ya.
Rule 9 provides:
"The Board of Commerce and Industry will not consider for tax exemption any manufacturing establishment, or addition thereto, once such establishment or addition has been in operation for a period of six months unless the Assessor of the parish in which the establishment or addition is located certifies in writing that said establishment or addition is not on the tax rolls. If the establishment or addition is on the tax rolls the Board of Commerce and Industry will consider granting tax exemption if the Assessor and the Louisiana Tax Commission both agree in writing to remove the establishment or addition from the tax rolls should the tax exemption be granted.
Under no circumstances will the Board of Commerce and Industry consider for tax exemption any manufacturing establishment or addition thereto once ad valorem taxes have been paid on said establishment or addition."
As previously stated, no ad valorem taxes have been paid on the two establishments. Since they will have both been in operation for a period of six months as of the date the Board acts on their applications for exemption, Rule 9 is applicable. Thus, if the property has not been placed on the tax rolls, the assessor need only certify that fact in writing to the Board. If the property has been placed on the tax rolls, the assessor and the Louisiana Tax Commission must both agree, in writing, to remove them if the exemption is granted. See also Attorney General Opinion No. 79-52.
With this general discussion of the constitutional provisions and rules of the Board as a guide, we suggest that, in determining whether tax exempt status should be afforded J-M Manufacturing and Nan Ya Plastics, the Board consider the following:
(1) Did these establishments fulfill the criteria set forth in the Board's "Description of the Law" and Rule 1?
(2) Do they constitute new manufacturing establishments or additions to existing ones?
(3) Have they complied with Board Rules, as those rules have been systematically interpreted and applied historically to other applicants?
(4) Would an ad valorem tax exemption contract with these applicants be in the best interest of this state?
(5) Has the Board received the information necessary for compliance with Rule 9, as discussed hereinabove?
Should the Board resolve these issues favorable to the applicants, we are aware of no legal prohibition against executing the contracts for exemption of ad valorem taxes.
If we can be of any further assistance to you in this or any other matter, please do not hesitate to contact us.
Sincerely,
RICHARD P. IEYOUB Attorney General
BY: ___________________________ ROBERT E. HARROUN, III Assistant Attorney General
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cc: Mr. R. Paul Adams Mr. Malcolm B. Price, Jr. Mr. J.P. Jewell, Jr.
CITY OF NEW ORLEANS CHIEF ADMINISTRATIVE OFFICE ROOM 9E01 — CITY HALL NEW ORLEANS, LOUISIANA 70112 (504) 586-4335
SIDNEY J. BARTHELEMY October 24, 1989 STEWART WALKER MAYOR CHIEF ADMINISTRATIVE OFFICER
The Honorable William J. Guste, Jr. O.R. Attorney General 89-599 234 Loyola Avenue, 7th Floor New Orleans New Orleans, Louisiana 70112 10-30-89
Re: Legal Opinion Request
Dear General Guste:
I am writing to ask for your legal opinion on the two questions raised in the contents of the attached.
Sincerely,
Stewart Walker Chief Administrative Officer
SW:cdb
cc: Mr. Winston Redick
MEMORANDUM REGARDING D.H. HOLMES CANAL STREET BUILDING
For the intended purposes of the Canal Street Development Corporation project, D.H. Holmes Canal Street Property will be owned in "fee simple" by the Public Benefit Corporation. The building will have to be substantially repaired.
It is the intention of the builder to gut the building and put in all of the necessities for a hotel operation, as well as to restore the elevations as far as possible to their original position for historic renovation benefits.
The lease between the Public Benefit Corporation and the proposed developer will provide that it is the obligation of the City to pay the taxes on the shell, since the City retains title; but the title to the leasehold improvements will belong to the developer, and the developer will pay taxes on the leasehold improvements.
This problem was apparently explained to the Assessor. The Assessor has doubts as to whether these separate assessments can be made.
It has been pointed out that in Place St. Charles, these assessments were made. The building in the shell form was assessed, and each of the tenants were separately assessed for their leasehold improvements.
The question is a simple one: Is there any legal impediment to the assessment of the land and the building that remains to the City (even though exempt), and an assessment or the leasehold improvements to the lessee and owner of the leasehold improvements?
The City of New Orleans created the Canal Street Development Corporation pursuant to the public benefit law provisions. The requirements of La. R.S. 41:1215 and others relating to the corporation were met, and the corporation was approved by the City Council. The shares of stock are held by the Mayor for the benefit of the City of New Orleans.
Dillard's, the firm which acquired D.H. Holmes, donated the Central Business District D.H. Holmes Property to Canal Street Development Corporation (the "Public Benefit Corporation"). This property consisted of:
(a) A fee interest in property fronting Canal Street, and then T-ing off Bourbon and Dauphine, and property on Iberville Street.
(b) Leasehold interest on property on Iberville Street and Canal Street.
The purpose of the Public Benefit Corporation and the donation from Dillard's required inter alia that the property be used for the restoration, improvement and development of the CBD, and more particularly the Canal Street area.
It is the purpose of the Public Benefit Corporation to lease this property to a developer. The developer proposes to spend approximately $20,000,000 in improving the property and an additional sum in removing toxic waste and asbestos, which at this time mitigates against the use of the property. The property will be converted into a hotel, an entertainment center, the parking garage will be continued, and portions of the property in the rear on Iberville Street will be used for moderate-priced permanent residences.
This was the highest and best use for this area for the improvement, expansion, restoration and development of the Canal Street area by the Urban Land Institute.
The Public Benefit Corporation will retain title to the property in which it has ownership interest, and will be the sublessor of the property in which it has a leasehold interest. The improvements will be the property of the lessee.
It is the opinion of the Public Benefit Corporation and the developer that the property owned by the City, which will be leased for the public purpose of expansion, restoration, improvement and development of the downtown area, as well as the restoration of this building to its original historic elevations, despite the rental to be received by the City, should be exempt from ad valorem real estate taxation.
We are requesting your opinion in this connection at this time.
For convenience, we refer you to Constitutional Article VII, Section 21; Slay v. Louisiana Energy and Power Authority, 473 So.2d 51; and Schulingkamp v. Heaton, 455 So.2d 1181 (although we believe this latter case is clearly distinguishable).
Attachment
OPINION NUMBER 92-408
OCTOBER 8, 1992
119 Taxation-exemptions, general State of Louisiana Taxation-levy and assessment DEPARTMENT OF JUSTICE (Ad valorem taxes) Baton Rouge LA Const. Art. 7, Sec. 21 Faust RICHARD P. IEYOUB 70804-9005 vs. Mitchell Energy Corp., ATTORNEY GENERAL 437 So.2d 339 (La.App. 2d Cir. 1983) Slay vs. LA Energy and Power Authority, 473 So.2d 51 (La. 1985) Shulingkamp vs. Heaton, 455 So.2d 1181 (La.App. 4th Cir., 1984) Attorney General Opinion Nos. 89-599 and 79-861 The traditional test of exemption is based upon the use of the property for a tax exempt purpose, rather than upon whether title to the property is vested in a tax exempt institution.
Honorable Charles Slay, CLA Land and buildings owned by a Assessor, Rapides Parish non-profit corporation do not Alexandria, LA 71309-2002 enjoy tax exempt status if leased to private individuals.
Public Property not used for a public purpose is not exempt
Dear Mr. Slay: from ad valorem taxation.
In your opinion request to this office, you posed several questions regarding the tax exempt status of property owned by public or non-profit corporations leased for private purposes as determined under the guidelines of Article VII, Section 21, Paragraphs (A) (B) of the Louisiana Constitution. That section reads as follows:
Section 21. Other Property Exemptions
In addition to the homestead exemption provided for in Section 20 of this Article, the following property and no other shall be exempt from ad valorem taxation:
(A) Public lands; other public property used for public purposes.
(B)(1) Property owned by a non-profit corporation or association organized and operated exclusively for religious, dedicated places of burial, charitable, health, welfare, fraternal, or educational purposes, no part of the net earnings of which inure to the benefit of any private shareholder or member thereof and which is declared to be exempt from federal or state income tax.
* * *
Your questions are:
1. Does a building owned by a hospital but leased to a group of private individuals and to a pharmacist still enjoy this exemption?
2. Is the land exempt?
3. Does a city owned golf course leased to a group for a private club remain exempt from property taxes?
4. Do church owned nursing homes which receive either medicare or medicaid as privately owned nursing homes enjoy an exemption from property taxes by reason of Article VII, Section 21 (B)(1)?
You also cited Attorney General Opinion No. 89-599 for reference as it applies to your request. Attorney General Opinion No. 89-599 is correct inasmuch as it addresses public property leased to a private entity for private purposes, however, it does not cover all situations presented in your request. Attorney General Opinion No. 79-861 directs itself to a number of situations, including all of those noted in your request, and furnishes a helpful checklist for determining an Article VII, Section 21 exemption. I adopt Attorney General Opinion No. 79-861 in toto for this opinion and have enclosed a copy as reference for you. Also, I note Attorney General Opinion No. 79-861 for discussing Louisiana's jurisprudence that a constitutional or statutory grant of exemption from taxation must be strictly construed in favor of the state or the taxing body, and against the taxpayer desiring exemption.
Now I will answer the four questions you have presented in your opinion request. For question one, even though the hospital may satisfy the requirements of a non-profit corporation, the lease of the hospital's property to private individuals would exclude the property from exempt status unless the lessees also satisfy the non-profit corporation or association requirements, and no part of the net earnings flowing from the property inure to the benefit of any private shareholder or member thereof as per the language of Article VII, Section 21, Paragraph (B)(1)(a).
As for question two, the land would likewise not qualify for tax exempt status based on two different approaches. The first approach is to merely extend the rationale used to answer question one to the situation at hand. Article VII, Section 21 (B)(1)(a) simply states "property" without elaborating further. Could the lessees be said to have use of the building and not have use of the land underneath the building? Secondly, Louisiana's courts have derived a simple test for aiding the determination of whether or not property enjoys tax exempt status based on Article VII, Section 21. The traditional test of exemption is based upon the use of the property for a tax exempt purpose, rather than upon whether title to the property is vested in a tax exempt institution. Faust vs. Mitchell Energy Corp., 437 So.2d 339 (La.App. 2d Cir. 1983): State vs. Anderson, 116 So.2d 80 (La.App. 1st Cir. 1959).
Unlike the two prior questions, the third question involves property owned by a public body and not a non-profit corporation or association. Therefore, this question is more in line with your Attorney General Opinion No. 89-599 which you cited in your opinion request. Article VII, Section 21 (A) covers the exemption from ad valorem taxation given public property and reads in part:
* * *
"the following property and no other shall be exempt from ad valorem taxation:
(A) Public lands; other public property used for public purposes."
As stated in Attorney General Opinion No. 89-599, there is, "no doubt that property owned and used by the city for a public purpose is not subject to ad valorem taxation, and "the fact that public property is leased to private business does not preclude it from being for a public purpose which would likewise be exempt." However, your question poses the situation of a city-owned golf course leased to a group for a private club. The Louisiana Supreme Court, in Slay vs. Louisiana Energy and Power Authority, 473 So.2d 51 (La. 1985), a case with which I am sure you are familiar, stated:
"Louisiana Constitution Article VII, Section 21 (A) exempts public property used for public purposes from ad valorem taxation . . . . In order to be exempt under the article the property must be public, and it must be used for a public purpose."
Further, another court addressed a situation somewhat like yours and stated:
"To tax private lessees of private lands and not to tax private lessees of public lands would be unjust and inequitable." Schulingkamp vs. Heaton, 455 So.2d 1181 (La.App. 4th Cir. 1984).
There is no doubt that a city owned golf course leased to a group for a private club does not satisfy the requirement that the property be used for a public purpose.
Your final question is addressed by Attorney General Opinion No. 79-861. As long as the church owning the nursing home satisfies the requirements of a non-profit corporation or association and the income-generating activity falls under one of the activities listed in Article VII, Section 21 (B)(1)(a), it would appear that the source of funds used to pay for the services of the nursing home would be immaterial. Likewise, unless medicare or medicaid benefits are not to be paid to nursing homes owned by non-profit corporations or associations, it is our opinion that a church in the situation you have described would be exempt from paying ad valorem property taxes on the nursing homes it owns.
We hope this information is sufficient and of benefit to you; and if we may be of further help, please feel free to call upon us at any time.
Very Truly Yours,
RICHARD P. IEYOUB Attorney General
By: ___________________________ HAROLD LOUIS LEE Staff Attorney
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