Leonard J. Accardo v. Gregory S. Brown, etc.

Supreme Court of Florida
_____________

No. SC11-1445
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LEONARD J. ACCARDO, et al.,
Petitioners,

vs.

GREGORY S. BROWN, etc., et al.,
Respondents.

[March 20, 2014]

CANADY, J.

In this case, we consider whether the land and improvements on certain

leaseholds in Navarre Beach on Santa Rosa Island that were created under long-

term leases granted by Santa Rosa County, are subject to the intangible personal

property tax rather than the ad valorem real property tax. 1

1. We also decide a related case concerning the taxation of improvements
on certain leaseholds in Pensacola Beach on Santa Rosa Island in Escambia
County. See 1108 Ariola, LLC v. Jones, No. SC11-2231 (Fla. Mar. 20, 2014).
 In Accardo v. Brown, 63 So. 3d 798 (Fla. 1st DCA 2011), the First District

Court rejected the claim of the petitioner taxpayers that they were entitled to the

benefit of a statutory provision found in section 196.199(2)(b), Florida Statutes

(2006), under which certain leasehold or other possessory interests in real property

owned by a political subdivision of the State are exempt from ad valorem taxation

and subject only to taxation as intangible personal property. The First District

concluded that given the nature of their perpetual leasehold interests, the taxpayers

are the equitable owners of the real property and the improvements thereon and

that the statutory provision relied on by the taxpayers is therefore inapplicable.

Accardo, 63 So. 3d at 801-02. The District Court certified the following question

as one of great public importance:

WHETHER SECTION 196.199(2)(b), FLORIDA STATUTES, IS
INAPPLICABLE TO THE REAL PROPERTY AT ISSUE
BECAUSE APPELLANTS ARE THE EQUITABLE OWNERS OF
THAT PROPERTY?
Id. at 802.

We determined to exercise our discretionary jurisdiction under article V,

section (b)(4), Florida Constitution. For the reasons we explain, we answer the

certified question in the affirmative and approve the decision reached by the First

District.

I. THE LEASEHOLDS IN NAVARRE BEACH

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 The properties at issue in this case—consisting largely of residential

condominiums with some single-family residential units and commercial

properties—are located on the portion of Santa Rosa Island known as Navarre

Beach, on lands conveyed to Escambia County by the United States in 1947. The

deed permitted Escambia County to lease the land for purposes it deemed to be in

the public interest but provided that the land was “never to be otherwise disposed

of or conveyed” by Escambia County. These Navarre Beach lands were leased in

1956 by Escambia County to Santa Rosa County under a lease providing for an

initial term of ninety-nine years, “automatically” renewable for a further term of

ninety-nine years “on the like covenants, provisions and conditions,” “including

the right in lessee for further renewals.” Santa Rosa County subsequently entered

into various subleases with private parties for the development of the Navarre

Beach lands.

The subleases granted by Santa Rosa County—tracking the renewal

provisions of the lease by Escambia County to Santa Rosa County—generally

provide for an initial ninety-nine-year term and renewal for a further term of

ninety-nine years on like terms “including an option for further renewals.” The

subleases provide for the payment of rentals and include no option to purchase.

The subleases provide that title to any buildings or improvements on the land vests

in the lessor upon the termination of the lease and prohibit the sublessee from

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removing any such improvements. The order of the trial court granting summary

judgment to the respondents describes the undisputed features of the interests of

the taxpayers arising under the subleases granted by Santa Rosa County:

All of the [taxpayers’] interests at issue in this action are used
for purely private purposes. The [taxpayers] enjoy the capital
appreciation and rental income derived from these interests. The
[taxpayers] have the right to convey their interests without restraint;
they have the right to encumber their properties with mortgages; they
bear all of the risks of ownership; they bear the responsibility for
insurance, maintenance and repair; and they are typically responsible
by the terms of the lease documents for taxes imposed upon their
interests.

II. THE STATUTORY FRAMEWORK

As provided in section 196.199(1), Florida Statutes (2013), property owned

by governmental units is not generally subject to the ad valorem tax. But

government property leased to private parties may be subject to ad valorem

taxation. Section 196.199(2) provides generally that where government owned

property is “used by nongovernmental lessees,” the leasehold interest in the

government property shall be exempt from ad valorem taxation only when the

lessee serves or performs the governmental, municipal, or public purpose or

function as specifically defined by law. This rule regarding the taxation of private

leasehold interests in governmental property is qualified by section 196.199(2)(b),

which is specifically referenced in the certified question and is central to the

petitioners’ argument.

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 Section 196.199(2) provides in pertinent part:

(2) Property owned by the following governmental units but
used by nongovernmental lessees shall only be exempt from taxation
under the following conditions:
....
(b) Except as provided in paragraph (c), the exemption provided
by this subsection shall not apply to those portions of a leasehold or
other interest defined by s. 199.023(1)(d), Florida Statutes 2005,
subject to the provisions of subsection (7). Such leasehold or other
interest shall be taxed only as intangible personal property pursuant to
chapter 199, Florida Statutes 2005, if rental payments are due in
consideration of such leasehold or other interest. All applicable
collection, administration, and enforcement provisions of chapter 199,
Florida Statutes 2005, shall apply to taxation of such leaseholds. If no
rental payments are due pursuant to the agreement creating such
leasehold or other interest, the leasehold or other interest shall be
taxed as real property. Nothing in this paragraph shall be deemed to
exempt personal property, buildings, or other real property
improvements owned by the lessee from ad valorem taxation.
(c) Any governmental property leased to an organization which
uses the property exclusively for literary, scientific, religious, or
charitable purposes shall be exempt from taxation.

Section 196.199(7) provides that “[p]roperty which is originally leased for

100 years or more, exclusive of renewal options, or property which is financed,

acquired, or maintained utilizing in whole or in part funds acquired through the

issuance of [certain governmental bonds], shall be deemed to be owned for

purposes of this section.”

The central provision of section 196.199(2)(b) is tied to section

199.023(1)(d), Florida Statutes (2005), which defines intangible personal property

as including, subject to an exception not relevant here, “all leasehold or other

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possessory interests in real property owned by [governmental entities], which are

undeveloped or predominantly used for residential or commercial purposes and

upon which rental payments are due.” (Emphasis added.)

The provisions in section 196.199(2)(b) were first adopted in 1980 and have

not been materially altered since then. Compare § 196.199(2)(b), Fla. Stat. (2013),

with § 196.199(2)(b), Fla. Stat. (1980).

III. THE TAXPAYERS’ ARGUMENTS

The petitioners argue that because their leaseholds all are on county property

that is either undeveloped or used for residential or commercial purposes, rental

payments are due under their leases and their initial lease terms are for less than

100 years, under the plain terms of section 196.199(2)(b), the leasehold interests

are taxable only as intangible personal property. They contend that the statute

precludes ad valorem taxation “if a leaseholder is declared to have an ‘other

interest,’ such as ‘equitable ownership,’ if the lessee is not an actual owner of the

property under Florida law.” Petitioners’ Revised Initial Brief on the Merits at 10.

The petitioners further argue that in any event, they are not equitable owners.

According to the petitioners, there can be no equitable ownership absent the right

to acquire legal title. They contend that “[i]f there were ownership, there would be

no payment of rent, the leaseholders would have no obligation to construct, insure,

or replace the property, and they would be free to move the improvements to

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another location.” Petitioners’ Revised Initial Brief on the Merits at 24. They

further argue that subjecting their renewable ninety-nine-year leases to ad valorem

taxation is inconsistent with the provision of section 196.199(7) regarding the

taxation of “[p]roperty which is originally leased for 100 years or more, exclusive

of renewal options.” The petitioners make some additional arguments that we have

determined do not merit discussion.2

IV. EQUITABLE OWNERSHIP AND AD VALOREM TAXATION

“The concept of equitable ownership in ad valorem taxation has long been a

part of Florida law.” Leon Cnty. Educ. Facilities Auth. v. Hartsfield, 698 So. 2d

526, 528 (Fla. 1997). In Bancroft Investment Corp. v. City of Jacksonville, 27 So.

2d 162, 170-71 (Fla. 1946), we held that the vendee in possession under a contract

for deed from the United States—where the United States retained legal title as

security—was “the owner of the taxable interest in the property in question, that

the United States ha[d] abandoned such use of it as gave it an exemption status”

and that the property therefore was subject to ad valorem taxation. We recognized

that our prior decisions had “held that the one who holds the equitable interest is

the owner for taxing purposes.” Id. at 171 (citing Porter v. Carroll, 92 So. 809

(Fla. 1922) (stating that owner of property for ad valorem tax purposes was not the

2. The petitioner taxpayers point out that some of the subleases are not
perpetually renewable, but they do not make an argument that is specific to those
leases.

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person who “held the legal title only” but was instead the contract vendee who held

“the equitable interest which is the substantial interest”); Dean v. State, 77 So. 107,

109-110 (Fla. 1917) (holding that persons who were “vendee[s] in possession” of

property had “an equitable freehold estate in the land” and thus were properly

allowed to vote as freeholders—that is, ad valorem taxpayers—in election

regarding issuance of bonds)). Following our decision in Bancroft, the district

courts have repeatedly applied the equitable ownership doctrine in the ad valorem

taxation context.

In Mikos v. King’s Gate Club, Inc., 426 So. 2d 74, 75-76 (Fla. 2d DCA

1983), the Second District Court held that mobile home tenants who did not have

legal title to the lots on which their mobile homes were located should nevertheless

be deemed equitable owners of the lots for ad valorem tax purposes. Fee simple

ownership of the mobile home park real property was vested in a nonprofit

corporation, which was prohibited from selling or leasing any lot or site in the

park. Id. at 74-75. The mobile home park had 331 lots. Id. at 75. The corporation

had a corresponding number of authorized memberships. Id. The certificates

issued to each of the members entitled the member to locate a mobile home at a

site designated by the corporate directors, provided for the payment of a monthly

maintenance fee, were transferable by sale with the corporation having the right of

first refusal, and stated that the certificate holder did not own any interest in the

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land. Id. The district court thus recognized that “no member owns legal title to the

site upon which his mobile home is situated.” Id. The court nonetheless

concluded that the mobile home owners held equitable title to their respective lots

by virtue of the interest conferred on them as members of the nonprofit

corporation. Id. at 76. In reaching this result, the court relied on the provisions

regarding homestead exemption in article VII, section 6(a), Florida Constitution,

which provides that the homestead exemption is applicable to real estate that is

held by “equitable title.” Id. The Second District reasoned that if the mobile home

owners “are qualified to obtain homestead exemption on these sites, it follows that

their interest in the respective sites is one of ownership.” Id. The court further

observed that “[t]o permit the members of the [mobile home park corporation] to

avoid the payment of real estate taxes because they maintain their interest in the

mobile home sites through the vehicle of a nonprofit corporation would unfairly

place a disproportionate burden on other taxpayers of the county.” Id. Because

“[e]ach member has practical dominion over his designated site which is

essentially equivalent to ownership,” the Second District held that each member’s

interest was subject to ad valorem taxation. Id.

In Hialeah, Inc. v. Dade County, 490 So. 2d 998, 999-1000 (Fla. 3d DCA

1986), the Third District Court specifically considered application of the version of

section 196.199(2) then in force, along with the corresponding definition of

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intangible personal property contained in section 199.023. The circumstances

considered by the court involved a sale-leaseback transaction in which the City of

Hialeah purchased the land portion of the Hialeah Park Race Track from Hialeah,

Inc., and then leased it back to Hialeah, Inc., for a thirty-year term, with lease

payments due from Hialeah, Inc., in an aggregate amount equivalent to the

principal and interest due on municipal revenue notes secured by a purchase

money mortgage for the funds the city borrowed to finance the purchase. Id. at

998-99. Upon the payment of the full outstanding indebtedness with an additional

$100 payment, Hialeah, Inc., had the option to purchase the city’s fee simple

interest in the property. Id. at 998. The Third District rejected the argument of

Hialeah, Inc., that its interest in the land was subject only to the intangible personal

property tax. Id. at 999-1000.

Rejecting the claim that only leasehold interests falling within the scope of

section 196.199(7)—relating to properties originally leased for 100 years or more,

exclusive of renewal options, or properties financed by certain governmental bonds

—would qualify for ad valorem tax treatment, the court reasoned that the

provisions of section 196.199 and section 199.023 concerning taxation as

intangible personal property only came into play after a determination that the

property was owned by the government. Id. at 1000. In determining whether the

property at issue was government owned, the Third District turned to our holding

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in Bancroft regarding equitable ownership: “Bancroft establishes that property is

not government owned under applicable taxing statutes where the government

merely holds legal title as security and a taxpayer is the beneficial owner in

equity.” Id. at 1000. The court therefore concluded that the Hialeah Park Race

Track property was “not government owned because the city holds legal title to the

property merely as security” and that Hialeah, Inc., was “the true and equitable

owner.” Id. at 1001. The property thus was subject to ad valorem taxation. Id.

In First Union National Bank of Florida v. Ford, 636 So. 2d 523, 527 (Fla.

5th DCA 1993), the Fifth District Court resolved a case it described as “the reverse

or mirror image of Hialeah, Inc.” The case concerned taxation of property that

Brevard County used “as its primary governmental and administrative offices.” Id.

at 523. The county utilized a financing arrangement “whereby individual investors

purchased certificates of participation to raise sufficient funds to build” the county

governmental center on donated land. Id. at 524. Title to the land was held by the

First Union Bank as trustee for the holders of the certificates of participation. Id.

The property was leased by the bank to the county for a projected twenty-five-year

term, running from year to year and automatically renewable. Id. Rental payments

made by the county were used solely to retire the principal and interest on the debt

owed to the owners of the certificates of participation. Id. Under the terms of the

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lease, once the indebtedness was paid in full, the “Bank must convey legal title to

the property in fee to the County.” Id.

The Fifth District concluded “that the County has retained sufficient rights

and duties regarding the realty and its improvements, to make it the equitable

owner.” Id. The court focused on the fact that “neither the Bank nor the certificate

holders have a right nor prospect of ever occupying or using the land and

buildings” and reasoned that “the County holds substantially all the burdens and

benefits of ownership relating to the property sought to be taxed.” Id. at 524, 527.

Accordingly, the Fifth District held that the bank was not liable for ad valorem tax

on the property. Id. at 527.

In Leon County Educational Facilities Authority, we considered

circumstances similar to those at issue in Ford and reached a result in accord with

the result reached by the Fifth District in Ford. The Authority, a governmental

entity authorized “to own, lease, and finance higher educational facilities,” decided

to undertake a dormitory and food service project. Leon Cnty. Educ. Facilities

Auth., 698 So. 2d at 527. To accomplish this, a nonprofit corporation was created,

and the Authority entered into a lease with an option to purchase agreement with

the corporation under which the corporation “as the lessor would acquire,

construct, and equip the project and lease it to the Authority in exchange for

periodic rental payments.” Id. Certificates of participation were issued to obtain

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financing for the project under the lease. Id. Once the indebtedness owed to the

certificate of participation holders was satisfied, the Authority had the right to

purchase the project for one dollar. Id.

After discussing Ford, Bancroft, and Hialeah, Inc., and referring to Mikos,

we observed that “[f]airness dictates that the doctrine of equitable ownership

should be applied evenhandedly regardless of whether a tax is being imposed or an

exemption is being claimed.” Id. at 529. We rejected the argument that Ford was

distinguishable and stated that “[t]he fact that legal title to the project does not

automatically pass to the Authority upon the termination of the lease as in Ford is

not significant in this instance where the Authority can acquire title by paying the

nominal consideration of one dollar.” Id. at 529. Based on the facts presented, we

held that “the project is not subject to ad valorem taxation because the Authority

holds virtually all the benefits and burdens of ownership.” Id. at 530.

V. WARD v. BROWN

Prior to the case now before us, the taxation of leaseholds at Navarre Beach

was dealt with most recently in Ward v. Brown, 919 So. 2d 462, 463 (Fla. 1st DCA

2005), where the First District Court considered whether the taxpayers bringing the

challenge were “equitable owners of the property improvements placed on their

leaseholds,” which derived from the lease granted by Escambia County to Santa

Rosa County. In evaluating this question, the First District stated:

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 It is undisputed that appellants have the right to renew their own
assigned interests in this land lease for the same term of Santa Rosa
County’s lease term from Escambia County, thereby providing
appellants with the same right to perpetual renewals. Appellants have
the right to use or rent the improvements, encumber their interests,
transfer their property rights, and realize any appreciation in value
from sale or rental income. They must ensure and maintain the
improvements and are responsible for the payment of any taxes.
Id. (footnote omitted).

Based on these circumstances, the First District concluded that the

“appellants are equitable owners” of the improvements and subject to ad valorem

taxation. Id. The court relied on case law establishing that the lessee under a

perpetual lease is in effect the owner of the property. Id. at 463-64 (citing

Thompson v. First Nat’l Bank of Hollywood, 321 So. 2d 466, 468 (Fla. 4th DCA

1975) (relying on definitions of “[p]erpetual lease” as “renewable forever at the

lessee’s option” and “[a] lease of lands which may last without limitation as to

time”); J.W. Perry Co. v. City of Norfolk, 220 U.S. 472, 478-79 (1911)

(concluding that leases “for ninety-nine years, renewable forever” were perpetual

leases in which the tenants were effectively the owners of the property); Wells v.

City of Savannah, 181 U.S. 531, 544 (1901) (concluding that lessees under a

perpetual lease had rights in the property resembling ownership rather than those

of an ordinary tenant); Wright Runstad Props. Ltd. P’ship v. United States, 40 Fed.

Cl. 820, 825 (1998) (stating that “where the lease term is perpetual or will outlast

the useful life of the capital improvement for which the special assessment is

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levied, the lessee may be responsible for the assessment since he or she is the sole

beneficiary of the improvement”); Penick v. Atkinson, 77 S.E. 1055, 1057 (Ga.

1913) (concluding that a perpetual lease is the substantial equivalent of a fee

reserving rent)).

The First District specifically rejected the argument that section 196.199(7)

“provides a safe harbor from being taxed as equitable owners.” Ward, 919 So. 2d

at 464. The court stated that “[t]his provision only provides a bright-line test for

leases having an initial term of 100 years or more, by deeming them as owned

without the need to further address whether there are sufficient rights and duties to

consider the lessees as equitable owners.” Id. In reaching this conclusion, the

court relied on the analysis in Hialeah, Inc. concerning the scope of section

196.199(7). See Ward, 919 So. 2d at 464.

The First District also rejected the appellant taxpayers’ argument that

because they were “required to maintain and rebuild the improvements, and the

improvements [were] required to be conveyed to Santa Rosa County at the

termination of the lease[s]” they could not be deemed the equitable owners of the

improvements. Id. at 463 n.1. The court found this argument unpersuasive

“because there is no end to the lease.” Id.

VI. THE EQUITABLE OWNERSHIP
OF THE NAVARRE BEACH PROPERTIES

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 We conclude that Ward correctly applied the doctrine of equitable

ownership in holding that the improvements on the leasehold properties were

subject to ad valorem taxation. And we conclude that there is no basis for

declining to extend the application of the doctrine of equitable ownership to the

underlying land that is subject to the perpetually renewable leases. Under the

perpetual leases, the interest of the petitioner taxpayers in the underlying land is

not materially different from their interest in the improvements. The taxpayers

hold “virtually all the benefits and burdens of ownership” of both the

improvements and the land. Leon Cnty. Educ. Facilities Auth., 698 So. 2d at 530.

We reject petitioner taxpayers’ argument that an equitable ownership interest

is an “other” interest referred to in section 196.199(2)(b) and section 199.023(1)(d)

that is subject to taxation only as intangible personal property. This argument

ignores the full context of the statutory provisions. First, the argument does not

take into account the threshold question of whether the property in question is “real

property owned by” a governmental entity. § 199.023(1)(d), Fla. Stat. (2005). Our

case law regarding the application of the equitable ownership doctrine makes clear

that the person or entity holding equitable title to real property will be deemed the

owner of the property for ad valorem tax purposes. See Leon Cnty. Educ.

Facilities Auth., 698 So. 2d at 530; Bancroft, 27 So. 2d at 171. The statutory

provisions do nothing to alter that preexisting legal rule. Second, the core phrase

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in the definitional provision is “all leasehold or other possessory interests.” §

199.023(1)(d), Fla. Stat. (2005) (emphasis added). Equitable ownership is not a

mere possessory interest. See, e.g., Ward, 919 So. 2d at 464; Hialeah, Inc., 490 So.

2d at 1000-01. Accordingly, the reference to “other” interests in the definitional

provision can have no reference to an equitable ownership interest.

As the First District did in Ward, we also reject the petitioner taxpayers’

argument that equitable ownership can exist under a leasehold only where there is

a right ultimately to acquire legal title. The interest of a lessee under a perpetually

renewable lease is not materially different from the interest of a lessee under a

lease for a term of years providing the right for the lessee to obtain title for

nominal consideration upon the termination of the lease. In both circumstances,

the lessee effectively has the right to exercise perpetual dominion over the

property.

Similarly, we reject the argument that the payment of rent and the other

obligations imposed on the petitioner taxpayers by their leases are sufficient to

establish that the taxpayers are not the owners of the properties for ad valorem tax

purposes. The payment of rent and the bearing of other obligations are typically

incident to leaseholds under which the tenant has equitable ownership, just as the

payment of purchase money and the bearing of other obligations is a part of a

contract for deed under which the vendee will be deemed the equitable owner.

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Furthermore, many of the obligations of the petitioner taxpayers here are like the

obligations typically imposed on owners under a declaration of condominium or

the restrictive covenants in a subdivision. None of the obligations imposed on the

petitioner taxpayers are sufficient to defeat the conclusion that they hold “virtually

all the benefits and burdens of ownership” of the improvements and the land. Leon

Cnty. Educ. Facilities Auth., 698 So. 2d at 530.

Finally, we reject the petitioner taxpayers’ argument that subjecting their

leasehold interests to ad valorem taxation is inconsistent with the provision of

section 196.199(7) regarding the taxation of “property which is originally leased

for 100 years or more, exclusive of renewal options.” We agree with Ward and

Hialeah, Inc. that it must first be determined that the governmental entity is the

“owner” of the property—not the mere holder of bare legal title—before there is

any reason to consider whether the bright line one-hundred-year rule of section

196.199(7) is applicable. Here, for ad valorem tax purposes, the “owner” of the

property is not a governmental entity.

VII. CONCLUSION

We therefore conclude that the taxpayers are the equitable owners of the real

property at issue and that section 196.199(2)(b), Florida Statutes, is inapplicable

here. The certified question of great public importance is answered in the

affirmative, and the decision of the First District Court is approved.

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 It is so ordered.

POLSTON, C.J., and PARIENTE, LEWIS, QUINCE, LABARGA, and PERRY,
JJ., concur.
NOT FINAL UNTIL TIME EXPIRES TO FILE REHEARING MOTION, AND
IF FILED, DETERMINED.

Application for Review of the Decision of the District Court of Appeal - Certified
Great Public Importance

First District - Case No. 1D10-4072

(Santa Rosa)

Danny L. Kepner of Shell, Fleming, Davis & Menge, Pensacola, Florida; Talbot
D’Alemberte and Patsy Palmer of D’Alemberte & Palmer, PLLC, Tallahassee,
Florida,

for Petitioners

J. Elliott Messer and Thomas Marshall Findley of Messer, Caparello & Self, P.A.,
Tallahassee, Florida; Roy Van Andrews of Lindsay, Andrews & Leonard, Milton,
Florida,

for Respondents

Edward Paul Fleming and Randall Todd Harris of McDonald Fleming Moorhead
of Pensacola, Florida,

for Amicus Curiae Beach Club Towers Homeowners Association, Inc.

Benjamin K. Phipps, II and Adam Schuyler Brink of Phipps & Howell,
Tallahassee, Florida,

for Amicus Curiae Florida Association of Property Tax Professionals

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