Appeals court largely sides with state in case over Rivian incentives

The ruling will likely will be appealed to the Georgia Supreme Court
The R1T electric vehicle sits outside the Rivian Plant in Normal, Ill., on July 20, 2022. (Photo for the Atlanta Journal Constitution by Ron Johnson)

Credit: RON JOHNSON

Combined ShapeCaption
The R1T electric vehicle sits outside the Rivian Plant in Normal, Ill., on July 20, 2022. (Photo for the Atlanta Journal Constitution by Ron Johnson)

Credit: RON JOHNSON

Credit: RON JOHNSON

A Georgia appeals court panel primarily sided with the state and a local development authority in a Friday ruling about hundreds of millions of dollars in property tax breaks for Rivian’s future $5 billion electric vehicle factory.

The panel of three judges ruled in favor of the state and the local authority on four of five aspects of the legal controversy. The opinion largely reverses a lower court ruling that wiped out a significant portion of the $1.5 billion incentive package used to woo Rivian to Georgia.

The panel found a local superior court judge erred by declining to approve or “validate” bonds at the center of $700 million in local property tax breaks that Rivian was poised to receive for building its factory in southern Morgan and Walton counties, roughly an hour east of Atlanta. The panel also ruled the land lease Rivian signed is a limited arrangement known as a usufruct, not a taxable lease called an estate for years.

But two of the three judges on the panel found that Rivian may owe certain taxes that the agreement with the state and local authority would have waived on certain equipment within the factory. The value of those taxes was not immediately clear.

John Christy, an attorney representing seven Morgan County residents who oppose the EV project, told The Atlanta Journal-Constitution he’s disappointed by the panel’s ruling. He said he’s reviewing the 48-page opinion and will likely file a notice to appeal within 10 days. He said he hopes his clients “will be vindicated” by the Georgia Supreme Court.

The Georgia Department of Economic Development and the Joint Development Authority of Jasper, Morgan, Newton and Walton Counties (JDA), which owns the 2,000-acre Rivian project site, celebrated the ruling.

“This decision reinforces that Rivian, the State, and JDA have a clear pathway to continue moving this project forward,” they said in a joint statement. “... We are excited to celebrate Rivian’s arrival to Georgia and look forward to seeing continued progress on this project in the months to come.”

Development authorities use lease transactions such as “bonds for title” and usufructs to grant property tax breaks to companies and developers as a legal workaround of state law, which has no constitutional or statutory mechanism to provide property tax incentives.

The bonds for title deals amount to a real estate transaction where a development authority holds the title for the property while the company makes rent payments to the authority. In Rivian’s case, the authority sought the court’s approval to issue bonds totaling up to $15 billion, which represents the potential future value of the project, but not an amount of money that changes hands.

Neither the JDA nor Rivian planned to publicly sell the bonds and taxpayers would not have been on the hook for them.

Since development authorities do not pay property taxes, they can lease the property back to the project’s developer while providing a tax break.

But under state law, the bonds must be approved by a judge.

In September, Ocmulgee Judicial Circuit Chief Judge Brenda Holbert Trammell declined to approve or “validate” bonds that underpin the local property tax breaks. In her ruling, she said the state and JDA “failed to establish” that the bonds “are sound, feasible and reasonable,” while questioning Rivian’s financial stability.

Trammell also ruled that a long-term lease of the property amounted to an “estate for years” that should be taxed and not a more limited lease known as a “usufruct” that can avoid property taxes.

The ruling threatened the proposed factory, the second-largest economic development project in Georgia history. It also presented Rivian the opportunity to terminate its agreement with the state and JDA in May if the local property tax breaks weren’t reinstated.

During oral arguments in February, Robert Highsmith, an attorney for the state and JDA, told the appeals court panel this complicated financial structure is central to the state’s economic development ecosystem. He said the tax breaks offered to Rivian are not unique and should be upheld.

“These types of bond structures have been used hundreds of times to provide the usufructuary tax benefits — that Rivian will enjoy here — in economic development projects,” Highsmith said.

In Friday’s opinion, the appeals’ court judges ruled that the lease is a usufruct and that economic development agencies are better equipped to determine whether a bond deal is justified rather than local judges.

“... Agencies tasked with promoting economic development are in a better position to assess the economic pros and cons of development deals than are the courts,” the ruling said.

It’s unclear if the formal validation of the bonds must now return to the lower court.

On the equipment taxes matter, one of the three appeals court judges wrote a dissenting opinion in favor of the state and JDA. Judge Christopher McFadden broke away from his colleagues, Judge Anne Elizabeth Barnes and Judge Kenneth B. Hodges III, to say that Rivian should not have to pay taxes on specific equipment.

McFadden said the alternative could set a costly precedent in economic development agreements where both parties agree over how equipment is rented, calling the panel’s ruling “destabilizing.” He said it “will create difficulties, especially for parties drafting future development agreements.”

Cox Enterprises, owner of The Atlanta Journal-Constitution, owns about a 4% stake in Rivian.

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