Whenever possible, Pottawattamie County assesses all improvements to the land upon which they sit. There are some rare circumstances, such as a grain elevator sitting on railroad land, when the policy cannot be employed. In those instances a separate BLL assessment must be created.
Our impression is that a majority of Iowa Assessors always create the BLL assessment because they believe that the Code of Iowa §428.4 last sentence requires them to do so. The fact is that the Iowa Supreme Court has said that §428.4 allows for the assessment to be made against the lessor or the lessee.
In Ruan Center Corp v. Board of Review, 297 N.W.2d 538, 554 (Iowa 1980), the Supreme Court said: “As a general rule, property that is leased is listed by, and taxed to, the lessor. §428.1(6), The Code 1975. If a tenant improves the real estate, by either building a new structure or adding onto an existing structure, the tenant can be taxed after listing the property, Id., §428.4. This statutory scheme puts the burden on the taxpayers, rather than the assessor, to decide who is going to pay taxes on real property that has been improved by someone other than the owner. It relieves the assessor of the burden of investigating whether a tenant or a lessor improved the property.”
It should be noted that the Supreme Court declares the general rule to be listing to the lessor. Thus the practice of creating a BLL against the tenant becomes the exception to the rule.
In Oberstein v. Adair County Board of Review, 318 N.W. 2d 817 (Iowa App. 1982) the Court of Appeals noted: “In addition to the theoretical underpinnings of the foregoing authorities, the courts have also observed the practical reasons for valuing the interest of the lessor and the lessee as a whole. Separate evaluations are difficult and often would turn on matters unknown to the assessor. More importantly, any reduction of value of the taxable interest as a result of a lease arrangement has been recognized to be a situation whereby “if the owner doesn’t command the full potential of his property, he can’t expect his fellow taxpayers to compensate him for the difference.” [Citations Omitted]. If the measure of valuation which we herein approve causes inequities to lessors, their remedy must lie in appropriate provisions in their leases requiring lessee contribution to the total tax bill.”
In Duda v. Hastings, N.W. 2d 407, (Iowa App 1986) the Court of Appeals noted that the Supreme Court had construed the Code of Iowa §428.4 as detailed in the Ruan Center v. Board of Review case noted earlier in this paper.
In addition to the forgoing Iowa Supreme Court case and the two Court of Appeals cases, the Iowa Attorney General Opinion 88-6-2 dated June 7, 1988 provides a relatively short overview which I consider conclusive. The overview lies at the bottom of the opinion in footnote 2 (FN2).
In response to our request for an opinion of the Assessor’s office practice of assessing buildings constructed on leased premises to the landowner, the Pottawattamie County Attorney reviewed Iowa Code §428.4, Iowa Attorney General Opinion 88-6-2, Oberstein v. Adair County Board of Review, Ruan Center Corp v. Board of Review, and Duda v. Hastings. On June 3, 2004 the Pottawattamie County Attorney, Matthew D. Wilber, wrote an informal opinion letter stating in part: “In light of these interpretations for §428.4, it is the opinion of this office that the Assessor’s office may continue its practice of assessing the value of buildings on leased premises to the land owner rather than the building owner, unless or until further interpretations prohibit such assessment.”
This paper is an attempt to show why our BLL policy in Pottawattamie County is correct and why it is important.