If an Arkansas regional intermodal authority leases facilities to a private business, does the private lessee inherit the authority's tax exemptions?

Plain-English summary

State Representative John Payton asked the AG three connected questions about the Regional Intermodal Facilities Act (A.C.A. § 14-143-101 et seq.). The Act authorizes counties and municipalities to create regional intermodal authorities (public corporations) for acquiring, equipping, constructing, maintaining, and operating regional intermodal transportation facilities. Section 14-143-121 grants tax exemptions to "each authority" and "the property of each authority." Section 14-143-126(b) requires that leases entered by an authority be for purposes associated with intermodal transportation activities.

Payton wanted to know: if a private business leases facilities from one of these authorities, does the lessee inherit the tax exemptions? Are there guidelines for when a lessee might qualify? Is there any other type of contractual relationship that would deliver an exemption to the private party?

AG Dustin McDaniel answered no across the board. The text of § 14-143-121 grants tax exemptions to "each authority" and "the property of each authority," not to any other entity. A private lessee that signs a lease with the authority enjoys no derivative exemption. The AG noted Payton's apparent theory (that because § 14-143-126(b) requires leases be for intermodal-transportation purposes, the lessee is itself doing public work and so should get the exemption) and rejected it as legally unsupported.

The AG relied on a long line of Arkansas Supreme Court cases applying strict construction to tax exemptions. Heath v. Midco Equipment Co. (1974) holds that the taxpayer "carries a rather heavy burden to establish a right to the claimed exemption," that "taxation is the rule and exemption is the exception," that "[a]n exemption cannot be implied," and that "to doubt is to deny exemption." Arkansas Teacher Retirement System v. Short reinforces that entitlement must be established "beyond a reasonable doubt." Under those rules, a statutory exemption written for the authority cannot be silently extended to a private lessee.

The AG added a constitutional gloss: even where a statute grants ad valorem exemption to public property, Article 16, § 5 of the Arkansas Constitution exempts only "public property used exclusively for public purposes." Section 6 of Article 16 voids any statutory exemption broader than the Constitution allows. The Arkansas Supreme Court has consistently applied a two-part test: the property must be owned by a public entity AND used exclusively for public purposes. City of Little Rock v. McIntosh applied that test to A.C.A. § 14-362-121(b)(1) (the parallel exemption for regional airport authorities), holding that "an airport authority will be exempt from paying ad valorem taxes when the land is used solely for public purposes." A regional intermodal authority's leased property follows the same rule: whether the authority's property is exempt depends on actual use, and the local tax assessor decides that question (subject to judicial review under Pulaski County v. Jacuzzi Bros.).

The bottom line: a private lessee operating an intermodal facility leased from a regional intermodal authority is on the hook for any tax it would owe absent the exemption. The Act offers it no shelter. Any taxes the lessee incurs in the course of its operations are unaffected by § 14-143-121.

Currency note

This opinion was issued in 2014. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

What is a "regional intermodal authority"?
A public corporation formed jointly by municipalities and/or counties under A.C.A. §§ 14-143-103, -104 for the purpose of acquiring, equipping, constructing, maintaining, and operating regional intermodal facilities. "Intermodal" means more than one mode of interconnected movement of freight, commerce, or passengers (truck-to-rail, rail-to-port, etc.).

What taxes does the authority itself avoid under § 14-143-121 at the time of this opinion?
Two categories. Subsection (a) exempts the authority from any taxes or fees to the state or its subdivisions (with a carve-out requiring the authority to withhold state income taxes). Subsection (b)(1) exempts the authority's property from all local and municipal taxes.

Why doesn't a lessee inherit the exemption?
Because Arkansas law strictly construes tax exemptions and refuses to imply them. Even a sympathetic case for the lessee (its operations support intermodal transportation, the legislature wanted intermodal development to happen, etc.) cannot overcome the principle that exemptions must be clearly written into the statute.

Could the legislature change this by amendment?
Yes, but only within constitutional limits. Article 16, §§ 5 and 6 limit any property-tax exemption to public property used exclusively for public purposes. A legislative attempt to exempt private property held under lease for predominantly private commercial gain would likely fall to a constitutional challenge regardless of the statutory text.

What test would courts apply to the authority's own leased property?
The two-part McIntosh test: (1) public ownership and (2) exclusive use for public purposes. If the authority leases facilities to a private business that uses the property in a way that is not "exclusively" public, the constitutional exemption is lost even for the authority's underlying ownership. The local tax assessor makes the initial determination, subject to judicial review.

What practical advice does this leave for parties negotiating leases with intermodal authorities?
The lessee should price the lease assuming a normal tax burden. The authority cannot reliably promise pass-through of its own exemption, and lease terms purporting to do so are not enforceable against tax authorities. Constitutional limits also constrain how the authority itself can claim exemption on heavily-leased property.

Background and statutory framework

The Regional Intermodal Facilities Act, A.C.A. § 14-143-101 et seq., is part of Arkansas's framework for regional economic-development infrastructure. Counties and municipalities can jointly create public corporations to develop intermodal hubs that integrate trucking, rail, river port, and air freight.

A.C.A. § 14-143-121 carries the operative tax exemption. Subsection (a) covers state and subdivision taxes/fees on the authority itself. Subsection (b)(1) exempts the authority's property from local and municipal taxes.

A.C.A. § 14-143-126(b) requires that leases entered by an authority be for purposes associated with intermodal transportation activities. The provision constrains lease purposes but does not extend exemptions.

Strict construction of tax exemptions is well-settled in Arkansas. Heath v. Midco and Arkansas Teacher Retirement System v. Short require the claimant to establish entitlement clearly and beyond a reasonable doubt. "Taxation is the rule and exemption is the exception."

Constitutional ad valorem exemption under Article 16, § 5 requires both public ownership and exclusive public use. McIntosh (regional airport authority), Phillips v. City of Fayetteville, and Wayland v. Snapp form the line of authority. The local tax assessor makes the initial factual determination, subject to judicial review under Jacuzzi Bros.

Citations

• A.C.A. § 14-143-101 et seq. (Regional Intermodal Facilities Act)
• A.C.A. § 14-143-121 (tax exemption for authority and authority property)
• A.C.A. § 14-143-126(b) (lease purposes)
• A.C.A. §§ 14-143-103, -104 (Repl. 1998) (creation of authority)
• A.C.A. § 14-143-102(6), (8) (Supp. 2013) (definitions of "facilities" and "intermodal")
• A.C.A. § 14-362-121(b)(1) (parallel regional airport authority exemption, construed in McIntosh)
• Ark. Const. art. 16, § 5 (public property exclusively for public purposes)
• Ark. Const. art. 16, § 6 (statutes exempting property beyond constitutional limits are void)
• Heath v. Midco Equipment Co., 256 Ark. 14, 16, 505 S.W.2d 739 (1974) (strict construction of exemptions)
• Arkansas Teacher Retirement System v. Short, 2011 Ark. 263, 6, 381 S.W.3d 834, 838 (2012) (beyond reasonable doubt standard)
• City of Little Rock v. McIntosh, 319 Ark. 423, 892 S.W.2d 462 (1995) (two-part public-property test)
• Phillips v. City of Fayetteville, 306 Ark. 87, 811 S.W.2d 308 (1991)
• Wayland v. Snapp, 232 Ark. 57, 334 S.W.2d 663 (1960)
• Hilger v. Harding College, 231 Ark. 686, 694, 331 S.W.2d 851 (1960) (actual occupation/use for public purpose required)
• Pulaski County v. Jacuzzi Bros., 317 Ark. 10, 875 S.W.2d 296 (1994) (tax assessor decides taxable status subject to judicial review)

Source

• Landing page: https://arkansasag.gov/divisions/opinions-foia/attorney-general-opinions-search/

Original opinion text

Opinion No. 2014-067
August 8, 2014

The Honorable John Payton
State Representative
Post Office Box 181
Wilburn, Arkansas 72179-0181

Dear Representative Payton:

This is in response to your request for my opinion on the following questions concerning tax exemptions under the Regional Intermodal Facilities Act, A.C.A. § 14-143-101 et seq.:

1. If an authority enters into a lease with a private entity under the Regional Intermodal Facilities Act, is the entity exempt from taxes as described in § 14-143-121?

2. If the answer to Question (1) depends on the particular facts related to the lease relationship, are there any guidelines to consider in determining whether the statutory tax exemptions may apply to the lessee?

3. Is there any type of contractual relationship that an authority may enter into with a private entity that would result in the entity being exempt from taxes as described in § 14-143-121?

RESPONSE

The tax exemptions under A.C.A. § 14-143-121 extend only to an "authority" created under the provisions of the Regional Intermodal Facilities Act. The answer to your first question is therefore "no," in my opinion. An entity that enters into a lease with a regional intermodal authority enjoys no tax exemption pursuant to this statute. The answer to this question is not dependent upon or in any way affected by the facts related to any such lease. Consequently, in response to your second question, it is my opinion that there are no guidelines to consider. These statutory tax exemptions do not apply to any entity other than a regional intermodal authority, irrespective of any lease or other contractual arrangement that an authority may enter. The answer to your third question is necessarily "no," in my opinion.

Question 1, If an authority enters into a lease with a private entity under the Regional Intermodal Facilities Act, is the entity exempt from taxes as described in § 14-143-121?

Section 14-143-121, in relevant part, extends a tax exemption to an "authority" under the Regional Intermodal Facilities Act ("the Act") as follows:

(a) Each authority shall be exempt from the payment of any taxes or fees to the state, or any subdivision thereof, or to any office or employee of the state, or of any subdivision thereof; however, each authority shall withhold and remit state income taxes as prescribed by § 26-51-901 et seq.

(b)(1) The property of each authority shall be exempt from all local and municipal taxes.

As you can see, the exemptions under this statute extend to an "authority" and its property. There is no suggestion on the face of this statute that the exemptions apply to any other entity. In response to your specific question, therefore, a private entity that enters into a lease with an authority enjoys no tax exemption pursuant to this statute.

I note that in presenting your questions you refer to A.C.A. § 14-143-126(b), which requires that leases entered by an authority "shall be for some purpose associated with intermodal transportation activities." Although you have not stated as much, you may be speculating that a private lessee benefits from the statutory tax exemptions, given that the lessee must, according to this subsection, be engaged in a purpose associated with intermodal transportation activities. In my opinion, however, there is no legal basis for such speculation. The Arkansas Supreme Court has consistently held that there is no implied exemption from a tax, but rather a claimant must clearly establish entitlement to an exemption:

The taxpayer carries a rather heavy burden to establish a right to the claimed exemption. "[T]his court has consistently held that the burden is on the taxpayer to establish clearly that the legislature intended the claimed exemption since taxation is the rule and exemption is the exception. An exemption cannot be implied." [T]he burden is on the claimant "to establish clearly his right to exemption." "Let it also be remembered that a tax exemption must be strictly construed, 'and to doubt is to deny exemption.'"

It must be concluded in light of these interpretive rules that the exemptions under A.C.A. § 14-143-121 extend exclusively to the authority. More specific to your question, any taxes a lessee might incur in the course of its operations are unaffected by this statute, in my opinion.

It perhaps bears noting regarding these statutory tax exemptions that any such legislative grant of an exemption from ad valorem taxation is qualified by the constitutional requirement that the exempted public property must be put to an exclusively public use. Article 16, § 5 of the Arkansas Constitution exempts from property taxation "public property used exclusively for public purposes." Section 6 of Article 16 provides that "[a]ll laws exempting property from taxation, other than as provided in this Constitution shall be void." The Arkansas Supreme Court, in interpreting art. 16, § 5's exemption for public property, has consistently held that in order for the property to be exempt from taxation two elements must be present: 1) the property must in fact be "public property," that is it must be owned by a public entity; and 2) it must be used exclusively for public purposes. See City of Little Rock v. McIntosh, 319 Ark. 423, 892 S.W.2d 462 (1995); Phillips v. City of Fayetteville, 306 Ark. 87, 811 S.W.2d 308 (1991); Wayland v. Snapp, 232 Ark. 57, 334 S.W.2d 663 (1960). Both elements must be satisfied to meet the constitutional test. It is not the ownership of the property that entirely determines the matter. See McIntosh, 319 Ark. at 428 (stating with regard to A.C.A. § 14-362-121(b)(1), which provides that "the property of each [regional airport] authority shall be exempt from all local and municipal taxes", that "the statute must be read in light of the constitution, and that means that an airport authority will be exempt from paying ad valorem taxes when the land is used solely for public purposes."). See also Arkansas Teacher Retirement System v. Short, 2011 Ark. 263, 381 S.W.3d 834, 840 ("[U]nless the property utilized by an agency is actually and exclusively used for a public purpose, it is not entitled to an exemption under the constitution."); Hilger v. Harding College, 231 Ark. 686, 694, 331 S.W.2d 851 (1960) ("The property under our constitution must be actually occupied or made use of for a public purpose ....").

Of course, determining the taxable status of particular property is a matter for the local tax assessor, subject to judicial review. See Pulaski County v. Jacuzzi Bros., 317 Ark. 10, 875 S.W.2d 296 (1994).

Question 2, If the answer to Question (1) depends on the particular facts related to the lease relationship, are there any guidelines to consider in determining whether the statutory tax exemptions may apply to the lessee?

The answer to Question (1) is "no," in my opinion, irrespective of the particular facts related to a lease. As explained above, the exemptions under A.C.A. § 14-143-121 apply solely to the authority, and no other entity. In response to your specific question, there are no guidelines to consider because the facts related to a lease relationship cannot conceivably make a lessee eligible for these tax exemptions.

Question 3, Is there any type of contractual relationship that an authority may enter into with a private entity that would result in the entity being exempt from taxes as described in § 14-143-121?

No. See responses above.

Deputy Attorney General Elisabeth A. Walker prepared the foregoing opinion, which I hereby approve.

Sincerely,
Attorney General
DM/EAW:cyh