Dist. of Columbia v. 17M Assocs., LLC

• Decision Date: 04 September 2014
• Docket Number: Nos. 12–CV–1690,12–CV–1691.,s. 12–CV–1690
• Citation: 98 A.3d 954
• Parties: DISTRICT OF COLUMBIA, Appellant, v. 17M ASSOCIATES, LLC, Appellee.
• Court: D.C. Court of Appeals

98 A.3d 954

DISTRICT OF COLUMBIA, Appellant,

v.17M ASSOCIATES, LLC, Appellee.

Nos. 12–CV–1690, 12–CV–1691.

District of Columbia Court of Appeals.

Argued Oct. 22, 2013.

Decided Sept. 4, 2014.

James C. McKay, Jr., Senior Assistant Attorney General for the District of Columbia, with whom Irvin B. Nathan, Attorney General, Todd S. Kim, Solicitor General, and Donna M. Murasky, Deputy Solicitor General, were on the brief, for appellant.

Stanley J. Fineman, Washington, DC, with whom Scott B. Cryder was on the brief, for appellee.

Before BECKWITH, EASTERLY, and McLEESE, Associate Judges.

BECKWITH, Associate Judge:

Appellant District of Columbia contends that the Superior Court erred in deferring to a decision of the Board of Real Property Assessments and Appeals (BRPAA) that found appellee 17M Associates LLC (17M) exempt from the possessory interest tax codified at D.C.Code § 47–1005.01(b) (2012 Repl.).¹ The District also claims that the Superior Court further erred in finding, on the merits, that 17M's Lease Agreement with the District exempted 17M from the tax. We hold that the Lease Agreement did not exempt 17M from the tax and that BRPAA acted ultra vires in concluding that it did. We therefore reverse the judgment of the Superior Court and remand the case for further proceedings.

I. Background

On December 14, 1982, the District executed a Lease Agreement with 17M, under which the District “demised” (that is, leased) “certain parcels of land located on M Street between 16th and 17th Streets, Northwest” to 17M for eighty years. 17M built “Improvements” on the land, including commercial office buildings. ² Section 19.01 of the Lease Agreement was titled “Taxes on Improvements” and required 17M to pay “all taxes, assessments, duties, impositions, and burdens assessed, charged or imposed, upon the Improvements.” ³ Section 19.02, which is central to the present dispute, was titled “New Taxes on Improvements” and required 17M to “pay any new tax of a nature not presently in effect but which may be hereafter levied, assessed, or imposed upon the District or the Demised Premises, if such tax shall be based on or arise out of the ownership, use or operation of the Improvements.”

In 2000, the Council of the District of Columbia sought to close a “present loophole in the District's tax laws,” D.C. Council, Comm. on Fin. & Revenue Report on Bill 13–586, the “Tax Clarity Act of 2000” (Sept. 28, 2000) at 17 [hereinafter Committee Report], by enacting a possessory interest tax on lessees who lease certain government-owned, and therefore tax-exempt,⁴ real property but who are not themselves “exempt or immune from income taxation” and are not using the property “for an exempt or immune purpose.” D.C.Code § 47–1005.01(b).⁵ The measure taxed the “leasehold interest, possessory interest, beneficial interest, or beneficial use of the lessee or user of the real property.” Id. The tax is paid in the same manner and assessed at the same rate as a real property tax, but is imposed on the lessee or user and not on the property itself. D.C.Code § 47–1005.01(f)(3). ⁶ The new tax would permit the District “to tax possessory interests in immune property which cannot at the present time be taxed.” Committee Report, at 16. The Report cited the Old Post Office Pavilion and Union Station as examples “where businesses have possessory interests in the property that go untaxed in the District, but would be taxed in the majority of jurisdictions, including Maryland and Virginia.” Committee Report, at 16–17. The tax may not be imposed when doing so “would cause the District of Columbia to breach a pre-existing agreement or other legal obligation.” D.C.Code § 47–1005.01(c)(2).

In March 2006, the District sent 17M a Notice of Proposed Possessory Interest Assessment for Tax Year 2007, describing the property as being in “Tax Class 2” and assessing its value for purposes of the possessory interest tax at $24,670,490. The District had not previously levied the tax against 17M. 17M appealed to BRPAA ⁷ (after its First Level Appeal with the District of Columbia Office of Tax and Revenue (OTR) went unanswered), arguing that imposition of the tax breached its Lease Agreement with the District. OTR responded that BRPAA lacked jurisdiction to decide the case and that the lease did not in any event bar the tax. In a written decision dated September21, 2007, BRPAA claimed “jurisdiction to determine whether the District of Columbia is precluded from imposing the possessory interest tax against petitioner as it is a matter of classification of the property.” On the merits, it reasoned that “[t]he lease agreement explicitly describes 17M's tax obligations and also contemplates future new tax obligation, but none of these describe the possessory tax as one such obligation.” Because “the possessory tax is not an included tax obligation” in the Lease Agreement, BRPAA concluded that imposing the tax “violates the pre-existing lease within the meaning of D.C.Code § 47–1005.01(c)(2).” The District filed a motion for rehearing with BRPAA pursuant to 9 DCMR § 2019; BRPAA held an additional hearing but did not issue a decision. OTR thereafter ignored BRPAA's order “to reclassify the status of the subject property” as exempt from the possessory interest tax and proceeded to assess the tax against 17M for Tax Years 2007, 2008, 2009, and 2010.⁸ 17M appealed each assessment to BRPAA and on November 4, 2010, filed a petition in the Superior Court pursuant to D.C.Code § 47–3303 arguing that imposition of the possessory interest tax violated Section 19.02 of the Lease Agreement. 17M also argued in Superior Court that BRPAA's decision on Tax Year 2007 “is binding upon the District for subsequent tax years.” ⁹

The trial court granted summary judgment to 17M for Tax Year 2007 in a March 16, 2012, order, and for Tax Years 2008, 2009, 2010, and 2011 ¹⁰ in a September 11, 2012, order. In the March 16, 2012, order, the court gave three reasons for finding that “BRPAA did properly exercise jurisdiction”: first, “the statute directs appeals from the Possessory Interest Tax to the BRPAA”; second, “the District's own notice of proposed Possessory Interest Tax directs recipients to file their appeal first with the assessor, then with the BRPAA”; and third, BRPAA's exercise of jurisdiction “avoid[s] a circumstance where there would be no appeal from imposition of the tax.” In its September 11, 2012, order, the trial court granted summary judgment to 17M for the tax years since 2007, “for the reasons stated in Part III–A of [17M's] Memorandum of Points and Authorities.” Part III–A explained that BRPAA's decision for Tax Year 2007 applied by its terms to subsequent tax years. The trial court, which had heard arguments from both parties on the merits, then “further ordered” that 17M was exempt from the possessory interest tax “pursuant to D.C.Code § 47–1005.01(c)(2)”—which bars imposition of the tax when it “would cause the District of Columbia to breach a pre-existing agreement or other legal obligation.” The District appealed.

II. Whether BRPAA Had Jurisdiction To Decide if 17M Was Exempt

D.C.Code § 47–1005.01(f)(2) provides that a lessee or user disputing a possessory interest tax assessment “may appeal from a notice of proposed assessed value and real property classification in the same manner and under the same conditions as an owner under [D.C.Code] § 47–825.01.” BRPAA's enabling statute, D.C.Code § 47–825.01, provides that a taxpayer may petition BRPAA “for an administrative review of the real property's assessed value or its classification that shall be in effect for the tax year at issue.” D.C.Code § 47–825.01(f–1)(1)(A). BRPAA ordinarily hears disputes regarding real property taxes, but D.C.Code § 47–1005.01 directs disputes involving the possessory interest tax to BRPAA presumably because the possessory interest tax is calculated at the same rate and in the same manner as a real property tax. D.C.Code § 47–1005.01(f)(2) & (h).

17M argues that “real property classification,” as used in these statutes establishing BRPAA's jurisdiction, includes a lessee or user's exemption status—that is, whether the lessee or user is “classified” as exempt or non-exempt from the possessory interest tax. BRPAA, too, believed that the legality of the assessment was a “matter of classification of the property,” so that its jurisdiction included authority to decide whether “application of [the possessory interest tax] would cause the District of Columbia to breach a pre-existing agreement or other legal obligation.” D.C.Code § 47–1005.01(c)(2).

The parties agree that our review of this question of statutory interpretation is de novo.¹¹ Focusing on the statute's plain language while considering “the specific context in which that language is used, and the broader context of the statute as a whole,” O'Rourke v. District of Columbia Police & Firefighters' Ret. & Relief Bd., 46 A.3d 378, 383 (D.C.2012), we conclude that “real property classification” does not refer to a taxpayer's exemption status but to the “classes of taxable real property” defined for Tax Years 2007 to 2010 in D.C.Code § 47–813(c–7). That statute defines Class 1 Property (“residential real property that is improved and used exclusively for nontransient residential dwelling purposes”), Class 2 Property (“improved commercial real property”), and Class 3 Property (“all real property which cannot be classified as Class 1 Property or Class 2 Property”). For example, in this case, OTR's Notice of Proposed Possessory Interest Assessment for Tax Year 2007 described the leased property as Tax Class 2. Each class is taxed at a different rate, usually involving a certain amount per $100 of assessed value. D.C.Code § 47–812. “The rate of tax under § 47–812, for the applicable classification under § 47–813,” determine the taxpayer's liability. D.C.Code § 47–1005.01(h).

The type of expertise required of BRPAA members supports our view...