Cantina Grill v. City & Cnty. of Denver Cnty. Bd. of Equalization
| Decision Date | 16 March 2015 |
| Docket Number | Supreme Court Case No. 12SC819 |
| Citation | 344 P.3d 870,2015 CO 15 |
| Parties | CANTINA GRILL, JV; Airport Lounges, LLC, a Colorado limited liability company; Dos Amigos Joint Venture, a Colorado joint venture; F & B Concessions, LLC, a Colorado limited liability company; Pour La France B; Pour La France T; and Skyport Companies, Inc., a Colorado corporation, Petitioners v. CITY & COUNTY OF DENVER COUNTY BOARD OF EQUALIZATION, BY AND THROUGH its members Cary KENNEDY, Chief Financial Officer, Adrienne Benavidez, Manager of General Services, Debra Johnson, Clerk and Recorder, Jose M. Cornejo, Manager of Public Works, and Chris Herndon, President of City Council; and Keith Erffmeyer, as County Assessor, City and County of Denver, Colorado, Respondents |
| Court | Colorado Supreme Court |
Attorneys for Petitioners: Silver & DeBoskey, P.C., Richard S. Strauss, Denver, CO, Dean Neuwirth P.C., Dean Neuwirth, Denver, CO
Attorneys for Respondents: D. Scott Martinez, City Attorney, Mitchel Behr, Assistant City Attorney, Max Taylor, Assistant City Attorney, Denver, CO
En Banc
¶ 1 We granted certiorari review to consider whether several food and beverage concessionaires at a city-owned airport hold taxable possessory interests under our three-prong test established in Board of County Commissioners v. Vail Associates, Inc., 19 P.3d 1263 (Colo.2001). In Vail Associates, we held that a private possessory interest in tax-exempt government property1 is taxable if it exhibits significant incidents of private ownership that distinguish it from the government's underlying tax-exempt ownership. Id. at 1279. We articulated three factors demonstrating such incidents of private ownership: (1) whether the possessory interest provides a revenue-generating capability independent of the government property owner; (2) whether the possessory interest owner is able to exclude others from making the same use of the interest; and (3) whether the possessory interest is of sufficient duration to realize a private benefit therefrom. Id. In this case, we also granted review to consider whether the concessionaires' interests, if taxable, were properly valued under the possessory interest valuation provisions in section 39–1–103(17), C.R.S. (2014).
¶ 2 Relying on Vail Associates, the City and County of Denver (“City”) assessed property taxes on the concessionaires' possessory interests in their airport concession spaces and valued those interests in accordance with section 39–1–103(17). The concessionaires protested the valuation and eventually filed suit in district court, arguing that their possessory interests do not meet the independence and exclusivity prongs of the Vail Associates test. The concessionaires also contested the City's valuation. The trial court ruled that the concessionaires' interests meet the Vail Associates test and adopted the valuation that the City presented at trial.
¶ 3 The court of appeals affirmed, concluding that the concessionaires' interests were taxable under Vail Associates.Cantina Grill, JV v. City & Cnty. of Denver Bd. of Equalization, 2012 COA 154, ¶¶ 28–42, 292 P.3d 1144, 1150–52. It reasoned that the concessionaires could exclude others from using their particular concession spaces and that the concessionaires' revenue came from the traveling public, not the City. Id. The court of appeals also affirmed the trial court's adoption of the City's valuation. Id. at ¶¶ 43–54, 292 P.3d at 1152–53.
¶ 4 We affirm. We agree with the court of appeals that the concessionaires' possessory interests in their concession spaces are taxable interests under the three-factor test established in Vail Associates. The concessionaires' interests are sufficiently exclusive because the concessionaires have the right to exclude others from using their respective concession spaces to operate a concession business. In addition, the totality of the circumstances reflects that the concessionaires' revenue-generating capability is independent of the City. Finally, the City's valuation of the concessionaires' interests is consistent with the General Assembly's possessory interest valuation scheme set forth in section 39–1–103(17) and is supported by the record.
¶ 5 The petitioners (“Concessionaires”) are holders of possessory interests in real property owned by the City. Concessionaires operate eleven restaurants and lounges at Denver International Airport (“DIA”). The City owns the property and improvements at DIA. Because DIA is owned by the City, it is exempt from real property taxation. See Colo. Const. art. X, § 4.
¶ 6 Concessionaires obtained their possessory interests from the City through written concession agreements.2 The concession agreements grant Concessionaires the “right to occupy, improve, and use the Concession Space” for food and beverage services “consistent with and subject to all of the terms and provisions of [the] Agreement.” Under the agreements, the City reserves the right to grant other concessionaires the right to sell food and beverages in other locations at DIA.
¶ 7 In consideration for the possessory interests granted under the agreements, Concessionaires pay the greater of either: (1) a defined percentage of their monthly gross revenues, which may fluctuate monthly or seasonally; or (2) a minimum monthly guarantee, which is calculated by applying a fixed price per square foot to the total square footage of the space exclusively possessed by the Concessionaire. The City has the authority to reestablish rentals, fees, and charges, provided that the adjustments are “nondiscriminatory and reasonable in relation to the cost of providing, operating, and maintaining property, services and facilities of the airport system.” The concession agreements expressly provide that “the City shall not be construed or held to be a partner, associate, or joint venturer of Concessionaire in the conduct of its business.”
¶ 8 Under the concession agreements, Concessionaires are required to supply sufficient goods and products to fully stock their concession spaces. Concessionaires are also responsible for the expenses associated with renovating their concession spaces; furnishing, installing, and maintaining ductwork and connections for heating and air conditioning, water, electricity, natural gas, and lighting; and providing janitorial and maintenance services for their concession spaces.
¶ 9 The concession agreements also impose certain operating restrictions on Concessionaires. For example, Concessionaires may use their concession spaces only for food and beverage services; they may not charge more than 110% of “street prices” charged in non-airport restaurants offering similar food and services in the Denver metropolitan area; they must obtain the City's approval to change their menus or prices, or to stay open fewer than sixteen hours per day; and they must require their officers, contractors, agents, and employees to comply with all airport security regulations adopted by the City. Testimony at trial indicated that these restrictions flow from Concessionaires' non-traditional location at the airport.
¶ 10 Beginning with the 2001 tax year, the City assessed Concessionaires' concession spaces as taxable possessory interests in tax-exempt property, relying on this court's opinion in Board of County Commissioners v. Vail Associates, Inc., 19 P.3d 1263 (Colo.2001). The City then valued those interests in accordance with section 39–1–103(17), C.R.S. (2014).
¶ 11 In July 2010, Concessionaires protested the notice of valuation regarding their concession spaces for that year and petitioned the City and County of Denver Board of Equalization to review the valuations. The Board denied Concessionaires' petitions, and Concessionaires sought review in district court under section 39–8–108, C.R.S. (2014).
¶ 12 The case proceeded to a trial de novo in June 2011, and the trial court issued a written ruling that largely affirmed the valuation.3 Relevant here, the trial court concluded that Concessionaires' possessory interests in tax-exempt property were subject to taxation under this court's three-factor test set forth in Vail Associates. The trial court also adopted the valuation that the City presented at trial.
¶ 13 On appeal, Concessionaires challenged, among other things, the trial court's conclusion that their possessory interests are taxable under the independence and exclusivity prongs of the Vail Associates test. Concessionaires further argued that even if their interests are taxable, the trial court erred in approving the City's valuation. The court of appeals affirmed, concluding that Concessionaires' possessory interests are sufficiently independent under the Vail Associates test because Concessionaires' source of revenue is the traveling public, not the City. Cantina Grill, ¶¶ 33–36, 292 P.3d at 1150–51. The court also concluded that Concessionaires' possessory interests meet the exclusivity factor of the Vail Associates test because Concessionaires can exclude others from using their particular concession spaces. Id. at ¶¶ 39–42, 292 P.3d at 1151–52. Finally, the court of appeals concluded that the record supported the trial court's adoption of the City's valuation. Id. at ¶ 54, 292 P.3d at 1153.
¶ 14 We granted Concessionaires' petition for a writ of certiorari to review the court of appeals' opinion regarding the taxability of Concessionaires' possessory interests under Vail Associates and the City's valuation of those interests under section 39–1–103(17).
¶ 15 An assessor's valuation of property for taxation is presumed to be correct. Arapahoe Cnty. Bd. of Equalization v. Podoll, 935 P.2d 14, 18 (Colo.1997). Thus, to rebut that presumption, a taxpayer who challenges an assessment bears the burden of proving, by a preponderance of the evidence, that the assessor's valuation is incorrect. Bd. of Assessment Appeals v. Sampson, 105 P.3d 198, 204 (Colo.2005)....
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