The Arkansas Supreme Court issued a nuanced opinion in City of Little Rock v. Ward, 2020 Ark. 399 (2020), granting property tax exemptions for publicly held property that formerly had been leased to private parties. The reasoning of the opinion includes the specific facts associated with the subsequent use of each parcel. As such, the case is a nuanced win for economic development authorities.
Arkansas property tax exemptions are constitutionally based, and thus Supreme Court opinions are critical in determining how far an exemption is allowable. The exemption is for “public property used exclusively for public purposes.” Ark. Const. art. 16, § 5(b). In general, public property leased to a private party for profit is subject to property tax. City of Little Rock addresses what happens after a lease ends and the private party departs — is the parcel still subject to property tax?
The potential taxpayer in this case was the Little Rock Municipal Airport Commission, which had leased various parcels to private parties in the course of its business running the Little Rock Airport, including an economic development project where the business ultimately left. The parcels were not leased in the years at issue.
The central holding of the case is squarely in favor of economic development agencies that may wind up holding property while seeking an appropriate lessee:
Instead, the issue is whether a government entity’s ownership of unleased property while it pursues a private lease can constitute an exclusive public purpose. We hold that it can, and we reverse because the unrefuted evidence showed that the Airport utilized the properties in a manner that served an exclusive public purpose during the unleased periods.
2020 Ark. 399 at 6. Presumably, a similar rationale also could apply to property being held for sale by economic development agency.
The opinion’s analysis then turns to the detailed facts of the specific parcels and notes additional public uses beyond simply being held while seeking a lessee. One parcel was used for storage by the airport. The other two parcels helped provide a spatial buffer to ensure compatible use with airport grants and regulatory requirements. None of the three parcels had any private use during the periods at issue.
Query whether these additional public uses and purposes beyond simply being held for lease were necessary to the determination of exemption or were just icing on the cake. To maximize the case for an exemption, an economic development agency may want to find some additional public uses for property in addition to simply holding it available for lease or sale.
Expect property tax exemptions to continue to be a hot issue in Arkansas: The Assessment Coordination Division needs to promulgate rules and guidelines for exemption determinations by May 1, 2021.