ATTORNEY GENERAL ISSUES SUPER FREEPORT OPINION
On October 23, the attorney general issued an informal legal opinion regarding the “Super Freeport” property tax exemption which was legislatively enacted by H.B. 621. (Please see the following article in the September 28, 2007, edition of the TML Legislative Update for a more detailed description of the exemption: http://www.tml.org/leg_updates/legis_update092807c_freeport.html.)
The opinion addresses the fact that the 2007 legislation appears broader than the 2001 constitutional amendment that gave rise to it. Specifically, the constitutional amendment prohibits application of the exemption where warehouses are owned or controlled by the owner of the goods-in-transit, while the 2007 legislation omits the language relating to control of the warehouse. As a result, some property tax appraisers around the state suggest that certain retailers might "spin off" ownership of large warehousing facilities and claim the exemption in instances that weren't contemplated by the economic development spirit of the law.
The attorney general's informal opinion reaches two conclusions. First, it reads the language relating to control of the warehouse back into the enabling legislation, reasoning that otherwise the bill would have been unconstitutional. Second, the opinion concludes that warehouses leased by owners of goods-in-transit are still under the control of the owner, thus prohibiting application of the exemption in those circumstances.
The result for cities still undecided on opting out of the exemption? By reading the constitutional language relating to control back into the legislation, a court that followed the reasoning of the opinion would be forced to take a long look at a retailer who tried to claim the exemption after spinning off a warehouse to a third-party owner that was, in essence, nothing more than a shell corporation. Important questions in such a case might be to what degree the retailer tracks goods in the shell corporation warehouse, who supervises the warehouse employees, and whether the warehouse inventory tracking system is tied into the retailer's system.
The downside? The opinion is less authoritative than a normal attorney general's opinion, and even if followed doesn't completely rule out certain ownership arrangements by which a retailer might attempt to unfairly claim the exemption. While TML doesn't take a position on the wisdom of opting out of the Super Freeport exemption, cities with or expecting large retail corporation warehouses or shipping centers should have legal counsel take a close look at the informal attorney general's opinion.
The opinion can be read here: http://www.tml.org/legal_pdf/AG-Opinion-HB621.pdf