County and state officials say a Florida Supreme Court decision that calls beach lease fee refunds an unconstitutional tax exemption also prevents them from reducing the fees.
Santa Rosa County had, since 2001, been refunding some lease fees by issuing equal amounts in “tax credits.” But the County discontinued that policy this year based on an October 1 letter from Senior Assistant Florida Attorney General Gerry Hammond. The County had asked for an opinion on whether they can legally offset, reduce or eliminate the fees.
The letter says Attorney General Pam Bondi’s office has no authority to comment on the validity of local legislation or policy. However, County Attorney Roy Andrews says a related AG opinion on Pensacola Beach lease fee offsets cited in the letter applies to Santa Rosa’s refund policy.
“The reduction in those fees has the effect of a tax exemption and as such is unconstitutional since such an exemption is not within the provisions of the Florida Constitution,” the letter notes.
Navarre Beach owners have been required to pay both lease fees and property taxes since 2001. Florida courts have ruled that both lease land and improvements are subject to ad valorem levy.
Residential beach lease fees vary widely from property to property. Of 2,013 active accounts, the lowest is $87.50, while the highest, last year, was $9,952.06.
That’s because different properties carry different lease fee calculations, based on who wrote the lease contract. Some fees are fixed at relatively low amounts like $250. Others are set to the equivalent of ad valorem assessments, or a percentage of the property sales price or assessed value; others include a 5 percent surcharge on rental income. Commercial lease holders are required to submit monthly payments that are based on a percentage of their gross receipts.
Beach residents have long objected to fee discrepancies. Summerwind owners pay the most: the equivalent of ad valorem assessments, plus the ad valorem bill on top of that.
Summerwind West Homeowners Association President Stephanie Lansden says her property tax bill for $3,337 plus a lease fee of $3,036 is unfair.
“So what I’m understanding is I will be required this year to pay $6,373.01 on something that was probably valued around 350 thousand dollars,” Lansden remarked to the Board, November 10. “I live in a home that was much more than this in Birmingham, and my taxes are a third of this.”
Historically, lease fees have been treated as a usage payment for occupying beach property. But government interpretations that roll them into property tax policy, and thus remove any chance of renegotiating amounts, have owners seeking an exact legal definition of fee versus tax.
Official answers have been nebulous.
“Is the lease fee a usage fee or is it a tax?” Summerwind and Caribbean Resort owner Mae Stinson asked the Board of Commissioners at the November 10 meeting.
“It is a lease fee, it is not a tax.” Commissioner Lane Lynchard said.
“OK then I’m confused,” Stinson remarked. “The Attorney General’s opinion said that you cannot institute a tax credit. I have a tax bill at Summerwind and I have a lease fee, a usage fee bill. And your previous actions were to grant me relief on the lease fee bill, which was not a tax. So I don’t understand why you could suspend the lease fee policy when it really isn’t a tax and therefore shouldn’t be covered by the Attorney General’s opinion.”
“We just have to go off what the Attorney General said,” Lynchard replied. “And the Attorney General and the Supreme Court cases found that this acted as an unconstitutional exemption from tax.”
In lieu of refunds, beach owners also asked for a fee reduction to relieve leaseholders whose lease payments are the same as their annual property tax bill amount.
County officials say they don’t have that authority either.
Andrews says the County will have to demonstrate a “valid public purpose” to reduce fee amounts, which are set by lease contract.
“I think the County recognizes that there are some circumstances in which the terms of the lease may, as they’re interpreted, be unfair. But that’s something that we’re going to have to look at more on a case by case basis,” according to Andrews.
“We have to come up with valid public policy that allows us to reduce these lease fees,” Lynchard remarked. “Because right now, like it or not, based on the Florida Supreme Court there is a tax that is imposed, there is a lease fee that is imposed.
“The County will be relinquishing a legal right. We have the right to collect those lease fees at this point. We have to have a valid public purpose in order to basically waive that right [if] we’re going to reduce those lease fees. We can’t just reduce the lease fees because we feel like it or because we don’t think it’s fair. We have to come up with and document the reasons we’re reducing your lease fees so there is a valid public policy that is served by the reduction. Because the five of us have a fiduciary obligation to the citizens of Santa Rosa County.”
Andrea McDermott, who manages seven Navarre and Navarre Beach homeowner associations, disagrees. McDermott contends case law affirms County authority to alter lease contracts to change the fees.
“When I researched this in 2010 — and Mr. Andrews I did go and look at the microfiche in Escambia County, I’m probably one of the few who’s seen it — I did understand that it is allowed that the Commissioners of Santa Rosa County set the lease fees,” McDermott told the Board.
“And as long as both sides are willing to negotiate a change in the lease fee, it’s allowed. That’s my non-legal opinion. I’m not a lawyer Mr. Andrews, but I do hire a lot of them.”
The Board told Andrews to review existing leases and research potential solutions, including lease contract adjustments. Officials say they expect that will result in some change to Summerwind fees.
This Board [has] had Summerwind in mind through this whole process,” Lynchard noted. “We know that the lease fee that exists out there at Summerwind is probably the most striking example of why we tried to pursue a lease offset. And we’re still doing that. We are not giving up on bringing some relief to Summerwind and any inequitable leases out there. We just want to make sure we do it right…we just want to make sure we get there in a manner that is legal and is constitutional, and is fair to the leaseholders involved.”
Mc Dermott offered to put together a committee to formulate a stopgap measure until Congress could work fee simple title out. Navarre Beach property is technically owned by the Federal government, who must transfer title in order to convert the lease process to fee simple ownership.
“We need to come up with a resolution to make homeowners and the County happy ‘til then,” McDermott noted. “You can’t expect Congress to move fast on anything.”
A major point of frustration for leaseholders is the requirement to pay property taxes without actually having title to the land.
“I don‘t understand how we can actually own a piece of property and lease it. So can you explain that to me in layman’s terms?” Navarre Beach Homeowners Association President Linda Coley asked Andrews.
The two payments are not interchangeable, according to Andrews.
“[Lease fees] are essentially to keep me from being able to come and eat breakfast at your table because that’s your property and you pay a lease fee for that,” Andrews told Coley.
“And the taxes are for general governmental services, so that you pay for the provision of police protection, infrastructure, roads, all those other things that the people on the mainland pay the same taxes for…that was the determination of the unanimous Florida Supreme Court.”
Leased beach land belongs to leaseholders in all but title, Andrews pointed out.
“The County has bare naked legal title to the property, subject to your 99-year lease plus an additional 99-year term, plus further renewals on the same terms and conditions which has been determined by the First District Court of Appeals of Florida and the Florida Supreme Court to be a perpetual lease,” he told Coley.
“So if you have the right to lease it, to occupy it forever, it is the equivalent of ownership for ad valorem tax purposes.”
Lease fee adjustments could cost Santa Rosa County significant money.
The County collected over $700,000 in residential lease fees last year: and that’s after returning over $761,000 in credits through the now-suspended lease fee refund policy. They collected another $279,000 from commercial leaseholders, for a total of $995,557.04.
If beach residents receive fee-simple title from the Federal government, it’s possible lease fee revenues will evaporate entirely.
“Whatever the Congress does, you’re not going to be able to change, but we don’t know what that’s going to be as of yet,” Andrews told the Board. “If they just give the property away…the $995 thousand dollars would be out of our budget. So that is something we’d have to consider.”
The County plans a workshop in January to discuss the issue. In the meantime, they suspended lease fee collection through March 2015.