Legislator drafts tax on colleges

Commercial space targeted

A state lawmaker wants public universities to pay property taxes when they operate as landlords for commercial ventures.

"When they get into the strip mall business and they're renting to businesses, they shouldn't be competing against the private sector. They need to be paying property taxes due to the county, school system and the city," said state Rep. Micah Neal, a Republican from Springdale.

Neal said he's drafting a bill in response to a Feb. 4 opinion from the Arkansas Supreme Court, which sided with the University of Arkansas at Fayetteville in a long-running dispute with Washington County over property taxes.

In a majority opinion, the court emphasized that state-owned property is immune from such taxation. The county had argued that how the property is used should be considered.

The Supreme Court's majority opinion cited an "absence of language" in the state constitution to allow state-owned property to be taxed.

The opinion also said the Arkansas Legislature "has not enacted a law subjecting property owned by the state to ad valorem taxation."

Neal's proposal would do just that, specifically for state-supported two- and four-year colleges or universities.

They would be required to pay property taxes on all real or personal property used for a "commercial, business, rental, investment, or other nonpublic purpose," according to a draft of the bill.

Mark Rushing, a UA spokesman, wrote in an email that the university did not support the draft legislation, stating it would give local assessors "unfettered discretion" to determine whether property is being used for a nonpublic purpose.

"As the Arkansas Supreme Court pointed out, taxing public college and university property produces circular taxation that is 'nonsensical,'" Rushing wrote. "The millions taxed would harm educational services, lead to student tuition increases, or require tax hikes on citizens in all 75 counties. The net effect is a back-door tax on families across the State."

Neal said restaurants housed in UA's Arkansas Union and a dental office in UA's Garland Center are enterprises that should require UA to pay property tax.

Russell Hill, assessor for Washington County, traced the dispute with UA back to the construction of the Garland Center, described on UA's website as having "50,000 square feet of retail space" and a parking deck. Shops opened in 2010, according to UA's website, and the center includes the campus bookstore.

"Historically, we've collected taxes on property that the university had that was not public, that wasn't used for education and had an eye towards profit," Hill said, adding that a very small percentage of the university's property holdings have been taxed. For example, the county has not taxed property related to sales at Razorback athletic events, he said.

Now, the university is "buying up property left and right," Hill said, leading the county to try to collect more taxes.

Hill said the county has worked with Neal on the draft legislation. Neal said he hopes Gov. Asa Hutchinson includes the bill in an upcoming special legislative session this year. Hutchinson has said he plans to convene a special session in April.

The Supreme Court's majority opinion stated it applied to the "narrow issue" of whether the county could collect taxes on 11 parcels, which included undeveloped lots and a portion of the campus bookstore selling clothing. The majority opinion affirmed an earlier Circuit Court judgment stating that Washington County should refund $28,205.03 in taxes the university had paid under protest in 2011, 2012 and 2013.

But County Attorney Steve Zega noted when the court's opinion was issued that the language seemed to apply more broadly. Now, the county is bracing to possibly refund a larger amount: about $750,000 over those same three years, said Hill. Most of that money, roughly 80 percent, supports the Fayetteville School District, he said.

"The University is still reviewing its options in this matter," Rushing wrote in response to a question about how much of a refund UA will ultimately seek to collect from Washington County.

A separate, concurring opinion from the Supreme Court supported some examination of the use of the university's property, unlike the majority opinion. Neal referred to the Supreme Court's opinion in describing one concern he has involving public universities.

"The issue I have with their ruling is that a public university in the state shouldn't be in the rental business, specifically universities shouldn't be in the rental business to nonstudents," Neal said.

Rushing wrote that while the university has acquired some properties now rented through "local leasing agents," they "are rented almost exclusively by students." Such properties have been purchased to "facilitate future growth" for UA, Rushing wrote, also noting that the university paid property taxes accrued under private ownership when it purchased the properties.

If Hutchinson does not call the bill into the coming special session, Neal said he is confident it will be introduced in the 2017 regular session.

"I would just say that as a legislator, that we have to watch the government entities and make sure they don't compete against the private sector," Neal said.

Metro on 02/13/2016

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