Request By:
Mr. Gardner D. Wagers
Clark County Judge/Executive
Courthouse
P.O. Box 5
Winchester, Kentucky 40391
Opinion
Opinion By: Robert F. Stephens, Attorney General; By: Charles W. Runyan, Assistant Deputy Attorney General
Recently the Clark County Fiscal Court declined to issue industrial revenue bonds for a corporation planning to move to your county. However, the City of Winchester has decided to issue the bonds, the project site being located outside the city boundaries. We assume you refer to KRS 103.200, et seq., relating to industrial buildings for cities and counties. The basic plan in such financing is that the city will issue the revenue bonds to fund the newly constructed facility. Then the city will lease the building to the corporation, which rentals will pay the principal and interest of the bond issue. See
Faulconer v. City of Danville, 313 Ky. 468, 232 S.W.2d 80 (1950). See also KRS 103.260.
So long as the industrial building is owned by the city it is exempt from ad valorem property taxes as public property used for public purposes. KRS 103.285.
The corporation agreed to make payments in lieu of taxes and that such payments be made to the local school district. The fiscal court is required to provide fire and police protection and county road maintenance to the area in question.
Your question is whether the city can provide that payments in lieu of taxes be paid entirely to the local school district rather than to the county or divided between the county and school district.
Clearly under KRS 85.120 and 85.140, the legislative body of the city of Winchester can acquire land for a public, city purpose either within or beyond the city limits.
KRS 58.580 [not related to the bond issue] provides for payments in lieu of taxes, but that relates exclusively to the Churchill Downs Authority. The "leasehold interest" to be held by the corporation in this situation is taxable.
Kentucky Tax Commission v. Jefferson Motel, Inc., Ky., 387 S.W.2d 293 (1965), involved a lease to a motel of property owned by the Louisville & Jefferson County Air Board. The court held that the "leasehold interest" , in the nature of real estate, of the motel was taxable. The airboard's property is tax exempt under KRS 183.138. The court said that the proper criterion of fair cash value for any property, including a leasehold, is the price a seller willing but not forced to sell would take and a buyer willing but not forced to buy would give for it. The court explained in
Ky. Dept. of Revenue v. Hobart Mfg. Co., Ky., 549 S.W.2d 297 (1977) 300, that "The rights confered by the lease being a part of the bundle of total rights in and to a parcel of realty and not otherwise listed for taxation, the leasehold is taxable as real estate at its fair cash value ["fair market value" ]. The court said in effect that the fair market value of a leasehold (if any) can be ascertained by simply subtracting the fair market value of the land as a whole if sold subject to the lease from the fair market value of the land as a whole if sold free and clear of the lease. See KRS 132.020, as amended in 1978, which establishes a state ad valorem tax of one and one-half cents (1 1/2 ) upon each one hundred ($100) dollars of value of all privately owned leasehold interest in industrial buildings, as defined under KRS 103.200, owned and financed by a tax-exempt governmental unit etc.
To the extent that such payments in lieu of taxes involve taxes other than the lessee's (corporation) leasehold interest, i.e., involve taxes which would otherwise be payable on the lessor's interest, but for KRS 103.285, such payments would be a matter of contract and could go to a designated beneficiary [here the school district] . In reality such additional payments would not constitute technically revenue to the city as such. There is no statute controlling this third party beneficiary situation.
Next, you ask whether, if such payments to the school board are legal, the city commission will be compelled to provide city services outside the city limits to the property constructed.
A municipality possesses only those powers expressly granted by the legislature, plus such powers as may be necessarily implied and properly incident to the granted powers.