Pulaski County v. Jacuzzi Brothers Division, Smith Fiberglass Products, Merico (Act 9 Industries) and City of Little Rock, Arkansas

Annotate this Case
PULASKI COUNTY v. JACUZZI BROTHERS DIVISION,
Smith Fiberglass Products, Merico (Act 9
Industries) and City of Little Rock, Arkansas

96-1333                                            ___ S.W.2d ___

                    Supreme Court of Arkansas
                 Opinion delivered March 5, 1998


1.   Taxation -- standard of review. -- The standard of review in
     tax cases requires the taxpayer to establish an entitlement to
     an exemption from taxation beyond a reasonable doubt; a strong
     presumption operates in favor of the taxing power; tax
     exemptions are strictly construed against the exemption, and
     the supreme court has held that "to doubt is to deny the
     exemption."

2.   Taxation -- exemption from -- Article 16, Section 5(b), of
     Arkansas Constitution and Amendment 49 discussed. -- Article
     16, Section 5(b), of the Arkansas Constitution provides that
     "public property used exclusively for public purposes" shall
     be exempt from taxation; although Amendment 49 to the Arkansas
     Constitution is now repealed, it provided the constitutional
     authority for industrial development bonds; Amendment 65 to
     the Arkansas Constitution, which conceptually replaced
     Amendment 49 with respect to the issuance and purposes of
     revenue bonds, also permits governmental units to issue
     revenue bonds to finance all or a portion of the costs of
     facilities for the securing and developing of industry.


3.   Taxation -- Municipalities and Counties Industrial Development
     Revenue Bond Law -- purpose of. -- Act 9 of 1960, codified at
     Ark. Code Ann.  14-164-201 to -224 (1987 & Supp. 1997), is
     known as the Municipalities and Counties Industrial
     Development Revenue Bond Law; this law is intended to
     supplement all constitutional provisions and other legislation
     designed to secure and develop industry and may also permit a
     municipality to issue bonds to accomplish that purpose; the
     Revenue Bond Law empowers municipalities and counties to
     develop industry by owning, acquiring, constructing,
     equipping, and even leasing facilities that can be used in
     securing or developing industry within or near the
     municipality or county.  

4.   Taxation -- Ark. Code Ann.  14-164-701 discussed -- statute
     embraces exemption from ad valorem taxes of industrial
     facilities exempt under Article 16, Section 5, of Arkansas
     Constitution. -- Arkansas Code Annotated  14-164-701 (1987)
     declares and confirms that securing and developing industry is
     vital to the economic welfare of the State of Arkansas and its
     people; the statute urges that "maximum flexibility" be given
     to governmental entities in their efforts to "retain and
     expand existing, and locate new, industrial facilities"; the
     statute explicitly applies to financings initiated under the
     Arkansas Constitution, Amendment 49, and provisions of the
     Revenue Bond Law; it embraces the exemption from ad valorem
     taxes of all industrial facilities, which were exempt under
     Article 16, Section 5, of the Arkansas Constitution, as
     interpreted by the supreme court in Wayland v. Snapp, 232 Ark.
     57, 334 S.W.2d 633 (1960); section 14-164-701 contemplates
     that governmental entities and industrial concerns will
     negotiate and contractually agree to PILOTs (payments in lieu
     of taxes).

5.   Taxation -- securing or developing industry a public purpose -
     -  constitutional amendments liberally construed to carry out
     public purpose. -- Under the framework of Amendment 49 to the
     Arkansas Constitution and Act 9 of 1960, the supreme court
     determined in Wayland v. Snapp, 232 Ark. 57 (1960), that
     Section 1 of Amendment 49 clearly made the act of "securing or
     developing industry" a public purpose; the supreme court is
     liberal in its construction of constitutional amendments in
     order to carry out the obvious purpose of the people in
     adopting the amendments and there is an implied authority to
     employ reasonable means to carry out the purpose of the
     amendment. 

6.   Taxation -- purpose of Amendment 49 to alleviate unemployment
     -- use of city-owned property in furtherance of state's
     industrial development program a public purpose. -- In
     considering the purpose of Amendment 49 the supreme court has
     said that, while others may benefit from a project, the fact
     that benefits cannot be isolated is no reason to preclude such
     benefits for those who properly come within the scope of the
     amendment; the purpose for the adoption of Amendment 49, the
     passage of Act 9 of 1960, and the efforts of municipalities
     and counties in implementing those authorities was for the
     public welfare, which is obviously and undoubtedly a public
     purpose; any benefit a private business receives is entirely
     incidental; Amendment 49 and Act 9 of 1960 were designed for
     the purpose of developing and securing industry; the use of
     city-owned property in furtherance of the state's industrial
     development program is a public purpose.

7.   Taxation -- bonds financing projects matured and paid --
     public purpose continued. -- The appellees' properties were
     all publicly owned at the times relevant to this appeal, and
     where appellee city sought to secure and develop new
     industries to relieve unemployment, the city's public purpose
     continued, even after the bonds financing the appellees'
     projects had matured and been paid; pursuant to the emergency
     clause of 14-164-701, the city sought to retain the existing
     industrial facilities, jobs, and payrolls that continued to be
     generated by the appellees.

8.   Taxation -- city authorized to issue bonds in furtherance of
     industrial development program -- maturity and payment of
     bonds did not independently trigger end of exemption from ad
     valorem taxes. -- The issuance of bonds was but one component
     of appellee city's industrial development program as the city
     was also empowered to execute leases and to enter into
     contracts, including PILOT agreements, to achieve its purpose
     of securing, developing, and retaining industry; therefore, in
     the context of an Act 9 industrial development program,
     maturity and payment of bonds did not independently trigger
     the end of the public purpose and the end of the exemption
     from ad valorem taxes.

9.   Constitutional law -- decisions reiled upon by appellant
     concerning interpretation of Article 16, Section 5(b), of
     Arkansas Constitution inapplicable -- cases did not involve
     municipality acting in furtherance of Amendment 49 or Act 9 of
     1960 for public purpose of securing and developing industry. -
     - Appellant's reliance on decisions of the supreme court
     involving the application and interpretation of Article 16,
     Section 5(b), of the Arkansas Constitution, where the court
     held that private use of public property was not for an
     exclusively public purpose, was misplaced; these decisions
     were inapplicable because none of them involved a municipality
     or county acting in furtherance of Amendment 49 or Act 9 of
     1960 for the public purpose of securing and developing
     industry; these cases were decided outside the unique
     framework of authority underlying Act 9 industrial development
     programs and financings.

10.  Taxation -- appellees proved entitlement to exemption from ad
     valorem taxes -- decision of trial court affirmed. --
     Appellees proved their entitlement to the exemption beyond a
     reasonable doubt and the circuit court correctly held that the
     subject properties were entitled to an exemption from ad
     valorem taxes pursuant to Article 16, Section 5(b), of the
     Arkansas Constitution and consistent with the decision in
     Wayland v. Snapp; the decision of the trial court was
     affirmed.


     Appeal from Pulaski Circuit Court; Marion Humphrey, Judge;
affirmed.
     Pat Crossley, for appellant.
     Thomas M. Carpenter and Melinda Raley, for appellee City of
Little Rock.
     Friday, Eldredge & Clark, by:  Barry E. Coplin and Clifford W.
Plunkett, for appellees Jacuzzi Bros. Div. and Smith Fiberglass.
     Grobmyer, Ramsay & Ross, by:  Robert R. Ross, for appellee
Merico.
     W.H."Dub" Arnold, Chief Justice.   
     Appellant, B.A. McIntosh, the Pulaski County Assessor, appeals
from a judgment of the Pulaski County Circuit Court in favor of
Appellees, (the City of Little Rock, Jacuzzi Brothers Division of
Jacuzzi, Inc., Smith Fiberglass Products, Inc., and Merico, Inc.),
holding that real property owned by the City and leased to Jacuzzi,
Smith, and Merico should be removed from the ad valorem tax rolls
because the property is exempt from taxation pursuant to Article
16, Section 5, of the Arkansas Constitution, and Act 9 of 1960,
which implemented Amendment 49 to the Arkansas Constitution.  Until
1991 McIntosh recognized that each of the City-owned properties was
exempt from ad valorem taxes under Article 16, Section 5(b), of the
Arkansas Constitution.  However, in 1991 McIntosh placed each of
the properties on the Pulaski County tax rolls and challenged the
continued exemptions, arguing that they were unwarranted after the
City's bonds, financing the acquisition of and improvements to the
properties, have matured and been fully paid.  The appellees sought
to abate the tax assessment and prevailed in that action in the
Pulaski County Court.  On appeal, the Pulaski County Circuit Court
agreed that the properties were entitled to the tax exemption. 
From that decision comes the instant appeal.  Finding no merit in
appellant's arguments, we affirm.
     The facts underlying this matter are not disputed.  Pursuant
to Amendment 49 to the Arkansas Constitution, Act 9 of 1960, and
following voter approval, the City of Little Rock issued industrial
development revenue bonds and used the proceeds to acquire and
improve properties upon which Jacuzzi and Smith operate industrial
plants, (and where Merico operated an industrial plant until
December 31, 1995).  Jacuzzi manufactures water pumps and other
water systems equipment at its facility and employs approximately
200 people in its operations.  Smith manufactures fiberglass pipe
and related products and employs approximately 340 people.
     In 1961 Jacuzzi was successfully recruited, as part of
Arkansas's industrial development program, to locate its
manufacturing facility in Little Rock.  Jacuzzi's recruitment
package included a financing plan to be achieved by the Cityþs
issuance of its industrial development revenue bonds for the
purpose of acquiring and improving certain real property for
Jacuzzi's use in its industrial operations, the execution of a
lease by the City and Jacuzzi relating to that property, and the
payment by Jacuzzi to the City of annual lease payments and
specified payments in lieu of taxes, (PILOTs).  The Jacuzzi lease
provided for an initial twenty-year term, with five consecutive
extension renewal options, each for a period of ten years.  Jacuzzi
exercised its renewal options under the lease, and since placed
into service in 1961, the Jacuzzi facility has been continuously
operated as an industrial plant.  The lease also recites that the
property is exempt from ad valorem taxes under the Arkansas
Constitution.  Since 1961 the property has remained exempt from ad
valorem taxes, and Jacuzzi has made all required PILOTs to the
City.  The Act 9 bonds relating to the Jacuzzi facility matured and
were fully paid on December 1, 1981.
     Similarly, Smith was successfully recruited to locate in
Arkansas in 1963.  Smith's recruitment package included low
interest financing to be achieved through the issuance of Act 9
tax-exempt industrial development revenue bonds, the execution by
the City and Smith of a lease of certain real property to Smith for
Smith's use in its industrial operations, and the payment by Smith
to the City of PILOTs.  Smith executed its lease in 1963 for an
initial twenty-year term, with twenty consecutive extension
options, each for a period of one year.  Smith has continuously
operated an industrial facility on the property, and, since 1963,
the property has been exempt from ad valorem taxes, and Smith has
made all required PILOTs to the City.  The Act 9 bonds relating to
the Smith facility matured and were fully paid on May 1, 1983.
     Likewise, Arkansas's industrial development program secured
Merico's industrial operations in the City of Little Rock.  Merico
opted to cease operation of its facility when its lease with the
City expired on December 31, 1995.  For purposes of this appeal,
however, until December 31, 1995, the Merico facility presented a
situation substantially identical to that of Jacuzzi and Smith.
     It is well-settled that our standard of review in tax cases
requires the taxpayer to establish an entitlement to an exemption
from taxation beyond a reasonable doubt.  Pledger v. C.B. Form Co.,
316 Ark. 22, 25, 871 S.W.2d 333 (1994) (citing Pledger v. Baldor
Int'l, 309 Ark. 30, 827 S.W.2d 646 (1992)).  Moreover, a strong
presumption operates in favor of the taxing power.  C.B. Form, 316
Ark. at 25 (citing Ragland v. General Tire & Rubber Co., 297 Ark.
394, 763 S.W.2d 70 (1989)).  Tax exemptions are strictly construed
against the exemption, and this Court has held that "to doubt is to
deny the exemption."  C.B. Form, 316 Ark. at 25 (citing Baldor, 309
Ark. at 33).
     Article 16, Section 5(b), of the Arkansas Constitution
provides that "public property used exclusively for public
purposes" shall be exempt from taxation.  Although Amendment 49 to
the Arkansas Constitution is now repealed, it once provided the
constitutional authority for industrial development bonds. 
Conceptually, Amendment 65 to the Arkansas Constitution has
replaced Amendment 49 with respect to the issuance and purposes of
revenue bonds.  Amendment 65 also permits governmental units, like
the City of Little Rock, to issue revenue bonds to finance all or
a portion of the costs of facilities for the securing and
developing of industry.
     Act 9 of 1960, codified at Ark. Code Ann.  14-164-201 to -
224 (1987 & Supp. 1997), is known as the Municipalities and
Counties Industrial Development Revenue Bond Law.  These statutes
are intended to "supplement all constitutional provisions and other
legislation designed to secure and develop industry."  Ark. Code
Ann.  14-164-202.  The statutes may also permit a municipality to
issue bonds to accomplish that purpose.  Ark. Code Ann.  14-164-
206.  The Revenue Bond Law empowers municipalities and counties to
develop industry by owning, acquiring, constructing, equipping, and
even leasing facilities that can be used in securing or developing
industry within or near the municipality or county.  Ark. Code Ann.
 14-164-205.
     Ark. Code Ann.  14-164-701 (1987) declares and confirms that
securing and developing industry is vital to the economic welfare
of the State of Arkansas and its people.  Significantly, that
statute urges that "maximum flexibility" should be given to
governmental entities in their efforts to "retain and expand
existing, and locate new, industrial facilities."  Moreover, the
statute explicitly applies to financings initiated under the
Arkansas Constitution, Amendment 49, and provisions of the Revenue
Bond Law.  The statute embraces the exemption from ad valorem taxes
of all industrial facilities which were exempt under Article 16,
Section 5, of the Arkansas Constitution, as interpreted by this
Court in Wayland v. Snapp, 232 Ark. 57, 334 S.W.2d 633 (1960). 
Further, section 14-164-701 contemplates that governmental entities
and industrial concerns will negotiate and contractually agree to
PILOTs.
     Given the framework of Amendment 49 to the Arkansas
Constitution and Act 9 of 1960, this Court first considered the
issue of whether property was being used exclusively for a public
purpose, in the context of a proposed Act 9 financing, in Wayland
v. Snapp, 232 Ark. 57 (1960).  According to our decision in
Wayland, Section 1 of Amendment 49 clearly made the act of
"securing or developing industry" a public purpose.  Snapp, 232
Ark. at 65.  This Court also noted that it has been liberal in its
construction of constitutional amendments in order to carry out the
obvious purpose of the people in adopting the amendments and that
there is an "implied authority to employ reasonable means to carry
out the purpose of the amendment."  Id.
     The appellant in Snapp challenged a proposed bond issue under
Amendment 49.  The appellant reasoned that the county would not
reap the benefits of the proposed project because the county
issuing the bonds would not hold title to the building to be
erected.  In considering the purpose of Amendment 49, the Snapp
Court recalled its determination in an earlier case that while
others may benefit from a project, "the fact that benefits cannot
be isolated, is no reason to preclude such benefits for those who
properly come within the scope of the amendment."  Snapp, 232 Ark.
at 65 (citing Myhand v. Erwin, 231 Ark. 444, 330 S.W.2d 68 (1950)). 
Further, the Snapp Court acknowledged that the prime objective of
the people in that county in implementing the entire undertaking
was not simply to erect a building but to alleviate unemployment. 
Id.  The Snapp Court concluded that the county and the City of
Batesville, where the industry was to be located, would reap the
benefits of the project.  The property in Snapp was used
exclusively for a public purpose and, therefore, exempt from taxes
under Article 16, Section 5(b), of the Arkansas Constitution.
     The Snapp Court also held that the whole purpose for the
adoption of Amendment 49, the passage of Act 9 of 1960, and the
efforts of municipalities and counties in implementing those
authorities was for the public welfare, which is "obviously and
undoubtedly a `public purpose'".  Snapp, 232 Ark. at 72.  The
entire program was not meant for any other purpose, particularly
not for the benefit of a private business.  Any benefit a private
business received from the entire undertaking was "entirely
incidental."  Id.  The analysis in Snapp addressed the entirety of
a unique program -- carved out by the people of this State by their
adoption of Amendment 49 and created by our legislature by the
passage of Act 9 of 1960 -- designed for the purpose of developing
and securing industry.  The use of City-owned property in
furtherance of this State's industrial development program has been
deemed a public purpose.
     Like Snapp, the instant properties were all publicly owned at
the times relevant to this appeal, and the City of Little Rock,
like the City of Batesville, sought to secure and develop new
industries to relieve unemployment.  In that endeavor, the City of
Little Rock initiated its industrial development program with
respect to Jacuzzi, Smith, and Merico.  The distinguishing fact in
the instant case is that the bonds financing those projects have
matured and been paid.  The appellant contends that the Cityþs
public purpose then ended.
     However, even after the bonds financing the Jacuzzi, Smith,
and Merico projects have matured and been paid, the City of Little
Rockþs public purpose continues.  The emergency clause of section
14-164-701 provides that the industrial development program of the
State and her counties is þnecessary for the achievement of the
public benefits flowing from the retention or expansion of existing
employment and the obtaining of additional employment and
payrolls.þ  See Ark. Code Ann.  14-164-701 (1987).  Likewise, the
City seeks to retain the existing industrial facilities, jobs, and
payrolls that continue to be generated by Jacuzzi and Smith, (and
by Merico until the end of 1995).
     Certainly, the City of Little Rock was authorized to issue
bonds in furtherance of its industrial development program. 
However, the issuance of bonds was but one component of the Cityþs
program.  Additionally, the City was empowered to execute leases
and to enter into contracts, including PILOT agreements, to achieve
its purpose of securing, developing, and retaining industry. 
Therefore, in the context of an Act 9 industrial development
program, maturity and payment of bonds does not independently
trigger the end of the public purpose and the end of the exemption
from ad valorem taxes.
     The appellant relies heavily on decisions of this Court
involving the application and interpretation of Article 16, Section
5(b), of the Arkansas Constitution, where we have held that private
use of public property was not for an exclusively public purpose. 
See Crittenden Hosp. Assoc. v. Board of Equalization, 330 Ark. 767,
___ S.W.2d ___ (1997);  City of Little Rock v. McIntosh, 319 Ark.
423, 892 S.W.2d 462 (1995); B.D.T. v. Moore, 260 Ark. 581, 543 S.W.2d 220 (1976); Hilger v. Harding College, 231 Ark. 686, 331 S.W.2d 851 (1960); and School District of Ft. Smith v. Howe, 62
Ark. 481, 37 S.W. 717 (1896)..  As the appellees correctly contend,
these decisions are inapplicable in the instant case.  None of
these cases involved a municipality or county acting in furtherance
of Amendment 49 or Act 9 of 1960 for the public purpose of securing
and developing industry.  These cases were decided outside the
unique framework of authority underlying Act 9 industrial
development programs and financings.
     Our decision in City of Fayetteville v. Phillips, 306 Ark. 87,
811 S.W.2d 308 (1991), makes this distinction clear.  The
appellants in Phillips relied on the authority of Snapp to support
their argument that a public entity's construction of an arts
center, to be used for a public purpose, was an exclusive public
use under Article 16, Section 5(b).  Rejecting that argument, we
noted that Snapp concerned an industrial development project
facilitated by Amendment 49 and Act 9 of 1960.  We also stated that
both the amendment and the act were intended to facilitate the
procurement of industry, and that "the amendment specifically
describe[d] such an activity as a public purpose."  Phillips, 306
Ark. at 93.  We further distinguished Phillips from Snapp by
observing that, in Phillips, there was no comparable constitutional
or statutory authority indicating that the proposed use would
constitute an exclusive public purpose activity.  Id.
     We find that appellees have proved their entitlement to the
exemption beyond a reasonable doubt and that the circuit court
correctly held that the subject properties are entitled to an
exemption from ad valorem taxes pursuant to Article 16, Section
5(b), of the Arkansas Constitution and consistent with our decision
in Wayland v. Snapp.  Accordingly, we affirm.
     Newbern and Imber, JJ., dissent.
     Special Justice Paul Lindsey, concurs.


     Annabelle Clinton Imber, Justice, dissenting.  I must disagree
with the majority's conclusion that property acquired under Act 9
of 1960 keeps its tax exempt status after the retirement of Act 9
bonds used to finance the acquisition of the property.  The
majority relies solely upon our language in Wayland v. Snapp, 232
Ark. 57, 334 S.W.2d 633 (1960), concerning the tax exempt status of
Act 9 property.   I am not persuaded, however, that Wayland
supports the majority's conclusions.
     The majority correctly acknowledges the numerous decisions in
which we have held that public property is not used exclusively for
a public purpose under Article 16,  5(b) of the Arkansas
Constitution when that property has been used for a private
purpose.  See Crittenden Hosp. Assoc. v. Board of Equalization, 330
Ark. 767, ___ S.W.2d ___ (1997); City of Little Rock v. McIntosh,
319 Ark. 423, 892 S.W.2d 462 (1995); City of Fayetteville v.
Phillips, 306 Ark. 87, 811 S.W.2d 308 (1991); Holiday Is. Suburban
Improvement Dist.#1 v. Williams, 295 Ark. 442, 749 S.W.2d 314
(1988); B.D.T. v. Moore, 260 Ark. 581, 543 S.W.2d 220 (1976);
Hilger v. Harding College, 231 Ark. 686, 331 S.W.2d 851 (1960);
School Dist. of Ft. Smith v. Howe, 62 Ark. 481, 37 S.W. 717 (1896). 
The majority is also correct when it notes that the particular
property in this case is tax exempt solely because of its unique
status as property financed under Act 9.  This court, in Wayland,
carved out a specialized exception to our traditional Article 16,
 5(b) tax exemption analysis when we stated that "only where the
title of property is acquired and the property itself is used by a
city or county (or by both) pursuant to Act No. 9 and/or Amendment
No. 49" is the property used exclusively for a public purpose.  See
Wayland, supra (emphasis added).  It is the property's unique
characterization as Act 9 property that allows it to remain off the
county tax rolls.  The majority now seeks to expand the exemption
perpetually.   I cannot subscribe to such an outcome.
     We noted in City of Fayetteville v. Phillips, supra, that Act
9 was intended to facilitate procurement of industry, and that
Amendment 49 made the act of "securing or developing industry" a
public purpose.  In Wayland, we indicated that, together, Act 9 and
Amendment 49 were designed for the purpose of developing and
securing industry.  Both of these goals have been accomplished. 
The bonds were issued, the land procured and leased out to private
enterprises, and industry was secured.  The bonds have now been
retired.   The property is no longer being "used by a city or
county (or by both) pursuant to Act No. 9 and/or Amendment No. 49." 
 See Wayland, supra (emphasis added). Therefore, the property loses
its tax exempt status under the limited exception carved out in
Wayland for property financed under Act 9.
     The property in this case has been leased to private
industrial enterprises.  The mere fact that the use of the property
still alleviates unemployment, alone, is insufficient to grant tax
exempt status.  See Crittenden Hosp. Assn. v. Board of
Equalization, supra; Holiday Island Suburban Improvement Dist. # 1
v. Williams, supra.  In the Holiday Island case, concerning
recreational property only open to property owners within an
improvement district, we explained:
     The District submits that "retirement" is an industry and
     Holiday Island promotes employment and other economic
     benefits to northern Arkansas.  No doubt that is true,
     and if the issue here were tax exemption for the income
     from improvement district bonds, the public purpose might
     well be satisfied.  But this is not the issue and it is
     clear the phrase "public purpose" is not an exact term.
     . . . [O]ur decision here deals only with a public
     purpose within the context of article 16  5(b).
          Just as it is clear that ad valorem taxes could not
     be lawfully imposed upon the general public to maintain
     the cost of construction or maintenance of facilities
     used for private purposes, we can conceive of no valid
     reason why facilities restricted to private use should be
     exempted from payment of  taxes assessed against other
     properties of a similar character.

     I see no reason why property leased by Jacuzzi Bros., Smith
Fiberglass, and Merico Inc. should be exempted perpetually from
payment of ad valorem taxes.  Once the benefit of Act 9 financing
has been realized and the bonds have been fully retired, the
property has ceased to be used by the City of Little Rock  pursuant
to Act 9 and Amendment 49.  The property in question is now no
different than any public property leased to a private enterprise
that has not been financed under Act 9.  Under these circumstances,
we should follow our traditional analysis in determining the
property's tax exempt status and hold that the property is not
exempt from taxation.
     For the above reasons, I respectfully dissent.
     Newbern, J., joins in this dissent.