AGO 2005-19.

• Case Date: August 08, 0052
• Court: Kansas

Kansas Attorney General Opinions 2005. AGO 2005-19. August 8, 20052005ATTORNEY GENERAL OPINION No. 2005-19 Clyde Graeber, Chair Donald Navinsky, Commissioner Gerald D. Oroke, Commissioner Leavenworth County Commission300 Walnut Leavenworth, Kansas 66048-2815 Re: Taxation--Property Exempt From Taxation--Property Exempt from Taxation; Federal Property Federal Jurisdiction--Federal Property; Jurisdiction--Taxing Certain Property Upon Military Reservations Cities and Municipalities--General Provisions--Tax Subdivisions Authorized to Enter into Agreements with Owners of Tax Exempt Property for Payments in Lieu of Taxes Synopsis: Pursuant to K.S.A. 2004 Supp. 79-201a First, property owned by the federal government is not subject to Kansas property tax. Thus, if the fee ownership in property located within a federal enclave remains vested in the United States government, it is exempt from state property tax. Additionally, other property within the Fort Leavenworth military reservation is generally not taxable by the State due to provisions of the act ceding that property, and jurisdiction over it, to the federal government. The exception to this rule is for property of corporations within the reservation. Real or personal property owned by a private corporation within the Fort Leavenworth enclave should be valued and taxed at the rates applicable to such property generally. A payment in lieu of taxes agreement may be entered into under K.S.A. 12-147 if the property is exempt from taxation. If property is not exempt from taxation, K.S.A. 79-1703 generally prohibits a county commission from releasing, discharging, remitting or commuting any portion of the taxes assessed or levied against any person or property within their respective jurisdictions for any reason. Cited herein: K.S.A. 12-147; K.S.A. 2004 Supp. 17-7662; K.S.A. 27-102; 27-102b; 27-102c; 27-104; K.S.A. 2004 Supp. 79-201a, as amended by L. 2005, Ch. 199, § 5; 79-412; K.S.A. 2004 Supp. 79-1439; 79-1703; 10 U.S.C. §§ 2667, 2878; L. 1875, ch. 66, § 1.* * * Dear Leavenworth County Commissioners: You request our opinion on whether specific property is subject to state taxation. The property in question is the real and personal property associated with a proposed housing project for the United States Army and Fort Leavenworth. You indicate that, acting pursuant to P.L. 104-106, 110 Sat. 544, Title XXVIII, Subtitle A, §2801, the Army is considering privatizing approximately 1,583 housing units located on its property, a federal enclave, located within the corporate limits of the City of Leavenworth.(fn1) In connection with the Fort Leavenworth project, the Army has chosen a private entity (Michaels Military Housing, L.L.C., hereinafter referred to as "Michaels") as its development partner in the proposed venture.(fn2) Leavenworth County does not currently tax the land within the federal enclave, as the housing units (and real and personal property thereon) are currently owned by federal authorities, thus exempting such property from taxation pursuant to K.S.A. 2004 Supp. 79-201a First. However, the proposed agreement with Michaels may alter the ownership status of the units in question. Should the proposed arrangement take place as planned, the following will occur: The Army would lease the land and deed all the buildings to Fort Leavenworth Frontier Heritage Communities, (FLFHC). FLFHC is a limited liability company consisting of approximately 49% Army participation and 51% Michaels. The terms of the leases would be as follows: The FLFHC would have a 50 year lease of the land with a 25 year renewal option. The Army would still be the owner of the land. The land lease would terminate according to the terms therein.(fn3) The housing units and the personal property therein (furniture, appliances, etc.) would be transferred by a bill of sale and deeded to the private entity, with ownership of said interest to revert back to the Army if/when the land lease terminates.(fn4) The leases and sub-leases will not be recorded under K.S.A. 79-412.(fn5) The Garrison Commander may impose restrictions on access to or use of the property, as deemed advisable for purposes of security, force protection, or military necessity. The Army will require the housing units to be leased to members of the armed forces and their dependents at a rate no higher than basic allowance for housing received by military families. The housing units will not be rented to civilians as long as military tenants are available. Michaels anticipates receiving no income from civilian renters.(fn6) In order to finance the purchase and project, Michaels would borrow money from a lender and FLFHC would pay for the ground rental and interest on the loan. Michaels would also develop and operate the project by way of agreements with three other legal entities; Michaels Development Company, Interstate Realty Management, and MMH (a New Jersey limited liability company). Based upon these facts, you ask that we answer the following questions: "1. When the housing units are transferred by bill of sale in connection with the ground lease by the U.S. Army to FLFHC, do the structures become taxable as personal property even though they must be reconveyed to the U.S. Army whenever the ground lease terminates, or would the current exemption to such taxation be maintained? "2. If the units are taxable, at what rate? "3. Is the personal property located within the housing units, i.e. refrigerators, stoves...