Interwest Aviation v. County Bd. of Equalization of Salt Lake County

Decision Date30 September 1987
Docket NumberNo. 20797,20797
Citation743 P.2d 1222
PartiesINTERWEST AVIATION, Executive Air Services, Thompson Beechcraft, Intermountain Piper, Inc., Plaintiffs, v. COUNTY BOARD OF EQUALIZATION OF SALT LAKE COUNTY, State of Utah, Defendant.
CourtUtah Supreme Court

Robert W. Brandt, Robert G. Gilchrist, Salt Lake City, for plaintiffs.

Theodore Cannon, Bill Thomas Peters, Salt Lake City, for defendant.

STEWART, Associate Chief Justice:

The plaintiffs, operators of concessions located at the Salt Lake International Airport, ask us to review a decision of the Utah State Tax Commission which held that improvements built on city-owned land by the plaintiffs were subject to an ad valorem property tax for the tax year 1982 pursuant to Utah Code Ann. § 59-1-1 (1974). The plaintiffs claim that the improvements were owned by Salt Lake City and, therefore, were tax-exempt. We affirm.

I.

During the tax year in question, Salt Lake City owned all the land located at the Salt Lake International Airport. Each of the plaintiffs leased property at the airport for the purpose of conducting for-profit aviation businesses. The terms and conditions of the leases were essentially standardized. The leases required the plaintiffs to provide certain services for general aviation aircraft users, including tie-down and hangar storage, a dealership for the sale of new and used aircraft, flight training services, and ramp services, the sale of aviation fuel and lubricating oil, and sufficient certified maintenance personnel to accommodate reasonable general aviation needs. The leases also allowed the plaintiffs to provide other limited services for profit, including operating and selling aerial surveys, photographs, and maps; repairing and selling aircraft radios, instruments, and parts; operating schools for flying, navigation, mechanics, photography, aerial surveys, aircraft design and any art, science, craft, or skill pertaining thereto; operating charter and charter air taxi services; providing aircraft rental; and maintaining and cleaning aircraft interiors and exteriors.

In addition, the leases required the plaintiffs to expend a specified minimum amount of money constructing buildings on the leased premises without cost to the city and with their own construction plans. During the lease term, they had the right to the full use of, and profit from, the improvements. They paid no rent for the improvements and were allowed to depreciate the cost of the improvements over the life of the lease term. The plaintiffs also maintained the improvements at their own expense, provided and maintained all necessary insurance coverage, and received credit against ground rent for building investments. The leases also provided that title to the improvements vested in the city at the end of the lease terms.

For the first time, in 1982, Salt Lake County assessed a property tax against the plaintiffs' improvements. The plaintiffs objected and appealed to the State Tax Commission. At an informal hearing, the Tax Commission ruled that the improvements were owned by the plaintiffs and therefore were subject to an ad valorem property tax under § 59-1-1. After a formal hearing, the Tax Commission affirmed its prior decision.

II.

The plaintiffs contend that the Commission erred. They first argue that they are exempt from taxation pursuant to Utah Code Ann. § 59-13-73 (1986), which imposes a tax in lieu of a property tax and then provides for certain exemptions from that tax. That provision states in part:

There is imposed and there shall be collected a tax upon the possession or other beneficial use enjoyed by any private individual, association, or corporation of any property, real or personal, which for any reason is exempt from taxation, when such property is used in connection with a business conducted for profit, except where the use is by way of a concession in or relative to the use of a public airport, park, fairground, or similar property which is available as a matter of right to the use of the general public, or where the possessor or user is a religious, educational or charitable organization or the proceeds of such use or possession inure to the benefit of such religious, educational or charitable organization and not to the benefit of any other individual association or corporation....

Taxes were originally assessed against the plaintiffs' properties under § 59-13-73, but the Tax Commission affirmed the assessments under the statutory provision imposing a general property tax, § 59-1-1. The plaintiffs now argue, as they did before the Tax Commission, that as concessionaires at a public airport, they are entitled to the exemption provided in § 59-13-73.

To fall within the ambit of the exemption provided by § 59-13-73, three statutory criteria must be satisfied. First, the property in question must be of the type that ordinarily is exempt from taxation. Second, the property must be used by a private individual, association, or corporation in connection with a for-profit business. Third, the business entity must be a concessionaire at one of the listed public facilities. What the statute is really aimed at, at least as far as concessionaires are concerned, is the exemption of concessionaires using city-owned property from paying taxes on that property to the extent they are in "possession" or have other "beneficial use" of it.

We assume for the purposes of this case that the plaintiffs are concessionaires at a public airport and operate for-profit businesses and, therefore, meet two of the above criteria. However, they fail to meet the first requirement for the exemption. As discussed below, the properties for which exemptions are sought are not exempt because the plaintiffs, and not Salt Lake City, own the structures in question.

III.

The plaintiffs contend that because the city exercises substantial control over the improvements and because title to the improvements vests in the city at the termination of the leases, legal title to the improvements under the law of fixtures is in the city and the improvements are therefore exempt from taxation. The county counters that by the terms of the leases, the plaintiffs retain legal ownership of the improvements and, pursuant to § 59-1-1, taxes can be assessed against them.

Section 59-1-1, 1 promulgated pursuant to Article XIII, § 2 of the Utah Constitution, 2 imposes a tax on all tangible property not otherwise exempt within the State. The property taxable under § 59-1-1 may be assessed to the person who owns, claims, possesses, or controls it. § 59-5-4. 3

Article XIII, § 2 of the Utah Constitution and § 59-2-1 exempt from taxation "property of" cities and other governmental bodies. 4 The exemption is based on the policy that property owned by and used for the public benefit of one governmental entity or subdivision should not be taxed by another because that would defeat the purpose of the exemption. For one unit of government, for example, a city, to have to levy a tax so that it can pay taxes to another overlapping unit, for example, a county, makes little economic sense and is bad tax policy. In other words, county taxation of city-owned property would necessarily require additional taxation by the city of its taxpayers for the revenue to pay the county-imposed tax. Orange State Oil Co. v. Amos, 100 Fla. 884, 887, 130 So. 707, 709 (1930); Newton v. City of Atlanta, 189 Ga. 441, 444, 6 S.E.2d 61, 63 (1939); City of Idaho Falls v. Pfost, 53 Idaho 247, 23 P.2d 245 (1933); Pelouze v. City of Richmond, 183 Va. 805, 809, 33 S.E.2d 767, 769 (1945); 2 T. Cooley, The Law of Taxation § 621, at 1313 (4th ed. 1924); 71 Am.Jur.2d State and Local Taxation § 336 (1973). In other words, city taxpayers would, in effect, be subsidizing county taxpayers.

But overlapping taxation does not occur when government-owned property is held and used by a private person for private use and profit. In that situation, the property is used as if it were private property, and then a policy favoring taxation exists. Cf. Utah Code Ann. § 59-2-2, § 59-13-73; Mesa Verde Co. v. Board of County Commissioners, 178 Colo. 49, 57, 495 P.2d 229, 233, appeal dismissed, 409 U.S. 810, 93 S.Ct. 69, 34 L.Ed.2d 65 (1972); Great Salt Lake Minerals & Chemicals Corp. v. State Tax Commission, 573 P.2d 337, 340 (Utah 1977). The private entrepreneur who uses government property to make a profit shoulders the direct incidence of the tax burden with the revenues from his business and no additional city tax is needed to cover the property tax assessed by the county against the private property. Furthermore, the established policy that allows taxation in these circumstances is directly supported by the principle that there should be an equal distribution of the tax burden among the entire tax base, absent overriding reasons to the contrary. See Parson Asphalt Products, Inc. v. Utah State Tax Commission, 617 P.2d 397, 398 (Utah 1980); Great Salt Lake Minerals & Chemicals Corp., 573 P.2d at 340.

Because "[t]he property of ... cities" is tax exempt, we must determine the meaning of § 59-2-1 in light of the policy that underlies the tax exemption. Significant in understanding the scope of the exemption is the statutory provision allowing county assessors to assess property taxes to persons who own, claim, possess or control property. § 59-5-4. See supra footnote 3. Also significant is the provision allowing for taxation of private improvements built on state-owned lands, irrespective of the technical legal doctrine of fixtures. See Utah Code Ann. § 59-2-2. 5 The fact that a municipality has legal title to the land is not determinative of the question whether improvements placed on the land and used for private profit are taxable.

The Colorado Supreme Court has held that the determination of whether improvements on government-owned land leased and used by a private party to conduct a for-profit business qualify for tax exemption depends upon...

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