Alliant Techsystems, Inc. v. Salt Lake Cnty. Bd. of Equalization

Decision Date20 January 2012
Docket NumberNo. 20100029.,20100029.
PartiesALLIANT TECHSYSTEMS, INC., Petitioner and Appellant, v. SALT LAKE COUNTY BOARD OF EQUALIZATION, Utah State Tax Commission, and Granite School District, Respondents and Appellees.
CourtUtah Supreme Court

OPINION TEXT STARTS HERE

Mark L. Shurtleff, Att'y Gen., John C. McCarrey, Laron J. Lind, Assistant Att'ys Gen., Salt Lake City, for appellee Utah State Tax Commission.

Mary Ellen Sloan, Kelly W. Wright, Salt Lake City, for appellee Salt Lake County Board of Equalization.

John E.S. Robson, Robert G. Crockett, Salt Lake City, for appellee Granite School District.David J. Crapo, Douglas C. Smith, Salt Lake City, for appellant.Associate Chief Justice DURRANT, opinion of the Court:

INTRODUCTION

¶ 1 In this appeal, we are asked to interpret section 59–4–101 of the Utah Code (the Privilege Tax Statute or the Statute). The Privilege Tax Statute provides that an entity may be taxed on the privilege of beneficially using or possessing property in connection with a for-profit business, when the owner of that property is exempt from taxation.1 But the privilege tax may not be imposed unless the entity using or possessing the exempt property has “exclusive possession” of that property.2 In this case, we must interpret the meaning of the phrase “exclusive possession.” Specifically, we must determine whether the legislature intended “exclusive possession” to mean exclusive as against all parties, or exclusive as against all parties except the property owner.

¶ 2 This issue is before us because Alliant Techsystems, Inc. (ATK) challenged the imposition of a privilege tax on its use of government property. The district court granted summary judgment against ATK and concluded that ATK had “exclusive possession” of federal government property because there was “no evidence or argument that anyone other than the [government], the landowner, had any possession, use, management, or control of the [government] [p]roperty.”

¶ 3 On appeal, ATK argues that the district court's grant of summary judgment should be reversed for two reasons. First, it contends that the court erred in concluding that “exclusive possession” means exclusive as to third parties only such that the property owner's retained control is irrelevant. Second, it argues that if “exclusive possession” means exclusive as to third parties only, then it has standing to assert that the privilege tax violates the Supremacy Clause of the United States Constitution (the Supremacy Clause) because the tax is assessed on the full value of the property, including the portion that is controlled by the federal government.

¶ 4 We hold that, under the Privilege Tax Statute, “exclusive possession” means exclusive as to all parties, including the property owner. Thus, exclusive possession exists when an entity has the present right to occupy and control property akin to that of an owner or lessee. Because the record before us indicates disputed material facts regarding ATK's authority to control the government property, we conclude that summary judgment was inappropriate in this case. Further, we decline to address whether ATK has standing to assert a Supremacy Clause challenge because our definition of “exclusive possession” forecloses ATK's argument.

BACKGROUND

¶ 5 ATK is a for-profit corporation that manufactures aerospace and defense products for private companies and the United States government. To fulfill its aerospace and defense contracts, ATK operates on its own property as well as on property owned by the United States government. Specifically, ATK uses the Naval Industrial Reserve Ordinance Plant (NIROP), property that is owned by the U.S. Navy (the Navy). NIROP is comprised of six parcels that include approximately 528 acres of land and 181 improvements. ATK uses NIROP according to the terms of a facilities use agreement.3

I. THE NIROP FACILITIES USE AGREEMENT

¶ 6 The facilities use agreement states that ATK is to “give first priority of use for the [NIROP] facilities ... to work on behalf of [the Navy].” Thus, ATK must get permission from the Navy “in writing” to use the property in a manner outside that contemplated in the facilities use agreement. In addition, the agreement provides that ATK “must obtain [the Navy's] approval before making either capital modifications to or usage changes of facilities.” The agreement also states that ATK “agrees to use, maintain, account for, and dispose of [the NIROP] facilities” and that [t]he [g]overnment will provide no maintenance, repair, rehabilitation, or replacement” of the property.

¶ 7 Further, the agreement states that certain NIROP facilities shall be provided for a period of five years, with other facilities provided for a period of one year, “unless extended by mutual agreement of the parties.” But the agreement requires that the Navy conduct an annual review of the NIROP facilities available to ATK “for a current determination as to the continued requirement for retention.” And pursuant to the agreement, the Navy may review and modify the facilities “at more frequent intervals if deemed necessary.”

II. SALT LAKE COUNTY ASSESSED ATK A PRIVILEGE TAX

¶ 8 Under the Privilege Tax Statute, a tax may be assessed “on the possession or other beneficial use enjoyed by any person of any real or personal property which for any reason is exempt from taxation, if that property is used in connection with a business conducted for profit.” 4 The Statute allows the imposition of the tax in the same amount as the property tax that would have been assessed if the property were not exempt and the beneficial user or possessor were the owner of the property.5 Pursuant to the statutory requirements, Salt Lake County determined that ATK was using tax-exempt property belonging to the federal government and that the use of this exempt property was in connection with a for-profit business. Thus, in 2000, Salt Lake County assessed ATK a privilege tax on its beneficial use of the NIROP property. Salt Lake County calculated the amount of the privilege tax to be assessed based on the value of the NIROP property.

III. ATK CHALLENGED THE PRIVILEGE TAX ASSESSMENT

¶ 9 ATK challenged the privilege tax assessment to the Salt Lake County Board of Equalization (the Board) and later to the Utah State Tax Commission (the Commission). In both challenges, ATK argued that it was exempt from the privilege tax because it qualified for an exemption under section 59–4–101(3)(e) of the Utah Code. That exemption provides that [a privilege] tax is not imposed ... on ... the use or possession of any lease, permit, or easement unless the lease, permit, or easement entitles the lessee or permittee to exclusive possession of the premises to which the lease, permit, or easement relates” (the Nonexclusive Possession Exemption or the Exemption).6 Based on this language, ATK asserted that it did not have “exclusive possession” of NIROP because the Navy maintained management and control over the property. After both the Board and the Commission rejected ATK's argument and upheld the tax assessment, ATK challenged the ruling in the Third District Court.

¶ 10 At the district court, ATK filed a motion for summary judgment based on two arguments. First, ATK asserted that it was exempt from the privilege tax because it did not have “exclusive possession” of NIROP due to the Navy's retained management and control over the property. Second, ATK argued that if exclusive possession means exclusive as to third parties only, then a privilege tax on the full value of the exempt property violates the Supremacy Clause because it taxes the government's retained property interest.

¶ 11 To support its position that it did not have “exclusive possession” of NIROP, ATK relied on an affidavit to assert that it “has no authority to exclude the [Navy] or anyone authorized by the [Navy] from entering NIROP or using NIROP facilities.” ATK further stated that the Navy “has direct management responsibility for NIROP,” “tells ATK what it can and cannot do with NIROP property,” and “can and does refuse to give permission to ATK to use NIROP property.” According to ATK, the Navy rigorously controls ATK's use of NIROP by requiring ATK to “give first priority of use of NIROP to work on behalf of Navy programs” and to obtain “written permission” from the Navy to “use NIROP property other than as directed by the [f]acilities [u]se [agreement].”

¶ 12 The Board also filed a motion for summary judgment, arguing that “exclusive possession” under the Exemption means exclusive as against third parties only, and that the government's retained right to control the property is therefore irrelevant. Based on this interpretation, the Board contended that ATK was in “exclusive possession” of NIROP because no other entity, besides the Navy, had any control over the property.7 In addition, the Board used testimony and ATK's subcontracts to assert that ATK is entitled to use NIROP on a “rent-free non-interference basis” and that “ATK controls who enters its NIROP facility.” The Board also asserted that ATK could use 165 improvements on NIROP for a period of five years. Further, the Board emphasized that the facilities use agreement charges ATK with “all maintenance, repair, rehabilitation, or replacement of” the NIROP facilities.

¶ 13 After receiving both motions for summary judgment, the district court accepted all the asserted facts and granted summary judgment in favor of the Board. The district court first concluded that ATK used NIROP pursuant to a permit.8 Additionally, the district court held that “ATK was in exclusive possession of [the NIROP property] ... even though the landowner, the Navy, retained traditional levels of management and control.” In support of this conclusion, the district court noted that there was “no evidence or argument that anyone other than the Navy, the landowner, had any possession, use, management, or control of the NIROP [p]r...

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