State Dept. of Assessments and Taxation v. Maryland-National Capital Park and Planning Com'n

• Decision Date: 01 September 1996
• Docket Number: MARYLAND-NATIONAL,No. 92,92
• Parties: STATE DEPARTMENT OF ASSESSMENTS AND TAXATION v. TheCAPITAL PARK AND PLANNING COMMISSION. ,
• Court: Maryland Court of Appeals

Page 2

348 Md. 2

702 A.2d 690

STATE DEPARTMENT OF ASSESSMENTS AND TAXATION v. The MARYLAND-NATIONAL CAPITAL PARK AND PLANNING COMMISSION.

No. 92, Sept. Term, 1996.

Court of Appeals of Maryland.

Nov. 14, 1997.

David M. Lyon, Asst. Atty. Gen. (J. Joseph Curran, Jr., Atty. Gen.; Jeffrey G. Comen, Asst. Atty. Gen., on brief), Baltimore, for Petitioner.

Isaac H. Marks, Acting Gen. Counsel (Debra Yerg Daniel, Associate Gen. Counsel, on brief), Upper Marlboro, for Respondent.

Argued before BELL, C.J., and ELDRIDGE, RODOWSKY, CHASANOW, KARWACKI, ^* RAKER and WILNER, JJ.

BELL, Chief Judge.

The issue this case presents is whether the privately owned 94th Aero Squadron Restaurant (the "Restaurant"), which leases public land, adjacent to a public airport and park, is a "concession," within the meaning of Maryland Code (1957, 1994 Repl.Vol.), § 7-211(B) OF THE TAX-PROPERTY ARTICLE¹, ² where its primary customers are not patrons of the airport and park and the respondent, the Maryland-National Capital Park and Planning Commission (hereafter "Commission") an agency authorized to award such a concession ³, has retained little control over the restaurant's day to day operations. The Maryland Tax Court held that it was not and, after the Circuit Court for Prince George's County had affirmed, the Court of Special Appeals reversed. Maryland-National Capital Park & Planning Comm'n v. State Dept. of Assess. and Tax., 110 Md.App. 677, 678 A.2d 602 (1996). We granted certiorari on the petition of the State Department of Assessments and Taxation, the petitioner. We shall affirm.

I

In 1973, the Commission, an agency created by the General Assembly, ⁴ purchased the College Park Airport (hereafter "Airport"), a small airport located in Prince George's County and the world's oldest continuously operated airport. Also located on that site are a museum and a park. In an effort to enhance the attractiveness of the airport, museum, and park for their patrons, the Commission circulated, beginning in October 1980, a "prospectus;" its objective was to identify a business entity from the private sector, to which it could grant a concession "to construct, operate and maintain a restaurant concession at the College Park Airport." In addition to providing such relevant and important information such as the climate of the region, the location of the airport, the proposed terms ⁵ of the contract, and the concessionaire's fee, the prospectus stated that the Commission contemplated "a facility that would be sympathetic to the World War I era, and to the history of the College Park Airport." Also, it stated that "the terms of the concession contract under existing policies are to be commensurate with the size of the investment."

The only bidders on the project were 94th of College Park, Inc. and its parent company, Specialty Restaurant Corporation. Subsequently, 94th of College Park, Inc., entered into a twenty-year lease agreement with the Commission on May 1, 1981. That lease contained a provision by which the Commission

grant[ed] to Lessee for the period of said Lease (including any extension periods), the right to construct, operate, and maintain upon said Land the Improvements as herein defined in accordance with this Lease, provided the Lessee shall faithfully perform the terms and conditions of this Lease and Agreement. Lessor agrees not to grant the rights as herein granted to any other persons, nor will it construct and operate any financially competitive facility on the premises owned by it adjacent to the Leased Premises during the term of this Lease and Agreement, including any renewal period.

It also contained a provision which indemnified the lessee for the payment of any taxes it had to pay as a result of its interest in the leased premises: ⁶It is acknowledged by the parties hereto that, because the fee title to the Leased premises is owned by the Lessor, a public entity, the Leased Premises are not subject to either ad valorem taxation or possessory interest taxation against the leasehold. Accordingly, the aforesaid percentage rent schedule is structured in consideration of the tax-free status of the Leased Premises and that the Lessor and its assigns hereby indemnifies the Lessee and holds it harmless from any tax which may be assessed against either the fee title or the leasehold of the Lessee.

For its part, the lessee "agreed to operate, manage, and maintain ... in a good, courteous, and efficient manner a Restaurant (and the other improvements to be constructed by it in accordance with this Lease) and [to] operate, manage, and maintain the premises in a manner consistent with the purposes of this Lease and the public interest generally." Thus, it was required to submit, within five months after executing the lease, the final plans and specifications, as to the "design, character, and appearance" to the Commission for approval. Moreover, under the lease, the lessee's obligation was to pay the Commission a minimum annual rental payment of $18,000, in addition to a monthly percentage of gross revenue. Although the lease was with 94th of College Park, Inc., Specialty agreed to guarantee the lease and, in that capacity, assumed several responsibilities, among them, to provide a capital investment of approximately $900,000 to construct the restaurant and $100,000 in working capital.

The 94th Aero Squadron Restaurant opened its doors in May 1986. It had, as it still does, a World War I aviation field motif, characterized by propellers hanging from the ceiling, numerous fireplaces, antiques, and other authentic French country decorations. On the regular menu, dishes range from $14.95 for the Chicken Moutarde to $21.50 for the Porterhouse Steak. Appetizers range from $4.50 for the onion straws, to the "Light Fare," like the Sante Fe chicken for $5.95. Headphones in the Restaurant permit the patrons to listen to communications between the pilots and the ground crew at the airport. In addition, there is a dance floor, along with a bar and a patio. The Restaurant sponsors specials, such as college night, catering to University of Maryland at College Park students, at which draft beer is sold for a dollar. Other specials include "Wild West Wednesday" and "Marco Polo Ladies' Night." There was testimony offered, albeit hearsay, that out of approximately ten thousand meals a month, at most one hundred of these meals were served to patrons of the airport park.

At the time the lease was executed, both the Commission and the lessee believed that the Restaurant was automatically tax-exempt because it was located on government property. Upon learning that they were mistaken, the Commission filed a request for exemption with the petitioner, the State Department of Assessments and Taxation (hereafter "SDAT").

The petitioner denied the Commission's request, concluding that the Restaurant was not a concession under § 7-211(b). The Commission successfully appealed this denial to the Property Tax Assessment Appeals Board ("PTAAB"), prompting the SDAT's appeal to the Maryland Tax Court ("Tax Court"). In the Tax Court, the parties stipulated that the Restaurant was, in fact, a "restaurant" and that it is located at a public airport and park. Following a hearing, the Tax Court reversed the PTAAB decision.

Having characterized the question before it as one of statutory construction and interpretation, the Tax Court construed "concession", as used in § 7-211(b), as follows:

I don't think that the word concession, as was used by the legislature there was meant from any other term other than a type of facility to be of service to the public under a given set of circumstances. In other words like a food concession stand or again as the Friendship Hotel ⁷ case spoke of, or the service stations that exist on I-95.... I think what the concession is running to [sic] is some type of food stand, or facility for servicing the public's needs in general who are using the area in question.

It further reasoned that, in order for the Restaurant to be "available for the general use of the public," in accordance with § 7-211(b), the General Assembly must have intended it to be a "facility that existed primarily for services in connection with the people who are using the airport and the people who are using the park, or the people who are using the market, or the people who are using the fairground....And that's obviously not the situation here." The Tax Court, in essence, held that, to qualify as a concession and thus receive the benefits of tax-free status pursuant to § 7-211(b), the granting authority must have specific, detailed, operational controls over the concession, and the service provided must be primarily for the people using the airport, park, market or fairground to which the concession is adjacent.

The Commission timely sought judicial review in the Circuit Court for Prince George's County. Applying a three part test, namely, whether, in view of the fact that a lease agreement, in and of itself, does not create a concession, there was more than a lease agreement to define the concession, whether the lessee has a specific obligation to maintain the services, which are the subject of the concession, including a requirement of minimum hours and specific standards of regular supervision, and whether the service is one customarily required in a park, airport, market, or fairground, ⁸ that court affirmed the decision of the Tax Court. Further, construing § 7-211(b), the court concluded that the phrase, "available for use by the general public," refers to those members of the general public who visit or use the airport or park facilities or otherwise are on that property for a reason other than dining at the Restaurant. Proceeding from that premise, it found that the patrons of the Restaurant were not members "of the general public."

The Commission appealed that judgment to the Court of Special Appeals. That court, noting the applicability...