07-22-08 Item 3aTo: Mayor and City Commission Date: June 27, 2008
From: Luis R. Figueredo, Re: Preservation of Tax exempt status for the
Nagin Gallop & Figueredo, P.A. Municipal Garage.
Office of City Attorney
BACKGROUND AND ANALYSIS:
Mark Richman Properties entered into a lease agreement with the City of South Miami to
manage the municipal garage. The municipal garage also contains retail space on the first floor. At
the time that the lease was negotiated by the parties, the City recognized that the retail component of
the structure did not constitute a governmental purpose and as such the parking structure could be
subject to ad valorem taxation. In that regard the City agreed to abate its share of ad valorem taxes
assessed against the project, excluding the replacement MRP building. Specifically, paragraph 11 of
the Lease entitled "Tax Treatment" recognized that the structure could be assessed ad valorem taxes.
The agreement by the City to waive its share of ad valorem taxes in the event the municipal garage
was assessed was based on several factors. First, the City was receiving no ad valorem payment for
the subject property, therefore the agreement to forego payment did not constitute a reduction in
actual ad valorem payments received by the City. Second, the value received by the City in the form
of MRP's assumption of the principal and interest payments of the construction loan is significantly
greater than the ad valorem payments the City would have received.
Florida Statutes Section 196.012(6) creates an ad valorem tax exemption for activities that
serve a governmental purpose. Also, Florida Statutes Section 196.199, exempts leasehold interests in
property of a municipality when the lessee performs a governmental function. The majority of the
leasehold performs a governmental function in that public parking is provided. In fact, Section
subsection (2) of 196.199 provides, in pertinent part, that property owned by delineated
governmental units, but used by nongovernmental lessees, shall be exempt from taxation under the
following conditions:
(a) Leasehold interests in property of the United States, of the state or
any of its several political subdivisions, or of municipalities, agencies,
authorities, and other public bodies corporate of the state shall be
exempt from ad valorem taxation only when the lessee serves or
performs a governmental, municipal, or public purpose or function, as
defined in s. 196.012(6). In all such cases, all other interests in the
leased property shall also be exempt from ad valorem taxation.
Memorandum on tax exempt status
July 3, 2008
Page 2 of 2
However, a leasehold interest in property of the state may not be
exempted from ad valorem taxation when a nongovernmental lessee
uses such property for the operation of a multipurpose hazardous
waste treatment facility.
The Miami -Dade County Tax Assessor's Office interprets this section to mean that all uses
must be tax exempt to preserve the tax exempt status of a property. In that regard, the tax assessor's
office has agreed that the separation of the tax exempt uses from the other uses would preserve the
tax exempt status of the majority of the parking garage. One method for separating the use that
serves a governmental purpose from the for - profit retail use is to create two separate folio numbers
for the City owned property. The first floor of the City owned structure would have one folio number
and be treated as taxable property. The second folio number would encompass the City owned
municipal parking (essentially a small portion of the first floor and the second floor up to the roof).
By separating the uses by folio numbers the tax assessor would treat the properties separately for tax
purposes. In other words, the property used to provide municipal parking would be regarded as
exclusively performing a governmental purpose and therefore exempt from ad valorem taxation. The
first floor of the garage that provides retail would be the only part of the City owned property subject
to ad valorem taxation.
The creation of different folio numbers essentially treats all three (3) properties (MRP's
property already has a separate folio number) as separate. In order to preserve certain rights to access
what are the common areas, the structure as a whole should be treated as a condominium. The
condominium recognizes individual ownership while creating certain rights to use of and access
common facilities such as the parking ramp, hallways, elevators, garbage compactor, utilities and
any equipment servicing the entire structure. MRP's lawyers have offered to draft the condominium
documents for our review. This will minimize the City's legal costs. The concept of treating the
garage as a condominium has been utilized by Coral Gables in order to preserve the rights to use and
access common areas. However, given the tax assessor's "exclusive use requirement" in order to
maintain the tax exempt status of the parking structure the retail component must be separated from
public parking. The creation of separate folio numbers is the most simple and expedient approach.
As previously stated, there are other mechanisms which can be utilized by the City and MRP to
preserve right of use, such as, by creating covenants running with the land. However, by comparison
this mechanism would be more complicated than turning the structure into a condominium.