MAC Amusement Co. v. State Dept. of Revenue

• Decision Date: 27 August 1981
• Docket Number: No. 46980-6,46980-6
• Citation: 633 P.2d 68,95 Wn.2d 963
• Court: Washington Supreme Court
• Parties: MAC AMUSEMENT COMPANY and Mackey & Aubin Concessions Company, Respondents/Cross-Appellants, v. STATE of Washington, DEPARTMENT OF REVENUE, Appellant/Cross-Respondent.

Page 963

95 Wn.2d 963

633 P.2d 68

MAC AMUSEMENT COMPANY and Mackey & Aubin Concessions Company, Respondents/Cross-Appellants, v. STATE of Washington, DEPARTMENT OF REVENUE Appellant/Cross-Respondent.

No. 46980-6.

Supreme Court of Washington, En Banc.

Aug. 27, 1981.

Ken O. Eikenberry, Atty. Gen., Leland T. Johnson, Jr., Michael Madden, Asst. Attys. Gen., Olympia, for appellant/cross-respondent.

Bogle & Gates, John T. Piper, James H. Lowe, Seattle, for respondents/cross-appellants.

Norm Maleng, Pros. Atty., William C. Severson, Deputy Pros. Atty., Douglas N. Jewett, City Atty., Jorgen G. Bader, Asst. City Atty., Fenton P. Wilkinson, Mundt & MacGregor, Seattle, for amicus curiae.

UTTER, Justice.

MAC Amusement Company and Mackey & Aubin Concessions Company (hereinafter MAC) brought this action, seeking a refund of taxes assessed pursuant to RCW 82.29A. RCW 82.29A provides for a 12 percent tax, assessed against lessees, on the rent paid for publicly owned property. The trial court held that the rent attributable to favorable location and to monopoly rights is not taxable under that chapter. As to favorable location, we disagree.

MAC is the lessee and operator of the Fun Forest amusement facility at the Seattle Center. Its lease agreement provides, among other things, for a favorable location among pedestrian traffic, for the exclusive right to operate all rides and games at the Center, and for the sole right to sell food within the Fun Forest location. For those rights and others, MAC pays one rental sum. The portion of rent attributable to each right is not stipulated in the lease agreement.

Upon paying its taxes in 1976 and 1977, MAC sued for a partial refund, claiming that part of its leasehold rent was attributable to its monopoly rights and favorable location. This sum, it argued, constitutes a nontaxable "concession or other rights" under RCW 82.29A.020(2)(a).

After hearing expert testimony, the trial court reduced the assessments, concluding that a portion of MAC's payments were for concessions or other rights. From that judgment, both parties appeal. MAC challenges the rental area used for the tax computation. The State argues that MAC's rent is fully taxable.

In resolving this problem, we are faced with two conflicting rules of statutory construction. The first states that if there is any doubt as to the meaning of a tax statute, it must be construed against the taxing power. Foremost Dairies, Inc. v. State Tax Comm'n, 75 Wash.2d 758, 453 P.2d 870 (1969); Buffelen Lumber & Mfg. Co. v. State, 32 Wash.2d 40, 43, 200 P.2d 509 (1948). The other is that tax exemptions are to be strictly construed in favor of the tax and, as a corollary, they are not to be extended beyond the scope clearly indicated by the legislature. Evergreen-Washelli Mem. Park Co. v. Department of Revenue, 89 Wash.2d 660, 574 P.2d 735 (1978); Pacific Northwest Conference of Free Methodist Church of North America v. Barlow, 77 Wash.2d 487, 493-94, 463 P.2d 626 (1969).

We are mindful that, in most situations, statutory words are to be given their ordinary and usual meanings. Strenge v. Clarke, 89 Wash.2d 23, 569 P.2d 60 (1977); Rena-Ware Distribs., Inc. v. State, 77 Wash.2d 514, 463 P.2d 622 (1970). But in this case the dispositive words cannot be given their customary definitions. In judicial and common usage, the term "concession" is often used interchangeably with the words "lease" and "grant." See generally 8 Words and Phrases 106 (Supp.1981). Yet, within RCW 82.29A, the latter two describe taxable events, while the former does not. Therefore, as used in that chapter, the term "concession" has a meaning different from that ordinarily ascribed to it. See Strenge, supra; Rena-Ware, supra.

Similarly, the phrase "other rights" is also not defined. Thus, the exemptive language must be construed in light of the purpose for the tax. Id. That purpose, as revealed by RCW 82.29A.010, is as follows:

The legislature hereby recognizes ... that private lessees of ... public properties receive substantial benefits from governmental services provided by units of government.

The legislature finds that lessees of publicly owned property are entitled to those same governmental services and does hereby provide for a leasehold excise tax to fairly compensate governmental units for services rendered to such lessees of publicly owned property.

I

RCW 82.29A.030 provides:

There is hereby levied and shall be collected a leasehold excise tax on the act or privilege of occupying or using publicly owned real or personal property through a leasehold interest on and after January 1, 1976, at a rate of twelve percent of taxable rent ...

For the purposes of this case, the taxable rent is the "contract rent," which is defined as

the amount of consideration due as payment for a leasehold interest, including: The total of cash payments made to the lessor or to another party for the benefit of the lessor according to the requirements of the lease or agreement; expenditures for the protection of the lessor's interest when required by the terms of the lease or agreement; and expenditures for improvements to the property to the extent that such improvements become the property of the lessor. Where the consideration conveyed for the leasehold interest is made in combination with payment for concession or other rights granted by the lessor, only that portion of such payment which represents consideration for the leasehold interest shall be part of contract rent.

(Italics ours.) RCW 82.29A.020(2)(a).

The first issue involves interpreting the emphasized portion of the statute, for RCW 82.29A does not provide a definition of "concession or other rights."

The trial court concluded that the rent attributable to the monopoly rights and to having access to the Center's pedestrian traffic was not taxable. Instead, it ruled that the taxable rent was simply the rent which anyone would pay for similar-sized areas with similar improvements near the Seattle Center.

The State argues that "concession and other rights," as used in RCW 82.29A.020, refer only to those rights unrelated to the possession and use of public property. It believes that MAC's monopoly rights and favorable location are inseparable from the leasehold and thus are taxable.

In light of the tax's purpose, the portion of the rent attributable to favorable location, and to having access to the "stream of commerce," must be taxable. The city expends large sums to promote activities and to provide services within the Center. To the extent that the court's ruling exempts the rent traceable to that "access" and location, it defeats the purpose of the tax.

A similar conclusion is suggested by RCW 82.29A.020(2)(b), which provides:

If it shall be determined by the department of revenue ... that such leasehold interest has not been ... negotiated under circumstances ... clearly showing that the contract rent was the maximum attainable by the lessor, the department may establish a taxable rent computation for use in determining the tax payable under authority granted in this chapter based upon the following criteria: (i) Consideration shall be given to rental being paid to other lessors by lessees of similar property for similar purposes over similar periods of time ...

(Italics ours.) That statute, though not directly applicable to this case, suggests that taxable rent is at least that rent paid for similar property used for similar purposes. The similar purposes and property restriction, in turn, connotes that location is a factor in the tax equation. The restriction acknowledges that properties differ, that differing characteristics affect the rent paid, and that taxable rent should vary with those differing characteristics. One differing characteristic is location and access to commerce.

MAC's arrangement is not substantially different from that of a lessee in a shopping center owned by a single lessor. Each has chosen its location on the basis of access to the commercial traffic generated by the lessor. In each, access is an inherent element of the location.

The attempt to segregate from the rent that portion relating to favorable location seems to us to be contrary to the stated legislative purposes for the tax, and we therefore hold that the rent traceable to "good location" is taxable under RCW 82.29A.

II

The State argues that the exclusivity rights should be taxed because their value is also dependent upon the promotional activities, and hence expenditures, of the city. MAC argues, however, that such is inconsistent with a reading of the entire statutory scheme.

According to the scheme, the taxable event is a leasehold interest, RCW 82.29A.020(2)(a), which is

an interest in publicly owned real or personal property which exists by virtue of any lease, permit, license, or any other agreement, written or verbal, between the public owner of the property and a person who would not be exempt from property taxes if that person owned the property in fee, granting possession and use, to a degree less than fee simple ownership ...

RCW 82.29A.020(1).

In contrast to a leasehold, a monopoly right when conferred by a municipality is generally considered to be a franchise. Washington Water Power Co. v. Rooney, 3 Wash.2d 642, 101 P.2d 580 (1940); Artesian Water Co. v. State Dep't of Highways & Transp., 330 A.2d 432 (Del.Super.Ct.), aff'd as modified, 330 A.2d 441 (Del.1974); Dunmar Inv. Co. v. Northern Natural Gas Co., 185 Neb. 400, 176 N.W.2d 4 (1970). A franchise is

the right granted by the state or a municipality to an existing corporation or to an individual to do certain things which a corporation or individual otherwise cannot do ...

Rooney, 3 Wash.2d at 649, 101 P.2d 580, quoting E. McQuillin, Municipal Corporations § 1740 (2d ed. 1943). Accord, Artesian, supra. It is distinguishable from leaseholds, licenses, and permits the terms used in RCW 82.29A to define "leasehold interests." Artesi...