Michigan Airport Personal Property Tax

1. Michigan Airport Personal Property Tax

2. Overview • Airports owned by a local unit of government are exempt from the application of property taxes. • The local taxing entity, a township, city or county, may then assess property tax to lessees of tax exempt property leasing hangars or operating businesses for profit. • There are certain exceptions to this tax including: • “property owned by, . . . by a county, township, city, village, or school district used for public purposes and . . . is used to carry out a public purpose . . . is exempt from taxation under this Act.” MCL 211.7m; and • “property that is used as a concession at a public airport, park, market, or similar property and that is available for use by the general public” is also exempt under the Act. MCL 211.181 (2)(b). • However, exceptions have been strictly construed by local taxing authorities.

3. Exceptions • Entities seeking an exemption for property tax assessed on a hangar located on airport premises must prove the following: • That the property in question is owned by the Airport Authority; and • That the property is used to carry out a public purpose itself or on behalf of a public subdivision or a combination. • Michigan Tax Tribunal in Brasseur v. Rutland Charter Township, 2004 WL 725239 (Mich. Tax Tribunal) (Feb. 5, 2004) (No. 0292326).

4. Exceptions • Under Brasseur, the lessee must be careful to include in its Lease Agreement stipulations regarding rent payments and retention of property rights by the Airport Authority at lease expiration, specifically a “yield and deliver up” provision. • Brasseur recognizes that permitting the storing of private aircraft at a building owned by the Airport Authority is in line with the general public purpose of the airport, and ultimately the building increases the value of the publicly owned airport.

5. Exceptions • Entities such as airport concessions, FBOs, and other commercial aeronautical operators must prove the following: • That the property is an airport concession; and • That the property is open and available for use by the general public. • Michigan Court of Appeals in Skybolt Partnership v. City of Flint, 205 Mich. App. 597, 517 N.W. 2d 838 (1994).

6. Exceptions • Pursuant to Emery Worldwide v Township of Cascade, 2005 WL 563323 (Mich. App. Mar 10, 2005) (NO. 251416), an entity must adequately demonstrate it is, indeed, a concession open to the public. The Court reasoned that something like a retail, walk-in business is required. • To be a concession, the Supreme Court has previously established that that the services offered by the would-be concessionaire must “bear a reasonable relationship to the purposes” of the the airport – which the Emery court said was “to provide a public hub for activities ordinarily associated with airplanes.”

7. Exceptions • Thus, FBOs and other commercial aeronautical operators can be differentiated from Emery because significant control is exercised by the airport in their leases and through the airport’s minimum standards. Also, these entities, by definition, are available to serve the flying public. Airports traditionally require FBOs to offer specific services such as: flights, and aircraft maintenance and fuel. • However, because the current trend is toward a higher level of scrutiny of an airport/tenant’s lease agreement, as well as its actual operations and a greater deference to the tax assessors, we recommend the following:

8. Recommendations • Carefully analyze the Airport Lease Agreement. The Agreement must show specific provisions that comport to the airport’s minimum standards including: minimum hours of operation, strict control of improvements by the Airport Authority, and oversight of operations by the landlord (Airport Authority). The Agreement must have a clear “imposition of obligations directed toward the fulfillment of a public purpose.” Example: In Emery, the freight building leased by Emery Worldwide was used for cargo operations but it did not have minimum hours enforced by the airport or a public counter and it was never shown to have public purpose.

9. Recommendations • Clearly demonstrate that the property is directly devoted to serve the general public. The “general public” definition does not just encompass individual consumers but it also includes business consumers. Example: In Skybolt Partnership v. City of Flint, 205 Mich. App. 597, 517 N.W. 2d 838 (1994), where the property appeared to be an FBO, but two of its hangars were subleased to Simmons Airlines for maintenance. The Court concluded that the FBO hangar was exempt but hangars sublet to Simmons were not exempt because they were not available to the general public.

10. Recommendations • Show the business has a reasonable relationship to the purposes of the airport. Since a lessee’s is a concessionary, its services must be “customarily and needfully” required by the airport and these services should “provide a public hub for activities ordinarily associated with airplanes.” Example: In Teledyne v. City of Norton Shores, 1984 WL 13972 (Mich. Tax Tribunal), where Teledyne’s private corporate hangar, a portion of which was leased to another private business for office space, was held as not exempt. The Tribunal not only held that the property was not a concession because it was not open to the general public, but also concluded that office space was not “customarily and needfully” required by the airport.

11. Questions Clifford G. Maine Barnes & Thornburg LLP 171 Monroe Ave. NW Suite 1000 Grand Rapids, MI 49503 Direct Dial: (616) 742-3944 Fax: (616) 742-3999 CMaine@btlaw.com