Tuesday, December 21, 2004

Beach Leaseholders' Lawsuit Filed

"WHEREAS, Santa Rosa Island Authority on behalf of Escambia County represented to the general public and all parties dealing with them, that the said properties on Santa Rosa Island owned by Escambia County were not subject to ad valorem taxes... ."
-- 1976 Laws of Florida, chap. 76-361
The widely anticipated litigation challenging last summer's decision by county government to impose ad valorem taxes on Pensacola Beach leaseholders has begun, according to a lead article in today's Pensacola News Journal.

Four Lawsuits Filed

Amber Bolman reports in today's Pensacola News Journal that over the last week:
four suits contesting property taxes that were levied on beach leaseholders for the first time this year have been filed against Property Appraiser Chris Jones and Tax Collector Janet Holley. Thousands of Santa Rosa Island residents, along with some of Pensacola Beach's biggest businesses, are plaintiffs in the lawsuits alleging that the ad valorem taxes should be voided.

Beach residents have argued they should not pay taxes because they lease, rather than own, property. An ad valorem tax is based on the assessed value of real estate or personal property.

"We believe the property appraiser has carried out a void and illegal act in imposing the taxes, and the tax collector has followed suit by collecting them," said attorney Danny Kepner, who is representing about 3,400 beach residents in one lawsuit and about 40 businesses or management groups in another.
The largest number of plaintiffs filed the lawsuit under the caption, "1108 Ariola, LLC, et al. vs. Chris Jones." A list of the 3,409 plaintiffs and 2,232 property addresses involved was posted yesterday on the Internet. The web site was created and is maintained by an ad hoc committtee of residential and commercial leaseholders who are opposing the county tax initiative.

Among the beach businesses filing suit are island restaurants Jubilee, Capt'n Fun Beach Club, Hooters, Flounder's Chowder House, Hemingway's Island Grill, and Peg Leg Pete's. Hotels joining the suit include the Hilton Garden Inn, Springhill Suites, Clarion Suites, and the Hampton Inn.

Bolman identifies Alvin's Island as the only souvenir shop contesting the taxes. Many others are known to be mere sublessees of the restaurant owners or newer businesses with leases less than 99 years in duration.

Bolman also writes that separate lawsuits were filed in the last week in behalf of leaseholders at two Portofino towers:
The other two lawsuits were filed by Ed Fleming of the firm McDonald, Fleming, Moorhead. Fleming is representing homeowners associations from Portofino's first and second towers in two lawsuits.

The suits allege that the beach properties actually are owned by the county and should be exempt from property taxes.

The lawsuits also argue that even if the taxes are deemed legal, they are excessive. They accuse Jones of improperly including "the value of the land itself into the valuation."

"The property appraiser made assessments at an amount nearly twice the cost to rebuild these units," the suits state. "The amount of the appraisals is grossly excessive and does not represent just value."
At widely attended leaseholders meetings over the past two months, attorneys also have mentioned that the Portofino development leases approved by the Santa Rosa Island Authority contain unique language that might be construed as offering additional guarantees against county real estate taxes.

History of Beach Taxes: Fool Me Once, Fool Me Twice

This is the third time in four decades Escambia County officials have tried to impose real estate taxes on Pensacola Beach property. The island originally was donated by the U.S. Department of Interior to Escambia County in 1947. The Federal deed expressly authorized the lease, but not sale, of island property.

Over much of the succeeding fifty years, the county was slow to develop island infrastructure, eradicate pestilent mosquitos, or build schools and other amenities that would attract private investment. Instead of spending public funds to develop Pensacola Beach, it settled on a strategy of enticing developers, residents, and businesses to spend their own money in exchange for a promise that leaseholds would be ad valorem tax-free.

Escambia County produced and widely distributed pamphlets that promised "no county or state taxes on the lot or structure." It also embarked on an aggressive nation-wide advertising campaign promising "tax free" 99-year lot leases with "no ad valorem assessments." Full-page ads promising "tax free beach lots" ran for many years in newspapers and magazines from Seattle to New York and Detroit to Dallas.

The Santa Rosa Island Authority maintains an extensive archive of those pamphlets, advertisements, letters, memos, and other evidence of the county's long-standing promises.

Still, for many years Escambia County found it difficult to attract anyone to invest in its sand-blown, undeveloped island. On occasion, the county even gave away 99-year leases as door prizes. In those days, the 'good news' was you'd just won a long term beach lot lease. The 'bad news' was that the fine print in your door prize lease required you to spend your own money building a house within two years -- or the lease would be forfeited. [Edit - A house, moreover, to which Escambia County would have title.]

Some of this history was later memorialized by the state legislature in the preamble to House Bill No. 3913, 1976 Laws of Florida, chap. 76-361. That bill was passed to bring an end to an earlier, similar, county effort to impose real estate taxes on Pensacola Beach property. In pertinent part, the legislation states:
"WHEREAS, in the year of 1949, the Legislature enacted a law... exempting the lands owned by Escambia County on Santa Rosa Island and all interests therein from all ad valorem and other forms of taxation, and

WHEREAS, [the law] was determined on April 17, 1951, to be valid and constitutional by the Supreme Court of Florida ... , and

WHEREAS, Santa Rosa Island Authority on behalf of Escambia County represented to the general public and all parties dealing with them, that the said properties on Santa Rosa Island owned by Escambia County were not subject to ad valorem taxes, and

WHEREAS, said governmental authorities induced hundreds of persons, who relied upon the representations and the decision of the Supreme Court to enter into long term leases providing for rentals and which contained many onerous provisions, among them the requirement that all utilities be purchased from such authorities, the requirement that lessees at their expense construct improvements on the leased land within a specified time which...became...the property of the county and were not subject to removal, and 21 provisions wherein the lease could be forfeited and the entire investment of the lessee lost, and
* * *
WHEREAS, the functions and representations of said governmental authority were performed for and made on behalf of Escambia County and are binding upon them... ."
Escambia County officials have chafed under the yoke of being required to keep their past promises. According to Bolman, county officials expect taxes on leasehold interests might generate about $5.2 million in revenue annually. Over the years, county politicians also have found it useful to demagogue among mainland voters by using the island's tax-free status as a wedge issue.

Bolman's news report adds that earlier this Fall, anticipating litigation over its latest effort to impose taxes, Escambia county commissioners "voted to hold those funds in reserve until legal challenges are resolved."

Commissioners may have hoped by that move to encourage more islanders to pay the disputed taxes in the expectation that the county would return the money if the leaseholders' lawsuit is successful. Given the county's history of breaking its word, however, many have scoffed at the commissioners' latest move.

"Why should we believe the county now?" one resident asked at an informationl meeting of leaseholders about a month ago. "You know what they say. 'Fool me once, shame on you. Fool me twice, shame on me.' Why should we fall for it a third time?"

County Attorney Janet Lander told reporter Bolman that she expects it could take up to two years for the lawsuits to be settled in court. A similar suit brought by Navarre Beach residents and leaseholders is now on appeal.

Some attorneys have said they expect the Navarre Beach appeal to be decided within the next six or eight months. However, attorneys meeting with Pensacola Beach residents have said there may be important differences between the Santa Rosa County leases at Navarre Beach and those written by Escambia County covering Pensacola Beach property.

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