PETITION FOR WRIT OF CERTIORARI TO THE COURT OF CIVIL APPEALS. (Baldwin Circuit Court, CV-88-249, Court of Civil Appeals, AV92000407). James H. Reid, Jr., Baldwin Circuit Court, TRIAL JUDGE.
Released for Publication August 25, 1995.
Hornsby, C. J., and Maddox, Almon, Houston, Kennedy, Cook, and Butts,* JJ., concur. Shores, J., Dissents.
Lake Forest Property Owners Association, Inc. (LFPOA), suffered an adverse judgment in the Circuit Court of Baldwin County on July 29, 1992, in its action challenging the assessment for ad valorem tax purposes of certain common areas of the Lake Forest development. The Court of Civil Appeals affirmed the judgment, which was based on the findings of the circuit court, sitting without a jury, that the encumbrances upon the common areas of Lake Forest did not completely reduce the value of the common areas. We granted certiorari review to consider the three issues raised in LFPOA's petition.
The first issue is one of first impression: whether the Court of Civil Appeals incorrectly decided the proper method of assessing for ad valorem tax purposes the common areas of a real estate development. The second issue is whether the decision of the Court of Civil Appeals -- affirming the circuit court's holding rejecting LFPOA's argument that it had been denied equal protection in the assessment of its property -- conflicts with State v. Alabama Power Co., 254 Ala. 327, 48 So. 2d 445 (1950). LFPOA argues that its property was assessed different from like property held by other taxpayers. The third issue is whether the opinion by the Court of Civil Appeals conflicts with State v. Murphy, 45 Ala. App. 637, 235 So. 2d 888 (1970). LFPOA argues that it does, because, it argues, in its decision the Court of Civil Appeals has permitted the board of equalization to act arbitrarily by assessing taxes against LFPOA's lands without reference to a proper appraisal.
The Court of Civil Appeals has written two opinions in this case. The procedural history and the relevant facts are discussed in both of those opinions. See Lake Forest Property Owners Ass'n, Inc. v. Baldwin County Board of Equalization, 587 So. 2d 393 (Ala. Civ. App. 1991) (Lake Forest I), appeal after remand, Lake Forest Property Owners Ass'n, Inc. v. Baldwin County Board of Equalization, 659 So. 2d 605 (Ala. Civ. App. 1994) (Lake Forest II). Lake Forest is a planned residential community consisting of 3,386 developed lots and 837 undeveloped lots. Lot owners are members of the LFPOA, which holds title to the common areas in the development. These common areas include two golf courses, four tennis courts, two swimming pools, stables, a yacht club and marina, a clubhouse, three restaurants, and various roadway and utility easements. The owners of the lots in Lake Forest are entitled to use the common areas of the development and are required to pay a monthly assessment fee to LFPOA. In addition, when a lot owner initially purchases a lot the purchaser is required to pay a $750 fee. These fees are mandatory, and LFPOA resorts to legal process to collect fees if they are not paid by the lot owners. Each lot owner in Lake Forest has an express easement for recreation, lateral support, ingress and egress, and vehicular parking as to the common areas.
LFPOA is a nonprofit Alabama corporation. Most of the members of LFPOA are lot owners in the Lake Forest development, and nearly all of the lot owners are members of the corporation. See Ala. Code 1975, § 10-3A-26. LFPOA is responsible for the operation and maintenance of the common areas. The common areas of Lake Forest have consistently been operated at a financial loss by LFPOA.
Valuation of the Common Areas
The first issue, essentially, is whether the circuit court erred in holding that the LFPOA was properly taxed for the value of the common areas of Lake Forest and that the assessor properly determined the value.
There is no dispute that record title to the common areas in Lake Forest is held by LFPOA. However, LFPOA contends that the encumbrances upon the common areas reduce the value of the property to zero, or to some nominal amount. LFPOA also argues that the value of the common areas is already reflected in the value of each individual lot and that to tax the individual lots and also tax the common areas results in double taxation.
It is well settled that all property, except that specifically excluded by statute, is to be taxed to its owner at its fair market value. Ala. Code 1975, §§ 40-7-1, 40-7-15, and 40-11-1. Thus, because LFPOA is the holder of record title to the common areas of Lake Forest, it is responsible for paying the ad valorem tax on the fair market value of the common areas. Therefore, the question is whether the trial court erred in holding that the common areas of Lake Forest had a value independent of the alleged increased value of the surrounding lots.
LFPOA asserts that the present case is very similar to Twin Lakes Golf & Country Club v. King County, 87 Wash. 2d 1, 548 P.2d 538 (1976), Tualatin Development Co. v. Department of Revenue, 256 Or. 323, 473 P.2d 660 (1970), and Department of Revenue v. Morganwoods Greentree, Inc., 341 So. 2d 756 (Fla. 1976). LFPOA asks this Court to hold that, because the common areas are encumbered by the easements granted to the lot owners in Lake Forest, the common areas have no independent value.
Twin Lakes, Tualatin Development, and Morganwoods Greentree are factually somewhat similar to the present case. The Twin Lakes court held that "when the use of land is so restricted that its ownership is of no benefit or value, the assessment for tax purposes should be nothing." 548 P.2d at 540 (citing Tualatin Development). We have no quarrel with this rationale. However, we believe the proper statement of the appropriate standard for determining value is found in the Florida Supreme Court's decision in Department of Revenue v. Morganwoods Greentree, Inc., 341 So. 2d 756 (Fla. 1976). In Morganwoods Greentree, the court stated:
"An encumbrance or restriction such as an easement will not per se reduce the assessment value of land simply because the owner has been divested of some proprietary interest. This does not mean, however, that an assessment may be made without regard to the effect of an encumbrance on the value of the land. The encumbrance becomes one factor among many the assessor must consider in determining the just value of the property to be taxed."
341 So. 2d at 758 (emphasis added).
Upon our review of the record, we cannot say that the Court of Civil Appeals erred in affirming the circuit court's holding that the tax assessor properly took into account the effect of the encumbrances in his valuation of the common ...