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After six years of litigation, the courts have settled a dispute between the city of Gainesville and the Alachua County property appraiser – one that involved millions of dollars in taxes and may set a precedent for municipalities across the state.
The question was simply whether the city of Gainesville should have to pay taxes for three types of property it owns: nine cell towers, a buffer of property around Deerhaven and perhaps most importantly the city’s fiber optic infrastructure.
Alachua County Circuit Court Judge Robert Roundtree ruled in October 2007 that the city had to pay taxes on the towers and Deerhaven property. Because Gainesville Regional Utilities had not paid the assessed taxes on those properties since 2003, the municipally-owned company promptly paid back taxes of $358,000.
However, the larger battle was won by the city.
Had the city of Gainesville been forced to pay back taxes on the city’s fiber optic infrastructure and Internet services technology, the liability would have been almost $2 million.
On Tuesday both the Alachua County Property Appraiser’s Office and the Florida Department of Revenue indicated they would not appeal the decision.
“It felt so good, we’ve been litigating this for six years,” said Elizabeth Waratuke, city litigation attorney. “It has significant consequences not only here but around the state. A lot of public municipalities have communication utilities and were watching this trial.”
Fiber optics are a cable-like technology that can be used to carry high volumes of information over longer distances and at a faster rate than other technologies more commonly used such as copper or coaxial cable, said Ed Hoffman, managing utility analyst with GRU, who was also the business manager for GRUCom, the entity responsible for installing the technology in 1997.
The taxes per year on the fiber optic and Internet infrastructure would have been about $234,000, Waratuke said.
“I think that there are some errors in that decision,” said Sherri Johnson, an attorney from the Sarasota-based law firm Dent & Johnson, Chartered. “We analyzed our chances on appeal, and we thought that pursuing this, it would be a very long battle.”
The case has already traveled a great distance that includes several appellate courts, a decision by the Florida Supreme Court creating an applicable test and then a return to circuit court to see if the city of Gainesville met that test.
However, it all began in 1997 when the Florida Legislature passed a law allowing municipalities to be charged an equivalent amount to taxes for telecommunications technology.
“The Florida Legislature passed this law, and it was with the lobbying of the telecommunications businesses, saying that municipalities could go into the telecommunications industry, if they made a payment to the local tax collector in the amount equal to taxes,” Waratuke said. “According to Florida Constitution, government agencies are exempt from taxes. The Legislature tried to get around that by saying, ‘We’re not going to call it taxes.’ ”
Mike Giampietro, vice president and general manager of Cox Communications for Central Florida, said he wasn’t around when the law was passed and wasn’t certain if Cox was lobbying.
“I think that the law and the lobbying reflects trying to create a level playing field, and the assumption is that in a level playing field everyone benefits, including the customer,” said Giampietro, who was called to testify on behalf of the property appraiser.
After the city of Gainesville received its first bill in 1998 from Alachua County Property Tax Appraiser Ed Crapo, the city filed suit challenging the constitutionality of the law.
With the financial help of several other interested cities, including Ocala and Leesburg, the city of Gainesville carried the case all the way to the Florida Supreme Court.
There, a test was created.
Municipalities wouldn’t have to pay taxes as long as the property or service “provided a municipal or public purpose essential to the health, morals, safety, and general welfare of the people within a municipality,” Waratuke said.
The Alachua County property appraiser maintained the telecommunications services did not meet that test.
“We didn’t believe that this property was being used for such an essential purpose,” said Johnson, the Sarasota attorney. “Other providers such as Cox Communications and AT&T BellSouth that are providing similar services, and that it’s unfair to give the city a tax exemption. Those companies were providing similar services – not the exact same – but we thought it was a stretch to say that the city’s services were essential to the general welfare of the people.”
At the core of the debate was whether the fiber optics installed and offered by GRU could have been or were being provided by any other sources.
“In 1994 the city recognized that it needed more bandwidth and higher speed connections,” Hoffman said. “At about that same time Shands was in a similar position. We partnered with Shands to build the first fiber optic ring in Gainesville. In 1996 it was implemented.”
Since the initial 36 miles of fiber were installed, Hoffman said the city has installed more than 300 miles.
The connection is available to commercial customers throughout the city, Hoffman said, and a number of large apartment complexes have also signed up for the direct access to the fiber optic ring.
“The reason we got into the business was to try to bring the services to our community and to promote economic development,” Hoffman said.
Judge Roundtree agreed with that analysis, deciding that the city’s entering into the telecommunications market met all the criteria of public purposes, according to a memo released by the City Attorney’s Office.
Giampietro was asked to testify on the technology being provided by Cox Communications in Gainesville.
The primary difference, he said, is that Cox doesn’t provide fiber optics to every home – an expensive and unproven approach, he said – but rather runs fiber optics to a “node” and then connects to individual houses based on need.
“We have had fiber optics for about 10 years,” he said. “Our philosophy on fiber optics is the most efficient way to use fiber optics is to run fiber out to every node and then design applications after that, depending on users’ needs. Running fiber to every home is far more investment and far more cost to the customer than needed.”
Giampietro emphasized he testified to meet the request from Alachua County.
“We were interested in what the court was thinking on this and what the court’s conclusion would be, because we are always interested in how decisions are made regarding the level playing field in the free market,” Giampietro said.
Hoffman said the city is starting to bring fiber optics directly to homes that GRUCom can reach at a reasonable cost, and that not paying taxes on the infrastructure will be a help to the municipally owned operation.
“We’ve had our challenges over the years in many ways with the commercial providers who don’t think municipalities should be in the business competing with them,” Hoffman said. “We’re motivated a little bit differently, by meeting the community’s needs. We charge a fair market rate. We don’t want to undercut the competition.”