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November 24, 2001 By Janelle Holden When Montezuma County was pursuing a long-running court case against ARAMARK, the concessionaire at Mesa Verde National Park, the county’s goal was to ensure that corporations using public lands pay a fair share of property taxes. But an unintended consequence of the county’s victory in that case was that ranchers statewide, who see themselves as on far shakier economic grounds than such corporations, will have now to pay additional taxes too. Because of a Colorado Supreme Court ruling in February, counties now have the right to assess the "possessory interests" of commercial enterprises on public property. Possessory interests describes the semi-proprietary interest a business may have in a piece of public land that it occupies and earns money from but can never own outright. The ruling affects ski areas, concessionaires at national parks, franchises in public airports, even major sports teams that use public arenas and stadiums. But the decision also applies to ranchers who lease public land for livestock-grazing. Representatives of the Colorado Farm Bureau fear the ruling will have a major effect on the state’s farmers and ranchers. "I cannot emphasize enough the impact that this will have on agricultural producers who use public lands to grow crops and graze livestock," said Jeani Frickey Saito, Colorado Farm Bureau’s state affairs director, in a press release. "Our producers negotiated and entered into their lease agreements with the assumption of certain conditions, including the assumption that they would not pay taxes on their possessory interest." Mark Vanderpool, a commercial appraiser with the Montezuma County Assessor’s Office, said Wednesday that assessors statewide are struggling with how to assess various possessory interests. "You’re asking a question that has been cussed and discussed by the assessors’ organization, along with the courts and the Legislature, over the past few years," he said. "One could argue either side of the (possessory-interest) issue. The RV park across from Mesa Verde has a legitimate complaint if the campground in the park is not taxed. "However, I don’t think there are any assessors in the state eager to present possessory-interest tax bills to ranchers, but we will have no choice." The February ruling is the second time the state supreme court found in favor of the county’s right to tax possessory interests, and the fourth time the issue had come before the high court. In the late 1980s, Montezuma County heard complaints from owners of private campgrounds that Morefield Campground at Mesa Verde had an unfair advantage because it did not pay property taxes on its use of the land. The county commissioners’ attorney, Bob Slough, noted that the Colorado Constitution says, "All corporations in this state, or doing business therein, shall be subject to taxation. . . on the real and personal property owned or used by them. . . ." The county began taxing the concessionaire at Mesa Verde in 1989. The company challenged the taxation, and the case wound its way to the state supreme court. In 1992 the court ruled the county did not have the legal standing to challenge state law. In 1994, using a new law allowing such a challenge, the county filed its case again, and the court ruled in favor of the company again. The county filed for a re-hearing, and in 1995 the court reversed itself, ruling in favor of the county 5-2. That prompted industry lobbyists to successfully push the Legislature to pass a new law in 1996 exempting possessory interests from taxation. Montezuma County and more than a dozen other counties challenged the new law, and the supreme court ruled in February that it, too, was unconstitutional. The Colorado Division of Property Taxation is developing a taxation methodology for agricultural lessees, along with other possessory interests. According to Mary Huddleston, state property-tax administrator, the fee paid for a grazing permit will determine its net present value. That value then will be assessed at the current commercial property-tax ratio of 29 percent. "Tthe way the statute instructs us to do it, for the vast majority of the possessory-interest properties, is to use the agreement between the tax-exempt entity and the lessee. We’re 99 percent sure we’ll end up doing the same thing with agricultural interests," said Huddleston. The value is based on the time remaining in a permit. "Our intent is to assess the full value of the 10-year lease," said Huddleston, who explained that the value will be adjusted each year based on the prior year’s fees and how much of the lease has expired. The formula for agricultural possessory-interest taxes will be finished in January, she said. According to Vanderpool, the new method represents a change from how ARAMARK and other commercial interests were taxed. In the past, they were assessed based on annual income. Now, with the exception of ski areas, all commercial possessory interests will be taxed on the value of their lease. That will mean a lower tax bill for most, he said. "This is a very favorable valuation from the taxpayer’s point of view," Vanderpool said. "It’s my belief this new methodology will result in significantly lower valuations for these taxpayers such as ARAMARK, the marina, and so on." He said, although lease-holders will be assessed based on the time remaining in their lease, the amount will be discounted for future years to allow for inflation. In other words, if someone’s annual lease payment is $10,000 and he has a 10-year lease, the value for the second year might be $9,400, for the third year $8,600, and so on. He said the Division of Property Taxation will likely be the entity that gathers lease information from the Forest Service or BLM and gives it to assessors. According to Mark Tucker, a BLM range-management specialist, an average livestock producer runs 150 animal-unit months on federal land about nine months a year. With the grazing price at $1.35 per AUM, the average producer pays a little over $1,800 a year to graze cattle on federal land. The 2001 fiscal year will be the first time ranchers will be taxed on possessory interests. State regulators have not decided whether taxes will be levied retroactively for years when the unconstitutional law banning the tax was in effect. Vanderpool reiterated that assessors are being forced to send the new tax bills to ag producers. "I think that, along with numerous other assessors, we are not eager to implement this on the ranchers," he said. |
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