Continental Bank and Trust Co. v. Farmington City

• Decision Date: 28 August 1979
• Docket Number: No. 15963,15963
• Parties: CONTINENTAL BANK AND TRUST COMPANY, Trustee, and Lagoon Corporation, a Utah Corporation, Plaintiffs and Respondents, v. FARMINGTON CITY, a municipal corporation of the State of Utah, Defendant and Appellant.
• Court: Utah Supreme Court

Page 1242

599 P.2d 1242

CONTINENTAL BANK AND TRUST COMPANY, Trustee, and Lagoon Corporation, a Utah Corporation, Plaintiffs and Respondents, v. FARMINGTON CITY, a municipal corporation of the State of Utah, Defendant and Appellant.

No. 15963.

Supreme Court of Utah.

Aug. 28, 1979.

Walter P. Faber, Jr., and David Lloyd of Watkins & Faber, Salt Lake City, for defendant and appellant.

Reed L. Martineau, Merlin K. Lybbert and Paul J. Graf, of Snow, Christensen & Martineau, Salt Lake City, for plaintiffs and respondents.

HALL, Justice:

Appeal from a district court decision that a municipal business license revenue tax levied by Farmington City (hereafter "Farmington") upon Lagoon Corporation (hereafter "Lagoon") is unlawful and unconstitutional. The decision also dismissed a petition submitted by Continental Bank and Trust Company, (as trustee of the estate of Julian M. Bamberger, and executor of the estate of Eloise B. Shott), and Betsy B. Lesser, (an individual), the owners of the Lagoon property (hereafter "owners") for disconnection of the Lagoon property from Farmington.

Lagoon, a principal amusement park in Northern Utah, moved to its present location from Lake Shore in 1896. It leases the property on which it is now located from the owners under an agreement which extends beyond 1990. Only a portion of the park was within Farmington city limits prior to 1971. In that year, at the request of the owners, the remainder of the park was annexed to Farmington.

In 1969, Lagoon established its own security force to supplement the police and security protection afforded it by Farmington, the Davis County Sheriff's Office, and the Utah Highway Patrol. At present, the Lagoon security force is composed of 80 full and part-time seasonal security officers, many of whom are regularly employed by the aforementioned county and state law enforcement agencies. Lagoon's security force has rendered participation from Farmington law enforcement officers within the park minimal, such activity now being generally limited to transport of arrestees to the Davis County Jail. Fines generated from arrests within Lagoon, however, are received by Farmington.

Farmington provides some of Lagoon's culinary water needs, which accounted for 10 percent of the city's water during 1976. In recent years, Farmington has completed, with assistance from Lagoon and Davis County, substantial improvements in its water storage and delivery systems, in an effort to ameliorate fire protection for Lagoon and other parts of the city. Lagoon has also proposed plans for its own water system. That proposal, which would draw on some 35 separate water filings held by Lagoon, would consolidate water rights to draw from a single well in an aquifer presently tapped by Farmington as a principal source.

Farmington does not furnish to Lagoon any of the following services: garbage pickup, curb and gutter, street cleaning or repairs, or street lighting. Sewer service to Lagoon is limited to maintenance of certain lines installed several years ago by Lagoon, extending from its property to the central Davis County sewer district line. All service furnished on that sewer line is billed to Lagoon on a contractual basis.

Public entrances to Lagoon are reached over state or county roads within the Farmington municipal limits with the exception of a pedestrian entrance on the east side of the park which is reached from Lagoon Lane in Farmington.

Farmington operates a city volunteer fire department which, in the event of a fire in Lagoon, would require assistance from Davis County and neighboring communities. The city fire department, however, is under a voluntary contract arrangement with Davis County, under which it is the initial respondent to any needs arising in a geographic area which encompasses Farmington, Lagoon, and surrounding environs.

Lagoon contributes significantly to Farmington's revenue needs through real property tax, business license tax, and state sales tax. The tax burden imposed on Lagoon has risen dramatically in recent years. The level of taxes paid in 1974 was approximately double that paid in 1970. By 1976 taxation had risen by another 89 percent. As a result, the proportionate share of Farmington's total revenue received from Lagoon has nearly doubled in the last five years.

Commencing in January of 1976, Farmington, (at the behest of the City Finance Committee), began plans for the imposition of a license fee tax on "amusements" within the city. It is abundantly clear that the tax was, from the outset, intended for, and tailored to, Lagoon alone. The figure initially proposed was 5 percent of Lagoon's gross revenues, but subsequent amendments reduced the figure to 2 percent. The proposed tax had no regulatory goals; its purpose was purely revenue-producing.

Lagoon filed its complaint and petition on May 18, 1976. The matter came to trial on June 27, 1977, with judgment thereon being entered on July 7, 1977. The trial court held that Lagoon was not a proper class upon which Farmington could levy a tax. It furthermore held that the license fee, as applied, was unconstitutional and illegal, in that it was unreasonably discriminatory against Lagoon and its patrons, unreasonably oppressive both on its face and in its application, unequal in its impact upon the plaintiffs and patrons of Lagoon, whimsical and arbitrary in theory and in practical effect, a special law. The fee was held to be an imposition upon Lagoon and its patrons of an unfair burden of the costs of government, an excise tax prohibited by Article XIII, Section 3, of the Utah Constitution, a tax which was not uniform in its operation and effect, excessive, oppressive, unreasonable and discriminatory, an abuse of the taxing power vested in the defendant and its officials and destructive in its impact upon Lagoon. The trial court also disallowed the owner's petition for disconnection of the Lagoon property from Farmington, on the grounds that such disconnection was not required by justice and equity.

Farmington appeals from the judgment rendering the tax ordinance invalid, and the owners appeal from the denial of petition for disconnection.

Farmington does not challenge the trial court's findings of fact. It requests that we reverse the finding of unconstitutionality and illegality "as a matter of law." Farmington urges that (1) the Utah Constitution confers plenary taxing power for municipal purposes upon municipal corporations by means of legislative enactment, (2) the Utah legislature has invested municipal corporations with the power to levy license and occupation taxes for the purpose of raising revenue, (3) a municipal license tax on "amusements" creates a valid and reasonable classification for taxation purposes, and (4) the ordinance, as applied in Farmington, taxes all "members" of the class (i. e., Lagoon) equally and uniformally, thus satisfying all statutory and constitutional requirements.

Article XIII, Section 5, of the Utah Constitution enables the legislature to vest in municipal corporations the power to assess and collect taxes for any and all municipal corporate purposes. Pursuant to this grant, the legislature enacted U.C.A., 1953, 10-8-80, which permits municipal corporations to "raise revenue by levying and collecting a license fee or tax on any business within the limits of the city, and regulate the same by ordinance." That such a licensing ordinance may extend to the type of business affected in the present case is clear under U.C.A., 1953, 10-8-39, which permits a municipal corporation to "license, tax and regulate . . . shows and amusements." Moreover, the license fee need not be for a strictly regulatory purpose, nor limited in amount to that sufficient for carrying out proper policing of the businesses so licensed; the licensing device may be used as a revenue-producing provision. ¹ Such taxation ordinances are not subject to the requirements of Article I Section 24 of the Utah Constitution, which calls for uniform operation of all laws of a general nature. Article XIII, Section 12, has been interpreted as precluding the application of the uniformity clause to taxes based on income, occupation, licenses or franchises. ² Consequently, legislative discretion and judgment in the area of municipal taxation is given great deference by a reviewing court. ³

Such deference, however, does not allow unfettered discretion. U.C.A., 1953, 10-8-80 requires that "all such license fees and taxes shall be uniform in respect to the class upon which they are imposed." Nor is the municipal corporation at liberty to arbitrarily define a "class" for taxation and then claim to tax it uniformly; such an approach would not only totally emasculate the effect of the uniformity provision, but would fall wide of constitutional requirements of equal protection and due process. ⁴ A valid classification, for statutory and constitutional purposes, must include all persons similarly situated, ⁵ and must bear a reasonable relation to the purposes to be accomplished by the act. Where some persons or transactions excluded from the operation of the law are, as to its subject matter, in no differentiable class from those included in its operation, the law is discriminatory in the sense of being arbitrary and unconstitutional. ⁶ The issue in the present case, then, may be reduced to an inquiry whether or not the licensing ordinance passed by Farmington and assessed against Lagoon represents such an improper classification that its operation becomes discriminatory, arbitrary, and an abuse of the taxing power. Such an inquiry must necessarily take into consideration all the circumstances under which the ordinance was enacted and under which it would operate, since reasonableness of classification cannot be determined by reference to a few well-chosen legal generalities, and a classification which is perfectly reasonable in one context may be patently unreasonable in another. ⁷

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