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Taxing thin air

Fifty years ago, the Dooly family secured a “special-use permit” from the U.S. Forest service, and built a cabin on federal land in the Cherokee National Forest, in Polk County, Tenn. The price of the special use permit is set at 5 percent of the appraised value, adjusted annually for inflation.

Every year, the Doolys, and 65 other special-use permit holders in the county, paid their permit fees and county taxes levied on the value of the cabin. The Doolys’ cabin was appraised at $38,700 in 1999; by 2003, the value had increased to $56,400. But for the first time ever, $164,000 was added to the appraisal for the value of “leasehold.” The total appraisal is $220,400.

The federal government pays the county Payment In Lieu of Taxes for every acre of federal land in the county. Moreover, one-fourth of the permit fee goes to the county. The cabin owner pays taxes on the value of the cabin, but now the county is trying to collect additional taxes on what it calls “leasehold.”

County tax assessor Randy Yates says they had to do something. “The cabins were selling for prices much higher than we had them appraised. Eight sales have been recorded since the last valuation, five years ago, and we had to adjust the valuation.”

It appears that all the properties that are accessible by road had $164,000 added to the value of the cabin. Properties that are accessible only by boat had $80,000 added to the value of the cabin.

Permit holders argue that the county cannot tax land that is owned by the federal government. Tennessee law (TCA Section 67-5-203) specifically exempts from taxation land owned by the federal government. But Yates says they are not taxing the land, but the “leasehold.”

Permit holders argue that they have no lease; they have a highly restricted permit, which must be renewed every 10 years, and which may be cancelled by the Forest Service at any time. When a permit is cancelled, the cabin must be removed or destroyed, and the site returned to its pre-construction condition. The permits have no marketable value; they cannot be transferred. Cabins may be sold, but not the permit. A purchaser must negotiate a new permit in his own name. Therefore the permit has zero value and cannot be used as a basis for the increased appraisal.

Arguments by the permit holder have been rejected by the local Tax Equalization Board, and now appeals are being prepared for the State Board of Equalization. Yates is convinced that the state will uphold his decision to tax what he calls “leasehold.”

Chuck Cushman of the American Land Rights Association, whose members include more than 3,000 similar permit holders throughout the country, says that the tax appraiser is “confused” about what he is trying to tax. Cushman says that a few counties have tried to apply what they call a “possessory interest tax,” but no county has attempted to apply valuation based on “leasehold” of permitted property on federal land.

Typically, the cabins occupy less than a quarter-acre of land. Permit holders are not allowed to disturb land adjacent to the cabin or in any way use the adjacent land. The Polk County permit holders are challenging the basis on which the $164,000, or $80,000 figure was arbitrarily applied to each cabin.

“Oh, it will go to court,” Yates says. “This will set a precedent.” Indeed it will.

Counties receive nearly nothing in PILT payments, as little as 70 cents per acre. Often, the PILT payments are late, very late, because of budget constraints. Counties that have large areas of federal land will be watching the Polk County situation with bated breath. Should the courts uphold Yates’ idea of taxing “leasehold” – where there is no lease – on land that belongs to the federal government, other counties around the country will be clamoring to invent new ways to tax the use of federal land.

The Forest Service has its head in the sand. They want to stay out of the fray. If the county is successful and a trend develops across the land, pressure to increase PILT payments will decrease.

Ironically, the U.S. Forest Service is nearing the end of the comment period for CUFFA – the Cabin Users Fee Fairness Act of 2000. This law will tighten the reins on how user fees may be applied and could affect the outcome of the dispute in Polk County.

Polk County Permit holders are irate. On the one hand, the federal government is systematically tightening the restrictions on these permits, or failing to renew them, and on the other hand, the county is forcing the tax, and indirectly, the permit fee, completely out of reach of the users.

This battle is just beginning. It is a brand new way to drive people off so-called “public” land.