The First District Court of Appeal in Tallahassee on Wednesday ruled that a city-owned golf course run by a private company may be required to pay property taxes.
The decision could potentially have ramifications in Flagler Beach, where the city owns a nine-hole golf course but has been leasing it to a private company since 2015, tax-free. The decision could also open to question tax-free arrangements for such amenities as privately run restaurants in public parks or on public grounds. (The same implication does not apply to county properties: counties and their properties, including, for example, restaurants and marinas that operate on county property, are immune from taxes.)
Flagler Beach bought the 34-acre Ocean Palms Golf Club at the south end of the city in 2013 for $490,000. It had been in disuse and in disrepair for a decade. Flagler Golf Management took over and has run it since, through a 15-year lease. (The city and the management company are in the middle of a dispute, with the city finding the company in breach of its lease and the company contesting the charge, but that’s an entirely unrelated issue.) The last time the parcel contributed property taxes was in 2012 and 2013, when the total bill was $3,087 in 2012 and $2,192 in 2013. The city’s share in 2013 was a paltry $535. But that was when the grounds were a jungle and the property had a taxable value of $100,000.
It’s now $146,500, all of it exempt from taxes. If the club were to pay property taxes, Flagler Beach’s share would be $794, out of a total bill of $2,970. The rest would go to the county commission, the school board, the water management district, mosquito control and the Florida Inland Navigation District.
The total bill is about as much as the median-valued, homesteaded single family home pays in the county. But it’s more than what the course pays in rent to the city: $236 a month, or $2,832 a year. (It started at 200 a month, with annual increases of 3 percent kicking in every November.)
The city is also due a share of revenue: 1 percent on any revenue less than $200,000 over the preceding year, 2 percent if revenue was between $200,000 and $300,000, 3 percent if revenue was between $300,000 and $400,000, and so on. That part of the agreement didn’t kick in for the first five years.
It did kick in by 2019, when the company contributed 3 percent of revenue–$2,930. There was no contribution in 2020. in 2021, the company contributed a total of $1,536 in revenue share, according to figures provided by the city’s finance department.
Flagler Beach commissioners have never considered taxing the property, nor has the property appraiser done so, though the appeals court decision casts a new light on those possibilities. It wouldn’t be either’s primary role, at any rate: the Florida Department of Revenue would more likely direct property appraisers to tax or not tax in an area that has for years been gray, until this court decision. (Palm Coast also owns a municipal course, the Palm Harbor Golf Club. It ended its arrangement with a management company in 2017, and now runs the course itself, making it a city-owned and city-run property, and therefore unquestionably exempt from taxes.)
Gulf Breeze government in 2012 acquired the property in question to sue for recreation and for stormwater retention. The property includes an 18-hole golf course, a driving range, a restaurant and a pro shop. The city operated the golf course for three years until 2015, but it was losing money. IGC-Tiger Point Golf Club, owned by Eugene Garrote and Edward Whalley of Kissimmee, signed a lease that year to manage the golf course, leaving ownership in the city’s hands. Tiger Point was responsible for running the course and paying all associated costs, including all repairs and maintenance of city equipment on the course, including all capital improvements, and of course hiring its own staff. (The company hasn’t filed an active corporate annual report with the division of corporations since 2016.)
Gulf Breeze never paid taxes while itself running the golf course. In 2016, with the lease now held by Tiger Point, Gulf Breeze government applied for a tax exemption from the Santa Rosa Property Appraiser. The property appraiser partially denied it, because Gulf Breeze’s agreement with Tiger Point was a lease. Gulf Breeze appealed to the Value Adjustment Board. The board’s magistrate ruled that the agreement was not a lease, and sided with the city: there would be no taxes levied. The property appraiser appealed the decision to circuit court, meanwhile denying the city’s 2017 application for a property tax exemption. The property appraiser argued that the golf club was “not used exclusively for a municipal or public purpose,” according to court papers.
A circuit court judge ruled in favor of Gulf Breeze. (By then there were technically two related cases, which the court consolidated.) The court voided the 2016 and 2017 tax bills. The property appraiser appealed to the First District Court of Appeal in Tallahassee.
On Wednesday, the court in a divided opinion ruled 2-1 in favor of the property appraiser.
Under the Florida Constitution, “[a]ll property owned by a municipality and used exclusively by it for municipal or public purposes shall be exempt from taxation,” the majority opinion by Judge Bradford Thomas wrote. “Because the City allowed Tiger Point to retain profits generated by the City’s golf course and related facilities, the City did not use those properties exclusively for a municipal or public purpose. Thus, the City was not entitled to ad valorem tax exemptions for the golf course and related facilities.” (The very same arrangement exists between Flagler Beach and Flagler Golf Management.)
Notably, Thomas set aside the reasoning of the lower court. It doesn’t matter whether the arrangement was a lease or not, the judge ruled. What matters is whether the private company made money and kept that money in the arrangement. “Florida courts are hesitant to allow municipal-owned property to gain taxexempt status when a private actor operates the property and retains the profits from its use of the property,” the judge found, citing precedent. One of those precedents states: “It is the utilization of leased property from a governmental source that determines whether it is taxable under the Constitution.”
Thomas was joined by Judge Scott Tanenbaum. Both were appointed to the court by Gov. Ron DeSantis. Thomas, who has been associated with the ultra conservative Federalist Society, a nursery of judges, last made news when he ruled mask mandates in the state unconstitutional, last June.
Judge Scott Makar, appointed to the court by Gov. Rick Scott, dissented. He opened his dissent. (“Does a city’s golf course and its 19th hole serve a public purpose?” he started, having to explain his 19th hole reference with a buzzed footnote attributed to Wikipedia: “(“In golf, the nineteenth hole is a slang term for a pub, bar, or restaurant on or near the golf course, very often the clubhouse itself. A standard round of golf has only eighteen holes of play. An alternate term for a bar is a ‘watering hole;’ thus, by extension, continuing the day after 18 holes of golf at a watering hole makes the bar a ‘nineteenth hole.’” Makar is among the court’s more copiously published judges, and is fond of turning phrases and springing obscure words.)
“Unlike a lease of the real property to an independent for-profit company, the management agreement here shifted no ownership or proprietary rights to Integrity Golf, and it did not transform or alter the ownership or control of the City-owned property,” Makar argued. “the City retained ultimate control of its real property as well as the golf course operations themselves. As such, no constitutional, statutory, or caselaw precedent supports taxation; and the ‘governmental-governmental’ and ‘governmental-proprietary’ distinction does not apply because a lease is not involved.” The judge considers the potential for the management company to make money “immaterial” to the arrangement.
“Every management agreement—whether with a city or otherwise—has as one of its key features the ability of the management company to make ends meet and to, hopefully,
make a profit,” he wrote, “they typically are not in business for eleemosynary or philanthropic reasons.” (He did not footnote the redundant use of eleemosynary, a word used 38 times in an 1819 Supreme Court decision by John Marshall, but not used as enthusiastically since).
“The trial court concluded that the management agreement is not a lease; for all practical purposes, that should end the inquiry,” he wrote, noting that the arrangement was based on a management agreement (like Palm Coast had with its previous Palm Harbor Golf Club operator), not a lease (like Flagler Golf Management). The exception might have been the bar, restaurant and pro shop, which have no municipal purpose like the golf course’s recreational component. In isolation, they may not. But in context, they do, the judge argued, citing the lower court’s findings.