Cutter Flying Service, Inc. v. Property Tax Dept.

Decision Date30 August 1977
Docket NumberNo. 2773,2773
Citation1977 NMCA 105,572 P.2d 943,91 N.M. 215
PartiesIn the Matter of the Consolidated Protests of Valuation of Property for Property Taxation Purposes of, CUTTER FLYING SERVICE, INC., Southwest Air Rangers, Inc., Frontier Airlines, Inc., Continental Airlines, Inc., Trans World Airlines, Inc., and Texas International Airlines, Inc., Protestants-Appellants, v. PROPERTY TAX DEPARTMENT of the State of New Mexico, Valuation Authority-Appellee.
CourtCourt of Appeals of New Mexico


This is an appeal for review of an order of the Director of the Department of Property Tax denying appellants' protest of assessment and levy of ad valorem taxes on their respective leasehold and other interests in the Albuquerque International Airport.

Appellants Continental Airlines, Inc., Trans World Airlines, Inc., Frontier Airlines, Inc., and Texas International Airlines, Inc., will be referred to collectively as "airlines." Appellants Cutter Flying Service, Inc., and Southwest Air Rangers, Inc., will be referred to as "airport operators."

Each of the airlines entered into separate agreements entitled "leases" at different times with the City of Albuquerque for the use of some of its improvements and facilities at the municipal airport. Although differing in some respects, these agreements can, for the purposes of this opinion, all be divided into five parts:

1. Areas used exclusively by the lessor airline: offices, a ticket and baggage-handling counter, and operations space.

2. Areas used jointly with other airlines: passenger gates and holding areas, baggage claim area, ground area for parking, taxiing, loading and unloading aircraft.

3. Facilities used jointly with other airlines: public address system, aircraft toilet waste disposal facility.

4. Areas in terminal building used in common with public.

5. Runways used jointly with other airlines, military and others.

The agreements of the two airport operators can be divided into three parts:

1. Space in hangar building and adjacent land used exclusively by the lessor airport operator.

2. Aircraft tiedown areas used jointly with others.

3. Collection of fees for use of runways, paid by individual users in the form of a tax on aviation fuel and oil and remitted to the city by the airport operator. Southwest Air Rangers' lease (which is more recent than Cutter's) provides that if a private plane does not purchase fuel from Southwest, "the Lessee shall immediately upon notice thereof advise the Aviation Director so that Lessor may property (sic) compute and bill necessary landing fees."

In his order, the Director made the following two pertinent conclusions of law:

"1. Taxpayers' fractional interests in the improvements located at Albuquerque International Airport are not exempt by reason of Section 72-29-2.4 NMSA 1953 (1976 Interim Supp.) of the Property Tax Code or Article VIII, Section 3 of the New Mexico Constitution.

"2. Taxpayers' fractional interests in the improvements located at Albuquerque International Airport are within the definition of 'property' found in subsection G of Section 72-28-2 NMSA 1953 (Supp.1975) of the Property Tax Code, and that taxpayers are 'owners' of those fractional interests pursuant to Subsection E of Section 72-28-2, supra."

The pertinent constitutional provisions are:

"Taxes levied upon tangible property shall be in proportion to the value thereof, and taxes shall be equal and uniform upon subjects of taxation of the same class. N.M.Const. art. 8, § 1.

"The property of the United States, the state and all counties, towns, cities and school districts, and other municipal corporations, public libraries, community ditches and all laterals thereof, all church property, all property used for educational or charitable purposes, all cemeteries not used or held for private or corporate profit, and all bonds of the state of New Mexico, and of the counties, municipalities and districts thereof shall be exempt from taxation." N.M.Const. art. 8, § 3.

The pertinent statutory provisions from the Property Tax Code, Chapter 72, Articles 28, 29, 30, and 31, N.M.S.A.1953 (Supp.1975) are: Section 72-28-2(E):

"E. 'owner' means the person in whom is vested any title to property".

Section 72-28-2(G):

"G. 'property' means tangible property, real or personal".

Section 72-29-2.2 (1976 Interim Supp.):

"As used in this section and sections 72-29-2.3 and 72-29-2.4 NMSA 1953:

"A. 'fractional interest' means a tangible interest in real property, except for mineral property as defined in section 72-29-11 NMSA 1953, that is less than the total of the interests existing in the property, but 'fractional interest' does not include those property interests described in section 72-29-2.1 NMSA 1953;

"B. 'exempt entity' means any person whose real property is exempt from taxation under the New Mexico Constitution or the Enabling Act (36 Stat. 557, as amended) by reason of ownership;

"C. 'improvements' includes surface and subsurface structures, fixtures, transmission lines, pipelines and other works . . . ."

Section 72-29-2.3 (1976 Interim Supp.):

"A. In the enactment of section 72-29-2.4 NMSA 1953, the legislature finds that:

"(1) it has legislative authority and should exercise it to impose the state's property tax on improvements owned or used by a nonexempt entity when the improvements are on the land of an exempt entity;

"(2) nonexempt entities having fractional interests in exempt real property of Indian tribes, pueblos and individuals should be treated under the law in the same manner as nonexempt entities having fractional interests in exempt real property of other exempt entities; and

"(3) for the purpose of property taxation, and only for that purpose, fractional interests are personal property and are thus subject to exemption by the legislature under the New Mexico Constitution.

"B. In the enactment of section 72-29-2.4 NMSA 1953, it is the expressed legislative purpose that:

"(1) fractional interests of a nonexempt entity in real property of an exempt entity be exempted from property taxation subject to the limitation contained in that section . . . ."

Section 72-29-2.4 (1976 Interim Supp.):

"Fractional interests of nonexempt entities in real property of exempt entities are exempt from property taxation under the Property Tax Code . . . . Nothing contained in this section shall affect the liability for tax of improvements located upon the real property of exempt entities."

The appellants allege seven points of error. Their first point, which is dispositive of this appeal, reads as follows:

"The interests of the taxpayers in the Albuquerque International Airport are not subject to valuation for property taxation purposes and the actions of the Director of the Department in valuing the interests for property taxation was contrary to law."

As a preliminary matter it is necessary to determine the nature of the interests created by the agreements between the appellants individually and the City of Albuquerque. The applicable law is as follows:

"(A) lease is an agreement under which the owner gives up the possession and use of his property for a valuable consideration and for a definite term." Transamerica Leasing Corp. v. Bureau of Revenue, 80 N.M. 48, 450 P.2d 934 (Ct.App.1969).

3 Thompson on Real Property § 1031 at 97-98:

"The relation of landlord and tenant cannot be inferred as a matter of law from the mere fact of lawful occupancy. The tenant must acquire some definite control and possession of the premises." See, Chavez v. Torlina, 15 N.M. 53, 99 P. 690 (1909).

"It is said that the difference between a license and a lease is that a lease gives to the tenant the right of possession against the world, while a license creates no interest in the land, but it is simply the authority or power to use it in some specific way." Thompson, supra, § 1032 at 106.

"A lease is a separation of the entire group of possessory rights, immunities, privileges and liabilities out of the entire bundle of titular rights, privileges, immunities and liabilities and their transfer to the lessee. In this it differs from all kindred legal concepts. The tenant acquires all of the possessory interests except those which the landlord specifically reserves unto himself by express covenants in the lease." Thompson, supra, § 1032 at 109.

"A license to occupy land is in the nature of a tenancy at will; but a license confers no title or interest in the land." Thompson, supra, § 1032 at 105.

Tidwell v. State ex rel. Herman, 21 Ariz.App. 3, 514 P.2d 1260 (1973):

"Appellants' permit from the federal government was a mere license and gave them no estate or property right in the land (Citations omitted.) A license, being a mere permissive user, is not 'property' in a constitutional sense." See, Board of County Com'rs. of Dona Ana County v. Sykes, 74 N.M. 435, 394 P.2d 278 (1964).

"The character of the instrument is not to be determined by its form, but from the intention of the parties as shown by the contents of the instrument." Transamerica Leasing Corp. v. Bureau of Revenue, supra.

It is readily apparent from the foregoing and from a study of the agreements that the airlines acquired a leasehold interest in those areas of which they had exclusive use. They acquired a mere license to use the rest, runways, etc. Stated negatively, they did not acquire the dominion and control necessary to constitute a leasehold as to those areas.

The airport operators likewise acquired a leasehold interest only in those areas over...

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