Imposition of Ad Valorem Taxes Upon Real Property

Re: Advisory Opinion; Imposition of ad valorem taxes upon real property Dear Mr. Marshall:

individually owned but leased to municipality; compromise of discovered

property; G.S. § 105-278.1(b); G.S. § 105-312(k); G.S. § 105-380

From your recent letter as supplemented by that from Elva L. Jess, attorney for the Town of Ocean Isle Beach (“Town”) we understand that since 1994 the Town has leased real property from a private individual to provide beach access and public parking. As consideration for the lease, the Town assumed responsibility for ad valorem taxes and for necessary upkeep and maintenance upon the premises. The term of the lease is indefinite and allows cancellation by either party upon 60-days written notice.

The property was properly listed, but erroneously recorded as “exempt” by the tax collector for Brunswick County (“County”). The County “discovered” the property under G.S. § 105-312, the Town paid the assessed taxes, and now has requested their refund.

The Town contends the real estate was exempt under G.S. § 105-278.1(b) since it held substantially all rights to the property and had assumed most burdens of ownership during the lease period. Moreover, the Town questions whether the property in fact was “discoverable,” and if so, whether all attendant taxes can be compromised under G.S. § 105-312(k).

G.S. § 105-278.1(b) exempts from taxation real property “belonging to” municipalities. The words “belonging to” suggest “titled to” or “owned by,” consistent with general listing requirements. G.S. § 105-302. Since the Town simply possessed a leasehold interest, the real estate was not exempt as property belonging to a municipality. Under G.S. § 105-273(6a)c, property improperly granted exemption constitutes “discovered property.” Consequently, the County properly discovered the land leased to the Town.

The powers of compromise conferred by Section 312(k) are extraordinary and not limited by traditional prohibitions against release of taxes set by G.S. § 105-380.

G.S. § 105-312(k) has few overt standards. Under Section 312(k), Brunswick County may compromise the liability for the taxes assessed upon the discovered property if it so elects in good faith after considering all the circumstances. Stone v. Commissioners of Stoneville, 210 N.C. 226, 229 (1936).

We hope the foregoing is helpful.

Signed by:

Reginald L. Watkins Senior Deputy Attorney General

George W. Boylan Special Deputy Attorney General

cc: Elva L. Jess