Taxman Rebuffed

PROPERTY OWNED BY a solid waste agency that adjoins the agency's landfill and leased to a private party for farming is used for a public purpose and therefore is exempt from taxation, according to a ruling by the Nebraska Supreme Court. The city of York owns two contiguous tracts of land in York County, Neb. The primary site is a 76-acre parcel on which the York Area Solid Waste Agency, a city-county joint venture, operates a landfill and conducts recycling activities. The agency acquired an adjacent 44-acre parcel by condemnation after state environmental officials ordered the agency to extend the landfill's groundwater monitoring. Three monitoring wells are located on the smaller parcel. This area provides a source of cover material for the landfill and is expected to host a future expansion of the recycling facility.

As landfill-related activities minimally disturb the smaller parcel's tillable soil, in March 2000, the city leased the property to a private party for agricultural use for $6,000 per year. The rental income, which represents fair market value, is earmarked for landfill capital improvements and operating expenses.

After reviewing the lease, the county assessor found that the 44-acre parcel was taxable because it was not used for a public purpose. The county tax board upheld the assessor's decision. The city asked the state tax commission to review the board's action, alleging that farming was incidental to principal use of the land for groundwater monitoring.

The commission found that the leased property was not being used for solid waste management, landfill expansion would not occur for some 30 years and might limit agricultural use of the property, and new monitoring wells were not likely. The commission concluded that the leased land did not qualify as a public purpose and upheld the board's decision to deny the protest.

The city appealed to the state high court, claiming that the commission was wrong in finding that the use of the property did not qualify as a public purpose. The city argued that the parcel is, in effect, a component of an “operation of government” — that is, the landfill.

The state supreme court overturned the decision of the state tax commission and ordered it to reverse the county tax board's finding that the property is taxable.

“If the lease of the property for agricultural use is incidental to the primary or dominant use, then the property is not subject to taxation,” noted the court.

Citing the state solid waste management act, the court noted that landfills operated by local government entities must plan for “sufficient capacity to meet future waste disposal requirements.” Waste disposal sites need to be “large enough to provide for expansion,” the court continued. “The acquisition of land adjacent to an existing landfill for future waste disposal is a measure of good planning.”

Deriving income from the parcel does not change its “primary purpose as a landfill … for which the land was condemned,” the court added.

[City of York v. York County Board of Equalization, 266 Neb. 311, July 11, 2003]

The legal editor welcomes comments from readers. Contact Barry Shanoff via e-mail: [email protected].

The columnist is a Rockville, Md., attorney and serves as general counsel of the Solid Waste Association of North America.