When does an Arkansas city's property tax exemption start after buying property for public use?

Plain-English summary

Representative Dan Sullivan asked when Arkansas's property-tax exemption for "public property used exclusively for public purposes" actually kicks in. A city bought property mid-tax-year and used it exclusively for public purposes from the closing date forward. The county assessor and collector told the city it still owed property taxes for the rest of the year (from purchase through year-end). Was that right?

Yes. The AG explained that Arkansas property tax operates on a January 1 snapshot. Whatever a property's tax status is on January 1 (taxable or exempt) and whatever its value is on that date, those characteristics control for the entire tax year, regardless of changes during the year. A lien for the year's taxes attaches on the first Monday in January.

So when a city buys property in, say, June, the property had already been assessed as taxable on January 1 of that year. The lien for the full year's taxes had already attached. The city has stepped into the property's existing tax obligation. The constitutional exemption in Article 16, § 5(b) only changes the tax status as of the next January 1, when the property will be assessed in its new "public use" status.

The AG also noted, citing earlier opinions, that as between buyer and seller, the property tax obligation is a matter of contract. A city could negotiate with the seller to have the seller pay the prorated portion. But absent such an agreement, the buyer (the city) is liable.

Currency note

This opinion was issued in 2017. 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.

Background and statutory framework

Article 16, § 5(a) of the Arkansas Constitution subjects all real and personal property to ad valorem taxation. Article 16, § 5(b) lists the exemptions: public property used exclusively for public purposes, churches used as such, cemeteries used exclusively as such, school buildings and apparatus, libraries and grounds used exclusively for school purposes, and buildings and grounds and materials used exclusively for public charity. Article 16, § 6 voids any laws creating exemptions beyond those in the constitution.

The mechanics of when status is set come from the tax code. Ark. Code Ann. § 26-26-1201 sets the assessment date as January 1 of each year. Ark. Code Ann. § 26-34-101(b) attaches the lien on the first Monday of January. Both statutes treat the January 1 status (taxable vs. exempt, and the property's value) as governing the entire tax year. There's no proration mechanism in the statute.

The AG cited Leavy v. Word (Ark. 1945) for the proposition that the property's use "at the time these lots were assessed" determines its tax treatment, regardless of later changes. Robinson v. Indiana & Arkansas Lumber & Mfg. Co. (Ark. 1917) holds that the constitutional exemption "will not be given a retrospective effect."

A small but practical point: Ark. Code Ann. § 26-26-1001 directs the county assessor to keep a separate list of properties used exclusively for public purposes that are exempt from taxation. That list reflects the change in status as of the following January 1, after the property has been used exclusively for public purposes through that next assessment date.

Common questions

Why doesn't the property become tax-exempt the moment the city buys it?
Because Arkansas property tax is set on a January 1 snapshot. The tax for the full year is calculated based on what the property was used for on January 1, not on subsequent changes.

Could a private buyer face the reverse situation?
Yes. If a tax-exempt entity sold property to a private buyer mid-year, the property would not become taxable until the following January 1. The buyer would own taxable property starting next year.

Could the city avoid the partial-year tax obligation?
By contract, yes. The opinion notes that buyer-seller agreements about who pays the year's property taxes are common and enforceable. A city negotiating a purchase from a private seller could require the seller to pay the prorated taxes for the period before closing.

What if the property was used exclusively for public purposes the moment the city took title?
Doesn't matter. The constitutional exemption "will not be given a retrospective effect" per Robinson. The January 1 use determines the year's tax treatment.

When exactly does the exemption start?
On the next January 1 after the property has been used exclusively for public purposes. That's the first assessment date on which the property qualifies as exempt.

Source

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

Original opinion text

Opinion No. 2017-067
September 25, 2017
The Honorable Dan Sullivan
State Representative
P. O. Box 19406
Jonesboro, AR 72403-2406
Dear Representative Sullivan:

STATE OF ARKANSAS
ATTORNEY GENERAL
LESLIE RUTLEDGE

This is in response to your request for my opinion concerning the application of the property-tax exemption for public property used exclusively for public purposes. You have provided the following background information:

A city has purchased property to be used exclusively for public purposes. At the time of purchase, the city paid any and all property taxes due on the property as of the date of purchase. The county assessor and county collector have informed the city that the city owes property taxes on the purchased property for the remainder of the tax year (i.e., from the date of purchase until the end of the tax year).

In light of this information, you ask:

When does the property tax exemption under Arkansas Constitution, Article 16, § 5(b) become effective? Does it take effect immediately upon the purchase of the property provided it meets the requirements of Article 16, § 5, or does it take effect at the beginning of the tax year following the tax year in which the property was purchased?

RESPONSE

In my opinion, as a general matter, the property-tax exemption under Arkansas Constitution, Article 16, section 5(b) does not take effect until January 1 of the tax year immediately following the tax year in which the property was purchased. Property is assessed on January 1 according to its status (taxable or tax-exempt) and its value. Tax status and property value are calculated as of January 1 each year, regardless of any changes to the property's status as taxable or tax-exempt later that year. And a lien equal to the amount of tax owed (if any) attaches to the property on the first Monday of the January when assessment occurs.

Thus, even if property ultimately qualifies for tax-exempt status as a function of its ownership and use, the property does not acquire that status until its assessment on January 1 the following year, the first assessment date on which the property was being used exclusively for public purposes. Accordingly, ad valorem taxes must be paid for the entire year that includes the purchase date based on the assessment (and the resulting lien) made the January 1 before the purchase when the property had not yet acquired the exemption.

DISCUSSION

In Arkansas, all real and personal property is subject to ad valorem taxation, unless the property is exempted by the Arkansas Constitution. Exemptions to ad valorem taxation are found in Article 16, section 5(b):

[P]ublic property used exclusively for public purposes; churches used as such; cemeteries used exclusively as such; school buildings and apparatus; libraries and grounds used exclusively for school purposes; and buildings and grounds and materials used exclusively for public charity.

Property is assessed annually according to its value and current use on January 1 of each tax year. As a result of this yearly assessment, a "lien-date" is established and attached to the property on the first Monday in January:

All taxes assessed shall be a lien upon and bind the property assessed from the first Monday of January of the year in which the assessment shall be made and shall continue until the taxes, with any penalty which may accrue thereon, shall be paid. However, as between grantor and grantee, the lien shall not attach until the last date fixed by law for the county clerk to deliver the tax books to the county collector in each year after the tax lien attaches.

The way a property is actually used on the date of assessment, January 1, therefore determines its tax status for that entire tax year. This is so even if the property ultimately meets the legal qualifications for being tax-exempt at some point later that year. Arkansas law contains no provisions that would allow property to change its status from taxable to tax-exempt during a tax year such that ad valorem taxes would be due for only that part of the year the property was taxable by law. As the Arkansas Supreme Court has stated, the constitutional-property-tax exemption "will not be given a retrospective effect unless an intention that it shall have such an effect is clearly expressed and it is apparent that the section of our Constitution relating to this subject was not intended to operate retrospectively."

I take it from your question that the property the city purchased is being used exclusively for a public purpose, such that it qualifies for the tax-exempt status under Article 16, section 5(b). But under Arkansas law, the city as the buyer would still owe the entire year's property taxes that were assessed on January 1 of the year when the city bought the property. In other words, taxes will be owed for the full year in which the purchase was made, regardless of what use (exclusively public, mixed public and private, or exclusively private) the property is put to after the purchase.

In sum, and based upon the facts you have provided, the constitutional ad valorem tax exemption will not become effective until January 1 of the year following the property's purchase. The city would be liable for the entire amount of taxes due for the year of purchase, irrespective of any change to the property's tax status during that year. However, which person or entity is responsible for payment of the tax liability is properly a matter of contract between buyer and seller.

Sincerely,

LESLIE RUTLEDGE
Attorney General