HomeMy WebLinkAboutWaterloo Development Corporation-8/11/2014CITY OF WATERLOO, IOWA
CITY CLERK AND FINANCE DEPARTMENT
715 Mulberry Street • Waterloo, IA 50703 • (319) 291-4323 Fax (319) 291-4571
Council Communication
City Council Meeting: August 11, 2014
Prepared: August 5, 2014
Dept. Head Signature:
Number of Attachments: Three
SUBJECT: SportsPlex Development and Property
Transfer Agreement Amendment # 2
SportsPlex Lease -Purchase Agreement
Amendment # 1
Letter from the Iowa Department of Revenue
Submitted by: Mayor Clark
Recommended City Council Action: Adopt a resolution approving
Amendment # 2 to the Development and Property Transfer Agreement with the
Waterloo Development Corporation for the SportsPlex facility and adopt a
resolution approving Amendment # 1 to the Lease Purchase Agreement with the
Waterloo Development Corporation for the SportsPlex facility.
Summary Statement: Action on these amendments was tabled until the
August 11, 2014 meeting at the July 28, 2014 meeting. The amendments are
attached. Please refer the council communications dated July 28, 2014 for further
information.
Expenditure Required: None at this time. There is a potential requirement
to pay off any debt balance remaining at the end of the lease term.
Source of Funds:
Policy Issue:
Alternative:
Background Information:
CITY WEBSITE: www.cityofwaterlooiowa.com
WE'RE WORKING FOR YOU!
An Equal Opportunity/Affirmative Action Employer
CITY OF WATERLOO, IOWA
CITY CLERK AND FINANCE DEPARTMENT
715 Mulberry Street o Waterloo, IA 50703 0 (319) 291-4323 Fax (319) 291-4571
Council Communication
City Council Meeting: July 28, 2014
Prepared: July 22, 2014
Dept. Head Signature:
Number of Attachments: Three
SUBJECT: SportsPlex Development and Property
Transfer Agreement Amendment # 2
SportsPlex Lease -Purchase Agreement
Amendment # 1
Letter from the Iowa Department of Revenue
Submitted by: Mayor Clark
Recommended City Council Action: Adopt a resolution approving
Amendment # 2 to the Development and Property Transfer Agreement with the
Waterloo Development Corporation for the SportsPlex facility and adopt a
resolution approving Amendment # 1 to the Lease Purchase Agreement with the
Waterloo Development Corporation for the SportsPlex facility.
Summary Statement: As you know, the Waterloo Development
Corporation and Rick Young have requested that the City amend these
documents to remove the option that currently allows the City to not take
ownership of the SportsPlex property at the end of the lease term. The request is
being made so that the project is eligible to receive a refund of sales tax paid on
the construction materials and thereby reduce the remaining funds required to
pay off the construction debt.
Expenditure Required: None at this time. There is a potential requirement
to pay off any debt balance remaining at the end of the lease term.
Source of Funds: Undetermined at this time.
Policy issue: The City may be required to take on debt at the
end of the lease term if there is a balance remaining that hasn't been pledged.
Alternative: If the council chooses not to approve these
amendments, sales tax paid on the SportsPlex construction costs would not be
eligible to be refunded. The council would choose whether or not to take
ownership of the SportsPlex at the end of the lease term. The current fundraising
gap would be increased by the amount of the anticipated sales tax refund.
CITY WEBSITE: www.cityofwaterlooiowa.com
WE'RE WORKING FOR YOU!
An Equal Opportunity/Affirmative Action Employer
Background information: The Waterloo Development Corporation and Rick
Young have spent several years privately raising the funds to construct the
SportsPlex facility. The current costs total approximately $24A million, in addition
to the $2.6 million the city invested in the property acquisitions. I believe this is
the largest amount ever donated to the City for a single purpose.
When the development agreement was originally signed, the question of whether
or not the Waterloo Development Corporation would be eligible for a sales tax
refund was raised. The decision was subsequently made to request advice from
the Iowa Department of Revenue. Representatives of the Ahlers law firm
researched the issue and corresponded with the Department of Revenue on the
City's behalf. The Department of Revenue worked with Ahlers to clarify the
conditions under which they would likely be able to retund the sales tax. A copy
of their opinion is attached. To summarize, they require that the city take
ownership of the facility immediately upon final acceptance of the construction.
As a result of that communication, the Waterloo Development Corporation has
requested that the agreements be amended to satisfy the Department of
Revenue requirements.(Please refer to page four, the third paragraph for this
conclusion.)
Kristin B. Cooper
KCooper@ahlerstaw.com
AHLERS y GOONEY, P.G.
100 COURT AVENUE, SUITE 600
DES MOINES, IOWA 50309-2231
FAx: 515-243-2149
VWWV.AHLERSLAW.COM
July 23, 2014
Via E -Mail — Michelle. Weidner@waterloo-ia.org
Michelle C. Weidner, CPA
Chief Financial Officer
City of Waterloo
715 Mulberry Street
Waterloo, IA 50703
RE: Amendments to Sportsplex documents
Dear Michelle,
Direct Diel
515.746.0330
Enclosed are the latest Amendment drafts known to us for review by the Council. These
Amendments eliminate the "Put Option" referenced in the original documents, thereby making
transfer of the Sportsplex facility automatic upon termination of the Lease. As discussed, the
language was drafted pursuant to extensive conversation with tax attorneys at the Department of
Revenue, who expressed that only upon removal of' the Put Option would the Developer be
eligible for a refund. In addition, the Department of Revenue required a deed to be executed
upfront and held in escrow pending the Lease Termination Date to give absolute assurance of the
transfer. We recommend that no substantive changes be made to the First Amendment to Lease
Purchase Agreement, since that document was reviewed by the Department of Revenue and is
the basis for its policy letter on the subject.
Also enclosed is a revised version of the Agreement for Debt Payment. Please review the
changcs and let us know if you would like additional revisions. We have reviewed the form of
Guaranty Agreement to be used by WDC, as contemplated in the revised Agreement for Debt
Payment, and think it is in acceptable form as is.
further.
We appreciate the opportunity to work for you. Please let us know if we can assist
Very truly yours,
& Cooney, P.C.
KBC:cf
01036023-1\11310-093
stin Billingsley Cooper
FOR THE FIRM
WISMARD & BAILY - 1888; GUERNSEY & BAILY-1893; BAILY & STIPP - 1901; STIPP, PERRY. BANNISTER & STARZINGER - 1914; BANNISTER. CARPENTER.
AHLERS & COONEY - 1958; AHLERS. COONEY. DDRWEU.ER, ALLBEE. HAYNIE & SMITH - 1974; AHLERS, COONEY, DORWEILER, HAYNIE. SMITH & ALLBEE. P.C. -1990
rease return this copy to:
City Clerk & Finance Dept.
715 Mulberry St.
Waterloo, IA 50703
SECOND AMENDMENT A
DEVELOPMENT AND PROPERTY TRANSFER AGREEMENT
BY AND BETWEEN CITY OF WATERLO AND WATERLOO
DEVELOPMENT CORPORATION
This Second Amendment ("Amendment") is made on the // T day of
2014, to the DEVELOPMENT AND PROPERTY TRANSFER
AG EMENT dated December 19, 2011 (the "Agreement"), between the City of
Waterloo, Iowa (the "City") and Waterloo Development Corporation (the "Developer"),
as first amended by an Amendment to Development Agreement dated April 16, 2012.
WHEREAS, the parties previously executed the Agreement in which the
Developer agreed to finance and construct a public sportsplex facility (the
"Improvements") on property that was sold by the City to the Developer and leased back
to the City (the "Property"); and
WHEREAS, the parties also executed a Lease Purchase Agreement Between City
and Developer dated April 16, 2012 (the "Lease") which further describes the terms and
conditions of the lease of the Improvements, management of the Improvements by the
City, and the potential purchase of the Improvements by the City from the Developer at
the end of the Lease Term; and
WHEREAS, the parties desire to amend both the Lease and the Agreement in
order to eliminate the City's right to choose whether it acquires the Property and the
Improvements in the form of an option, so as to ensure transfer of the Improvements and
the Property to the City upon termination of the Lease.
NOW, THEREFORE, it is agreed by the parties:
1. All capitalized words have the same definitions as in the Agreement. In addition,
the following definition is amended as follows:
Termination Date means June 30, 2023, or such other date as is set forth in the
Lease Purchase Agreement for the City to purchase the Property.
2. Section 7.3 is revised as follows:
7.3. Lease of Facility and Operational Management; Right -to Purchase. On the
Closing Date, the Developer shall enter into a Lease Purchase Agreement with the City, under
which the City, after completion of the Improvements and issuance of a certificate of occupancy,
will lease the Property and assume operational management of the facility and all programs and
services provided in connection with the facility. Among other terms, the Lease Purchase
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Agreement will establish or require the establishment of minimum standards of facility
maintenance that are calculated to preserve the Improvements as an attractive and high-quality
community recreational and wellness facility. At its own expense, City will be responsible to
provide all personnel necessary for daily operation of the facility and to maintain, preserve and
keep the Improvements in good repair and working order, ordinary wear and tear excepted, and
from time to time will make all necessary repairs, replacements, renewals and additions. The
parties contemplate that Developer will have no ongoing responsibilities or liabilities with
respect to the Property or Improvements after the City takes possession of the Improvements
under the Lease Purchase Agreement. At the Termination Date, City shall purchase the Property
from Developer .. -" on the terms set forth in said Lease Purchase Agreement.;
LL
Right, terminate the Lease Purchase Agreement, and compel Developer to assume operation and
3. Section 7.4 is amended as follows:
7.4 Handling of Operating Funds; Additional Uses of Funds. During the term of the
Lease Purchase Agreement, City shall annually account to the Developer for all income received
and expenditures made in respect of operation of the Improvements or Property, which may
nonetheless be deposited to or withdrawn from the City's general fund, as the City shall
determine. The parties intend that all operating income shall be used to defray current operating
expenses of the completed Improvements, to maintain equipment replacement and other
operating reserves at the levels established in the annual budget for the Improvements approved
by the City Council, and otherwise shall be retained for other budgeted Project purposes,
including but not limited to the cost of any future phase of the Improvements, and the funding, to
the maximum extent possible consistent with the expense payments and funding allocations
described above, of a debt service reserve for the payment at the Termination Date of any
outstanding Project -related indebtedness of the Developer
its Purchase Right). Following the Termination Date
Right, City shall retain any such net income that is not necessary to satisfy Developer's Project -
related indebtedness.
Section 8.3 is deleted and the following section is inserted:
8.3. Transfer of Title. Upon the Termination Date, the City shall accept fee
title to the Property in accordance with the terms and conditions of the Lease Purchase
Agreement. Each party shall execute such deeds, bills of sale, or other documents of
transfer or conveyance as the other party may reasonable request to effectuate the transfer
of title from the Developer to the City.
5. All other terms and conditions of the Agreement are to remain the same.
6. This Amendment may be simultaneously executed in several parts, each of which
shall be an original and all of which shall constitute but one and the same instrument.
-2-
IN WITNESS WHEREOF, the City has caused this Amendment to be duly
executed in its name and behalf by its Mayor and its seal to be hereunto duly affixed and
attested by its City Clerk, and Developer has caused this Amendment to be duly executed
in its name and behalf by its Authorized Representatives, all on or as of the date first
written above.
(SEAL) CITY
By
AT PEST:
By:
Suzy Sch es, City Clerk
STATE OF IOWA
) SS
COUNTY OF BLACK HAWK )
TERLIO` - A
rnest G. Clark, ayor
On this 0-4 day of&q LG�G, 2014, before me a Notary Public in and for said
County, personally appeared Ernst G. Clark and Suzy Schares to mep Y ersonall known,
who being duly sworn, did say that they are the Mayor and City Clerk, respectively of the
City of Waterloo, Iowa, a Municipal Corporation, created and existing under the laws of
the State of Iowa, and that the seal affixed to the foregoing instrument is the seal of said
Municipal Corporation, and that said instrument was signed and sealed on behalf of said
Municipal Corporation by authority and resolution of its City Council and said Mayor
and City Clerk acknowledged said instrument to be the free act and deed of said
Municipal Corporation by it voluntarily executed.
of Public in nd for the State of Iowa
3
DeAnne Kobliska
COMMISSION NO. 763995
MY COMMISSION EXPIRES
/
-24,
WATERL 0 DEVELOPMENT
CO , "ORATION
By:
STA 1'h OF IOWA )
) SS
COUNTY OF BLACK HAWK )
Daniel B. Watters, President
On this day of , 2014, before me the undersigned, a Notary
Public in and for said State, personally appeared Daniel B. Watters to me personally
known, who, being by me duly sworn, did say that he is the President of Waterloo
Development Corporation, and that said instrument was signed on behalf of said
corporation by authority of its board of directors; and that the said Daniel B. Watters
acknowledged the execution of said instrument to be the voluntary act and deed of said
corporation, by him voluntarily executed.
01017650-1\11310-093
Notary Public in and for the State of Iowa
4
Please return this copy to:
City Clerk & Finance Dept.
715 Mulberry St.
Waterloo, IA 50703
FIRST AMENDMENT TO
LEASE PURCHASE AGREEMENT ETWEEN CITY AND !P EVELPE
BY AND ETWEEN CITY OF WATERLO AND WAT + RLO
31 EVELPMENT CORATION
This First Amendment ("Amendment") is made on the day ofi?
2014, to the LEASE PURCHASE AG EMENT ,TWEED CITY AND
DEVELOPER dated April 16, 2012 (the "Lease"), between the City of Waterloo, Iowa
(the "City") and Waterloo Development Corporation (the "Developer").
WHEREAS, the parties previously executed a Development and Property Transfer
Agreement dated December 19, 2011 (the "Development Agreement") in which the
Developer agreed to finance and construct a public sportsplex facility (the
"Improvements") on property that was sold by the City to the Developer (the "Property");
and
WHEREAS, the Development Agreement and the Lease provided that the
Developer would lease back the Improvements and Property to the City, with a right on
the part of the City to purchase the Improvements and the Property at the end of the
Lease Term; and
WHEREAS, the Lease further describes the terms and conditions of the lease of
the Improvements, management of the Improvements by the City, and the potential
purchase of the Improvements by the City from the Developer; and
WHEREAS, the parties desire to enter into this Amendment in order to eliminate
the City's right to choose whether it acquires the Property and the Improvements in the
form of an option, so as to ensure transfer of the Improvements and the Property to the
City upon termination of the Lease.
NOW, THEREFORE, it is agreed by the parties:
1. All capitalized words have the same definitions as in the Lease. In addition, the
following definitions are deleted from the Lease: "Notice of Purchase Right," "Notice of
Termination of Lease Purchase Agreement," "Purchase Right," "Put Option," "Put
Option Termination Date," and "Special Warranty Deed."
2. Section 3.01 is deleted and the following subsection is inserted:
Section 3.01. Title. During the term of this Lease Purchase Agreement, and so
long as City is not in default as provided in Article X (and which default has not been
cured), equitable title to the Property and Improvements and any and all repairs,
- 1 -
replacements, substitutes and modifications to the Property or Improvements shall be in
the City, and upon recordation of the Special Warranty Deed to the Property following
the Lease Termination Date in accordance with Section 13.01, legal title to the Property
shall transfer to the City.
3. Subsections 3.02(2)(b) and (c) are deleted.
4. Section 5.06 is deleted and the following section is inserted:
Section 5.06. Maintenance of Property and Improvements by City. The City
agrees that during the Lease Term it will keep the Property in good repair and good
operating condition at its own cost.
5. Subsection 6.01(2) is amended to delete the last phrase: "(regardless of whether
City exercises its Purchase Right)."
6. Article XIII is deleted in its entirety and the following Article is inserted:
TRANSFE
OF
ARTICLE XIII
OPE
TY AND IMP rVEMENTS
Section 13.01. Transfer of Property and Improvements to City. In consideration
of the sum of $1, and other valuable consideration, in hand paid by the Developer, receipt
of which is hereby acknowledged, upon termination of this Lease under Section 3.02, the
Developer shall have no further interest in the Property or the Improvements and full and
unencumbered legal title to the Property and the Improvements shall pass to the City. In
such event, the Developer and its officers shall take all actions necessary to authorize,
execute and deliver to the City any and all documents necessary to release any and all
security interests or liens created under the provisions of this Lease (except as provided
below). Upon the execution of this Agreement by the City and Developer, Developer
shall authorize and execute a Special Warranty Deed conveying all of Developer's right,
title and interest in and to the Property and the Improvements to the City, which deed
shall be held in escrow by the City's counsel, Ahlers & Cooney, P.C., until the Lease
Termination Date, at which time the deed shall be delivered to the City for recordation..
Section 13.02. No Liens. During the Term of this Lease, Developer shall not
directly or indirectly, create, incur, assume or suffer to exist any pledge, lien, charge,
mortgage, encumbrance or claim on or with respect to the Property or the Improvements,
other than the existing mortgage held by U.S. Bank, National Association dated April 1,
2013 and recorded July 3, 2013 (the "Mortgage"). Notwithstanding anything contained
herein to the contrary, the City agrees to take title to the Property and the Improvements
subject only to the Mortgage, on such terms and conditions and in a form of mortgage
-2-
acceptable to the City in its sole and absolute discretion. Developer shall not permit any
amendments to or additional advances against the Mortgage without the prior written
consent of the City.
Section 13.03. Title. At least 15 days prior to termination of this Lease,
Developer shall deliver an abstract of title to the Property, updated to a date within 30
days of the Lease Termination Date, to the City for review, which shall show marketable
title in favor of Developer in conformity with Iowa law and the Title Standards of the
Iowa State Bar Association.
Section 13.04. Further Assurances. Developer agrees to take all actions necessary
to authorize, execute and deliver to the City any and all documents necessary to release
any and all security interests or liens affecting the property and such documents of
transfer as reasonably requested by the City to effectuate transfer of the Property and
Improvements.
Section 13.05. Surplus Revenues. Upon termination of this Lease and transfer of
the Property and the Improvements to the City, any operating income remaining after the
subtraction of the current annual operating expenses of the completed Improvements,
including amounts budgeted for equipment replacement and other operating reserves at
the levels established in the annual budget for the Improvements approved by the City
Council and a debt services reserve for the payment at the Lease Termination Date of any
outstanding Project -related indebtedness of the Developer, shall be called Surplus
Revenue. The City shall retain all Surplus Revenues following closing of the transfer of
the Property and the Improvements to the City.
7. All other terms and conditions of the Lease are to remain the same.
8. This Amendment may be simultaneously executed in several parts, each of which
shall be an original and all of which shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the City has caused this Amendment to be duly
executed in its name and behalf by its Mayor and its seal to be hereunto duly affixed and
attested by its City Clerk, and Developer has caused this Amendment to be duly executed
in its name and behalf by its Authorized Representatives, all on or as of the date first
written above.
(SEAL)
ATTEST:
-3
CITY I F =+'r ERLOO, I WA
By f
Ernest G. Clark, Mayor
By:
STA 1'E OF IOWA
) SS
COUNTY OF BLACK HAWK )
On this /2Y day o 2014, before me a Notary Public in and for said
County, personally appeared Ern- st G. Clark and Suzy Schares to me personally known,
who being duly sworn, did say that they are the Mayor and City Clerk, respectively of the
City of Waterloo, Iowa, a Municipal Corporation, created and existing under the laws of
the State of Iowa, and that the seal affixed to the foregoing instrument is the seal of said
Municipal Corporation, and that said instrument was signed and sealed on behalf of said
Municipal Corporation by authority and resolution of its City Council and said Mayor
and City Clerk acknowledged said instrument to be the free act and deed of said
Municipal Corporation by it voluntarily executed.
DeAnne Kobliska
COMMISSION NO. 763995
MY COMMISSION EXPIRES
—f Cop
.Iotary Public in . d for the State of Iowa
STATE OF IOWA )
) SS
COUNTY OF BLACK HAWK )
WATPRLO4 DEVELPMENT
CORPORATION
By:
Daniel B. Watters, President
On this day of , 2014, before me the undersigned, a Notary
Public in and for said State, personally appeared Daniel B. Watters to me personally
known, who, being by me duly sworn, did say that he is the President of Waterloo
Development Corporation, and that said instrument was signed on behalf of said
corporation by authority of its board of directors; and that the said Daniel B. Watters
acknowledged the execution of said instrument to be the voluntary act and deed of said
corporation, by him voluntarily executed.
0]017125-1\11310-093
Notary Public in and for the State of Iowa
-4-
Iowa Department of Revenue
Director: Courtney M. Kay -Decker
Hoover State Office Building
Des Moines, Iowa 50319
www. iowa. gov/tax
June 20, 2014
Sent via e-mail
Kristin Billingsley Cooper
Ahlers & Cooney, P.C.
100 Court Avenue, Suite 600
Des Moines, IA 50309
kcooper@ahlerslaw.com
Re: Cedar Valley Sportsplex
Dear Ms. Cooper:
This letter is in response to your inquiry to the Department regarding whether the
City of Waterloo (the "City") is eligible for a sales tax refund pursuant to Iowa Code
section 423.4(1) for the building materials used in the construction of the Cedar
Valley Sportsplex (the "Sportsplex").
Facts as Provided by the Taxpayer
On December 19, 2011, the City entered into a development and property transfer
agreement with WDC. WDC is a nonprofit development organization with an
emphasis on improving the downtown of the city of Waterloo. Under the
agreement, WDC proposed to privately finance and construct a sportsplex facility on
certain City -owned property. WDC was to be the developer of the Sportsplex and
would finance the construction of the Sportsplex through private contributions. On
January 19, 2012, WDC, entered into a construction contract with a contractor for
the construction of the Sportsplex.
The City and WDC also entered into a lease purchase agreement on April 16, 2012
under which the City would lease the facility and operate it as a public sportsplex.
Under the terms of the lease purchase agreement, the City is required to make
annual rent payments on the Sportsplex of $100 per year for eight years. Under the
current lease terms, the City has the right to purchase the Sportsplex from WDC for
$1 when the lease term is up. In the alternative, the City can terminate the lease and
choose not to purchase the Sportsplex, in which case it will remain property of WDC.
However, the City and WDC are considering changing the lease terms so that, rather
than having an option to purchase the property, the City would be obligated to
purchase the property at the end of the lease term. Under this amendment, the City
Page 2
would still pay $1 to purchase the property. According to the proposed
amendments, equitable title during the lease term would be held by the City. Also,
during the lease term, the Special Warranty Deed conveying title and interest would
be held in escrow by the City's legal counsel. The City would take legal title to the
property at the end of the lease term even if the mortgage was not yet paid off by
WDC. In that event, the City would take the property subject to the mortgage.
It is the intent of the parties—both under the original Iease purchase agreement
terms and the proposed amendments—that the Sportsplex will be a public facility
operated by the City and that the City will take ownership of the facility upon
termination of the lease. You explained that the transaction was arranged as a
lease -purchase agreement so that the City would have time to evaluate the success
of the project and ensure that the debt was paid down over the eight-year period.
Relevant Law and Analysis
Your question is whether, assuming that the proposed amendments to the lease
purchase agreement are made, the City will qualify for a sales tax refund for sales
tax paid on the construction materials used in the project under Iowa Code section
423.4(1).
Iowa Code section 423.4(1) provides in relevant part:
423.4 Refunds.
1. A ... tax -certifying or tax -levying body or governmental subdivision of the state ...
may make application to the department for the refund of the sales or use tax upon
the sales price of all sales of goods, wares, or merchandise, or from services
furnished to a contractor. used in the fulfillment of a written contract with the state
of Iowa, any political subdivisi n of the state, or a division, board, commission,
agency, or instrumentality of the state or a political subdivision... if the property
becomes an integral part of the project under contract and at the completion of the
project becomes public property....
(Emphasis added). There are three factors that must be present to qualify for the
refund. First, the entity applying for the refund must be one of the types of entities
listed in the statute. Second, the materials furnished to the contractor must be "used
in the fulfillment of a written contract with ... any political subdivision of the state."
Third, the items must become public property at the completion of the project.
Additional procedural requirements are described in the subsections of Iowa Code
section 423.4(1).
Page 3
Whether the Type of Entity is Eligible
The first factor is satisfied because the City is a political subdivision of the State.
Therefore, the City is the type of entity that can qualify for the exemption.
Whether the Materials are Used in Fulfillment of a Contract with the City
In a 1988 Iowa Attorney General Opinion, regarding Racing Association of Central
Iowa ("RACI") the Attorney General analyzed a sales tax refund under Iowa Code
section 422.45(7), which is the predecessor to section 423.4(1). Iowa Op. Att'y Gen.
February 29, 1988. The Attorney General opined that, in a situation where
materials are used by subcontractors who contract with a corporation that has
contracted with a government entity for the development of a construction project,
the corporation is considered the general contractor and the materials are
considered "used in fulfillment of a written contract" with the government entity.
Id, (citing 1966 Op. Att'y Gen. 441; 1954 Op. Att'y Gen. 64. for the proposition that
Iowa Code section 422.45(7) authorizes a refund to a governmental entity for sales
tax paid, even if the tax is actually paid by subcontractors who do not directly
contract with the governmental entity.). The facts of the Sportsplex project are very
similar. The WDC is in essence the general contractor for the project. WDC
contracted with the City for development of the project and contracts with
subcontractors for construction of the project Therefore, the second factor is
satisfied; the materials are furnished to a contractor and used in fulfillment of
WDC's contract with the City to construct the Sportsplex.
Whether the Property Becomes Public Property at the Completion of the Project
The third factor requires that the property at issue become public property at the
completion of the project. To be public property within the meaning of the statute,
the property must both be owned by the government entity and used for a public
purpose.' Based on the information provided, it appears that the City will use the
property for a public purpose. The ownership issue is more complex.
To be considered owned by the government, the property must be owned by the
government entity upon completion of construction. When the project seeking the
refund under section 423.4(1) is part of a lease -purchase arrangement, the
government entity must be able to demonstrate that it has equitable title to the
1 See 1966 Op. Att'y Gen. 441(citing Green v. City of Mt. Pleasant, 131 N.W.2d 5, 20 (Iowa 1964) (citing
Wayland v. Snapp, 334 S.W.2d 633, 641-642 (Ark. 1960) (repudiated by City of Hot Springs v. Creviston,
Ark (Ark. 1986) on other grounds))).
Page 4
property during the term of the lease. See, e.g., Iowa Op. Att'y Gen. February 29,
1988. In the RACI opinion discussed above, the Attorney General opined that
certain types of "leases" or "lease -purchase" agreements are actually conditional or
installment sales under which equitable title passes at the time of entry into the
contract. See id. In RACI, the Attorney General noted some of the important
features of the lease purchase agreement including that "the 'lease -purchase
agreement' requires, in Section 4.06, that a deed and bill of sale to the premises be
placed in escrow and upon termination of the 'lease' by discharge of payment of
principal and interest on the bonds, the deed and bill of sale is to be delivered to the
County." Id. The Attorney General opined that it was clear "this so-called 'lease' is
actually a conditional or installment sale of the land, track, and improvements to
Polk County so that the County has an equitable title in the premises at this time. An
equitable title in property is synonymous with ownership." Id. (citing Johnson v.
Board of Supervisors of Jefferson County, 237 Iowa 1103, 24 N.W.2d 449 (1946).).
In the Sportsplex project, the proposed amendments to the lease purchase
agreement state that the City will have equitable title to the property during the
lease term. Of course, it is not enough that the proposed amendments simply state
that the City will have equitable title; the provisions of the agreement must support
that statement. In this case, it appears that the City would have equitable title under
the proposed amendments. The City is required to make periodic payments, and the
City is required to take title to the property at the end of the lease term.
Additionally, the City's counsel will hold the Special Warranty Deed in escrow
during the lease term. Finally, even if the mortgage is not paid off by WDC at the end
of the lease term, the City will still take legal title to the property, subject to the
mortgage. Therefore, it appears that the City will have equitable title to the
property under the lease purchase agreement and that it will ultimately have legal
title as well.
In conclusion, based on the information provided, it appears that the City would be
able to satisfy the ownership requirements of the sales tax refund provided by Iowa
Code section 423.4(1) if the lease -purchase agreement is amended to incorporate
the proposed amendments discussed in the "Facts as Provided by the Taxpayer"
section above. If the proposed amendments are not adopted, the City will not
qualify for the sales tax refund.
I hope this information is of assistance to you. Please be advised that this letter is an
informal opinion and is only applicable to the factual situation referenced and to the
statutes in existence at the time of issuance. The Department could, in the future,
take a position contrary to that stated in the letter. Any written advice or opinion
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rendered to members of the public by Depai twent personnel that is not pursuant to
a Petition for Declaratory Order under 701 IAC 7.24 is not binding upon the
Department. If you have any additional questions regarding this matter, please do
not hesitate to contact me.
Sincerely,
Alana Stamas
Policy Section
Taxpayer Services and Policy Division
Iowa Department of Revenue
(515) 725-2265
alana.stamas@iowa.gov