Pier 67, Inc. v. King County, 38841

• Decision Date: 13 April 1967
• Docket Number: No. 38841,38841
• Citation: 426 P.2d 610,71 Wn.2d 92
• Parties: PIER 67, INC., aka Edgewater Inn, Respondent, v. KING COUNTY, a municipal corporation, A. J. Steen as Assessor for King County, and A. A. Tremper as Treasurer for King County, Washington, Appellants.
• Court: Washington Supreme Court

Page 92

71 Wn.2d 92

426 P.2d 610

PIER 67, INC., aka Edgewater Inn, Respondent, v. KING COUNTY, a municipal corporation, A. J. Steen as Assessor for King County, and A. A. Tremper as Treasurer for King County, Washington, Appellants.

No. 38841.

Supreme Court of Washington, Department 2.

April 13, 1967.

Rehearing Denied Sept. 11, 1967.

Charles O. Carroll, Pros. Atty., James E. Kennedy, Chief Civil Deputy Pros. Atty., William L. Paul, Jr., Asst. Chief Civil Deputy, Pros. Atty., Seattle, for appellants.

Robbins, Felix & Robbins, Jennings P. Felix, Seattle, for respondent.

DENNEY, ^* Judge.

This case involves the assessment by King County for tax purposes of certain improvements placed by plaintiff-respondent, Pier 67, Inc., on tidelands leased from the state of Washington, together with the assessment of furniture, machinery and other personal property located therein.

The trial court restrained the county assessor from pursuing his previous method of assessment of respondent's property, required a reassessment and transmittal of the new assessment to respondent, and left open to the latter the right to contest the new assessments. The trial court also retained jurisdiction to approve or disapprove the new assessment and to fix the amount of any refund of taxes paid under protest. King County appeals.

Respondent leased tidelands on Elliott Bay in Seattle from the state for a period of 30 years and proceeded to improve Pier 67 on such tidelands by constructing a motel known as Edgewater Inn for rental of lodging and other uses incidental thereto. Said motel buildings are permanent in nature and would be completely destroyed by their removal.

The assessor of King County assessed the improvements for the years 1964, 1965 and 1966 as personal property owned by respondent, using substantially a cost-when-new less depreciation basis. He refused to consider respondent's interest as a leasehold or to determine the value of the lease term by considering both its benefits and burdens, and refused to consider its income or lack of income.

The Edgewater Inn did not prosper but was operated at a substantial loss during the years 1963 through 1965. It is heavily mortgaged and has been kept in operation by loans guaranteed by individuals interested in the enterprise. Respondent's witnesses opined that the leasehold was valueless during the years in question because no informed person would pay anything for it.

Tidelands are owned by the state, Const. Art. 17, § 1; and are exempt from taxation, Const. Art. 7, § 1 (amendment 14).

Personal property for purposes of taxation is defined by RCW 84.04.080 to include, Inter alia: (1) all leases of real property and leasehold interests therein for a term less than the life of the holder, and (2) all improvements upon lands the fee of which is still vested in the United States, or in the state of Washington. The lease in this case is for a term of 30 years--less than the life of the holder, a corporation with perpetual existence. From the definition of personal property, appellant contends the assessor had an option to value respondent's property as a leasehold for a term less than the life of the holder Or as improvements upon lands the fee of which is vested in the state of Washington, Appellant's contention that the assessor may value respondent's property as improvements on state land is bottomed on his assertion that the improvements are the property of the respondent. We do not agree.

The lease does not provide that the improvements are to be the property of the lessee. In the absence of such a provision buildings permanently erected on real property become a part of the realty as soon as constructed. In the case of Murray v. Odman, 1 Wash.2d 481, 485, 96 P.2d 489, 490 (1939), we said: 'At the outset, it may be stated, that, since there was no agreement to the contrary, the building became, during the course of its erection, a part of the land.' See also Toellner v. McGinnis, 55 Wash. 430, 104 P. 641, 24 L.R.A., N.S., 1082 (1909).

Furthermore, the trial court entered the following finding of fact: '* * * The said buildings and improvements are permanent in nature and they would be completely destroyed by their removal which would seriously damage the realty. The improvements became, as erected, a part of the realty.' Thereafter, the court drew the following conclusion of law: 'The improvements are owned by the state of Washington and the plaintiff has only an equity therein. * * *' Appellant has assigned error to neither of the above. An unchallenged finding of fact becomes the law of the case, and on appeal is to be treated as a verity. Rule on Appeal 43, RCW vol. O; York v. Cooper, 60 Wash.2d 283 373 P.2d 493 (1962). It is clear, therefore, that the improvements became a part of the tidelands and the property of the state.

On four different occasions this court has determined the proper valuation for tax purposes of improvements made by a lessee on state land. These decisions have become known as the Metropolitan Bldg. Co. cases. The Metropolitan Building Company leased the old university campus in downtown Seattle, owned by the state of Washington, for a period of 50 years and improved the property by the construction of large office buildings, financing the same by the issuance of bonds. The buildings became the property of the state. During the first years after construction the investment was not profitable and the building company lost large sums of money. King County contended that the value of the improvements for tax purposes should be measured by the amount of investment. This court held that the property must be valued as a leasehold, and that such value is the value of the term less rent reserved and that the assessor must consider the burdens as well as the benefits in setting such assessed value. The first case, Metropolitan Bldg. Co. v. King County, 62 Wash. 409, 410, 113 P. 1114 (1911), held that:

We are bound by the statute, therefore, to determine the value of the leasehold as personal property. In determining the worth of the leasehold the courts have universally held that it is the value of the term less the rent reserved. The value of the term is fixed with reference to present as well as prospective conditions; not speculative, but actual; or, to state the proposition more aptly, its value in money to one who desires to sell but who is under no necessity for selling, and to one who is desirous of buying but is under no compulsion to do so.

* * * Therefore an assessment based upon the value of the improvements or the amount invested therein was erroneous, and entitles respondent to relief.

In the second caes, Metropolitan Bldg. Co. v. King County, 64 Wash. 615, 117 P. 495 (1911), the tax for 1910 was involved. This court followed the first Metropolitan Bldg. Co. case and held that the lease must be valued with its burdens as well as its benefits and that an assessment based on value of improvements could not stand.

The third case, Metropolitan Bldg. Co. v. King County, 72 Wash. 47, 129 P. 883 (1913), involved assessments for 1911. In affirming the trial court and in answer to a contention that only the benefits of the lease should be considered the court said:

The testimony shows that the leasehold, measured by its burdens and benefits, has no real market value, but that relieved of its burdens and measured only by its benefits it is of large value. Counsel for the appellant framed his hypothetical questions so as to ask the witnesses 'to assume that there is no indebtedness against it,' meaning the leasehold interest. The assumption belies the facts. As we have stated, the state owns both the fee and the improvements subject only to the right of user in the respondent. The leasehold is burdened...