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By Chris Marr
The Atlanta Falcons ownership could owe $26 million in annual property taxes if plaintiffs can convince Georgia courts the team holds a taxable interest in its new publicly owned stadium.
A group of local property owners is suing the Fulton County Board of Tax Assessors for failing to assess ad valorem taxes on the team’s interest in Mercedes-Benz Stadium. The property is owned by a governmental entity—the Georgia World Congress Center Authority—but the plaintiffs argue that the management contract granted to a Falcons affiliate creates a long-term leasehold or “estate for years” that is subject to ad valorem tax under Georgia law ( Love v. Fulton County Bd. of Tax Assessors , Ga. Super. Ct., No. 2017CV296655, 10/17/17 ).
“They owe taxes because they have taken a taxable interest in that building,” Wayne Kendall, the attorney representing the plaintiffs, told Bloomberg Tax Oct. 23. The property “becomes taxable in the hands of a for-profit entity that uses it for a nongovernmental use,” he added.
The NFL team began playing this fall in the new Mercedes-Benz Stadium near downtown Atlanta, as did the city’s new Major League Soccer team, Atlanta United. Both teams are owned by local businessman Arthur Blank. The Atlanta Falcons Stadium Company LLC holds the 30-year management contract with optional extensions that would let the teams use the property for as long as 45 years.
The case strikes at a key question on the taxability of public property that is leased to private, for-profit entities, said Greg K. Hecht, an Atlanta attorney whose practice includes property tax disputes. Similar cases in Georgia courts have gone both ways in the past, he told Bloomberg Tax Oct. 24. Prior cases have involved properties such as airports and hospitals that are publicly owned but managed by private companies.
The board of tax assessors didn’t immediately respond to Bloomberg Tax’s request for comment.
A spokeswoman for the stadium company said the Falcons don’t own “the stadium or any property interest in the stadium that could be subject to taxation.” The allegations in the lawsuit have no merit, she told Bloomberg Tax by email. The Falcons aren’t named as defendants in the case.
“If someone convinces a judge that this is an estate for years, it will be a significant issue for appeal,” Hecht said.
On one hand, he said the plaintiffs have a difficult road to prove their case, because state law is designed to let local development authorities set up tax-exempt arrangements like this to promote economic growth. On the other hand, he added, the long-term nature of the management contract will make it harder for the tax board to argue the team’s interest is simply a usufruct—or a right to use a property that doesn’t create a taxable estate.
If the Falcons ultimately face a tax bill for the stadium after the litigation is resolved, it seems likely the team’s owner or Atlanta officials would ask the state Legislature to revise the law or amend the constitution if needed, said Hecht, who is a former state lawmaker.
A consultant hired by the plaintiffs estimated the fair market value of the new stadium at $1.5 billion, giving it an annual ad valorem tax bill of $26 million, Kendall said. The complaint, filed in Fulton County Superior Court on Oct. 17, asks the court to order a tax assessment on the stadium company dating back to 2015, when the management contract began during the stadium’s construction. The plaintiffs include Atlanta pastor and civil rights activist Albert E. Love.
It will be interesting to see whether a recent Georgia Supreme Court decision “puts a dent” in the tax assessor’s and Falcons’ case, Hecht said.
The court ruled on Oct. 16 that prior bond validation orders allowing the issuance of public bonds for hospital construction projects in Columbus, Ga., didn’t automatically protect the hospital facilities as tax-exempt public properties. The court remanded that case for further proceedings.
Other past cases on the subject include a 1974 Georgia Supreme Court ruling in Camp v. Delta Air Lines. In that case, the court found a 30-year management agreement of publicly owned airport property amounted to a nontaxable usufruct. The court noted Georgia law calls for presuming such an agreement to be a taxable estate for years if it exceeds five years, but other details of the agreement can cause it to function as a usufruct—such as restrictions that limited the airline’s control of the property or ability to make renovations.
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