Town of Eagle v. Scheibe

• Decision Date: 18 September 2000
• Docket Number: No. 99SC213.,99SC213.
• Citation: 10 P.3d 648
• Parties: The TOWN OF EAGLE a Colorado statutory town; Roxie Deane, in her capacity as Mayor of the Town of Eagle; and Rick Dunford, Jean Johnson, Bill Heicher, Paul Gregg, Tom Ehrenberg, and Bruce Hasbrouck, in their capacities as members of the Board of Trustees of the Town of Eagle, Petitioners, v. Paul SCHEIBE and Judy Scheibe d/b/a Best Western Eagle Lodge; and Eagle Economy Lodging, L.L.C. d/b/a Holiday Inn Express, Respondents.
• Court: Colorado Supreme Court

10 P.3d 648

The TOWN OF EAGLE a Colorado statutory town; Roxie Deane, in her capacity as Mayor of the Town of Eagle; and Rick Dunford, Jean Johnson, Bill Heicher, Paul Gregg, Tom Ehrenberg, and Bruce Hasbrouck, in their capacities as members of the Board of Trustees of the Town of Eagle, Petitioners, v. Paul SCHEIBE and Judy Scheibe d/b/a Best Western Eagle Lodge; and Eagle Economy Lodging, L.L.C. d/b/a Holiday Inn Express, Respondents.

No. 99SC213.

Supreme Court of Colorado, En Banc.

September 18, 2000.

As Modified on Denial of Rehearing October 10, 2000.

Carter & Sands, P.C., Edward P. Sands, Rifle, Colorado, Walter H. Sargent, P.C., Walter H. Sargent, Colorado Springs, Colorado, Attorneys for Petitioners.

Alexander & Crabtree, P.C., C. Scott Crabtree, Stephen Fitzsimmons, Denver, Colorado, Attorneys for Respondents. Colorado Municipal League, Geoffrey T. Wilson, Denver, Colorado, Attorney for Amicus Curiae, Colorado Municipal League.

Chief Justice MULLARKEY delivered the Opinion of the Court.

We granted certiorari to review the published opinion of the court of appeals in Scheibe v. Town of Eagle, 983 P.2d 133 (Colo.App.1999). The petitioners, the Town of Eagle, Roxie Deane, Rick Dunford, Jean Johnson, Bill Heicher, Paul Gregg, Tom Ehrenberg, and Bruce Hasbrouck (collectively "Eagle"), argue that the court of appeals erroneously held that the Town of Eagle, Ordinance 9 (1996) ("Eagle Tax" or "Tax"), was not a valid occupation tax pursuant to section 31-15-501(1)(c), 9 C.R.S. (1999). We agree. The judgment of the court of appeals is reversed and the case is remanded for proceedings consistent with this opinion.

I.

The Town of Eagle is a statutory town established pursuant to section 31-1-203(1), 9 C.R.S. (1999). Section 31-15-501(1)(c) authorizes Eagle, as a statutory town, to levy occupation taxes within its borders.

In 1996, the Eagle Board of Trustees, with voter approval, amended the Eagle Municipal Code through Ordinance 9, entitled "Lodging Occupation Tax." Excepting governmental and charitable entities, this ordinance levies a tax amounting to two dollars per day, per occupied room on all individuals and businesses furnishing short-term accommodations in the Town of Eagle, payable monthly.¹ The revenues from the Eagle Tax are placed in an "Open Space Preservation Fund" to be used "exclusively for the preservation of agricultural lands and for the acquisition, maintenance and management of land and easements in and around the Town of Eagle for open space buffer zones, trails within open space areas, wildlife habitats and wet land preservation." Eagle Municipal Code § 5.05.180.

The respondents, Paul and Judy Scheibe, and Eagle Economy Lodging, L.L.C. (collectively "Hotels"), owners of lodging houses in the Town of Eagle, filed suit seeking a declaration that the Eagle Tax was not a lawful occupation tax under section 31-15-501(1)(c). They further alleged that Eagle exceeded its authority by levying an income tax in violation of article X, section 17 of the Colorado Constitution, which grants to the state the power to impose income taxes.

The trial court granted Eagle's motion for summary judgment. It distinguished Board of Trustees of the Town of Minturn v. Foster Lumber Co., 190 Colo. 479, 548 P.2d 1276 (1976) (Minturn), and Mountain States Telephone & Telegraph Co. v. City of Colorado Springs, 194 Colo. 404, 572 P.2d 834 (1977) (Mountain States), in which this court struck down purported occupation taxes that were calculated on the basis of gross revenue. The trial court concluded that the "Tax . . . bears no such direct relationship to income or receipts," and therefore, the Tax was not an income tax. Further concluding that "the [Tax] is a flat $2.00 tax on the business of renting a room or accommodation," the trial court found the Eagle Tax to be a "constitutional, valid and enforceable" occupation tax.

The court of appeals relied upon Minturn and Mountain States to reverse the trial court. Using language from those cases, the court of appeals held that "the amount of tax necessarily fluctuates each month based upon the number of plaintiffs' room `sales,'" thereby precluding the Tax from being classified as an occupation tax. Scheibe, 983 P.2d at 134. In contrast to this court's analysis in the Minturn and Mountain States decisions, however, the court of appeals did not hold the Eagle Tax to be an income tax.

We granted certiorari to consider whether the court of appeals erred in holding that the Eagle Tax was not an occupation tax within the meaning of section 31-15-501(1)(c).² We now hold that the Eagle Tax is a valid occupation tax pursuant to section 31-15-501(1)(c). Therefore, we reverse the judgment of the court of appeals and remand the case for further proceedings consistent with this opinion.

II.

Eagle enacted its tax pursuant to section 31-15-501(1)(c), which grants municipalities:

[The power to] tax, subject to any law of this state, any lawful occupation, business place, amusement, or place of amusements. . . except that, for purposes of the application of any occupational privilege tax, oil and gas wells and their associated production facilities have not been, are not, and shall not be considered an occupation or business place subject to such tax.

§ 31-15-501(1)(c). Under our precedent, this municipal taxing authority cannot infringe on the state's ability to levy income taxes because of the requirement in section 31-15-501(1)(c) that the municipality's power to impose an occupation tax is "subject to any law of this state." Article X, section 17, allows the General Assembly to "levy income taxes, either graduated or proportional, or both graduated and proportional, for the support of the state, or any political subdivision thereof." Colo. Const. art. X, § 17. We have held that the grant of this power to the General Assembly excludes the exercise of such power by municipalities. See City & County of Denver v. Sweet, 138 Colo. 41, 51-52, 329 P.2d 441, 446 (1958)

; see also Apollo Stereo Music Co. v. City of Aurora, 871 P.2d 1206, 1208 (Colo.1994).

A.

The court of appeals considered itself bound by Minturn and Mountain States to strike the Eagle Tax because, although the rate of tax is constant, the amount of tax paid by the Hotels may fluctuate from month to month depending on how many rooms are rented. In those cases, we invalidated purported occupation taxes that municipalities levied against businesses based on a percentage of each business's gross revenues. See Minturn, 190 Colo. at 480-82, 548 P.2d at 1277-78; see also Mountain States, 194 Colo. at 405-06,

572 P.2d at 835. We held that the ordinances actually were income taxes and were beyond the taxing authority of municipalities. See Minturn,

190 Colo. at 482,

548 P.2d at 1278; Mountain States, 194 Colo. at 406,

572 P.2d at 835; see also Colo. Const. art. X, § 17 (granting to the state the exclusive power to levy an income tax). In so holding, we used the language that is now read by the court of appeals to compel its holding that the Eagle Tax is not an occupation tax:

The clear inference [from earlier decisions] is that an income tax, whether net or gross, bears a direct relation to the income or receipts of a business. An occupation tax bears no such relationship. The latter is a tax upon the very privilege of doing business, and does not fluctuate from month to month depending upon the financial success or sales of the enterprise.

Minturn, 190 Colo. at 482, 548 P.2d at 1278; see also Mountain States, 194 Colo. at 406,

572 P.2d at 835 (quoting a portion of this passage). In the view of the court of appeals, because the Eagle Tax would fluctuate monthly based on the number of rooms rented, this "mathematical reality precludes the tax from being characterized as an occupation tax." Scheibe, 983 P.2d at 134 (citing Minturn and Mountain States). As the following discussion indicates, this analysis is much too stringent and construes our precedent too narrowly. Variation in the amount of tax paid during each taxing period caused by calculations based on factors other than income is not fatal to a valid occupation tax.

B.

The decision of the court of appeals was driven by some inconsistencies within our case law with respect to the articulation of the permissible scope of an occupation tax. Minturn and Mountain States characterized an occupation tax as a tax on the privilege of doing business in a municipality. See Minturn,190 Colo. at 481,548 P.2d at 1277 (quoting City & County of Denver v. Duffy Storage & Moving Co., 168 Colo. 91, 108-09, 450 P.2d 339, 347-48 (1969) (Kelly, J., concurring in part and dissenting in part)); Mountain States, 194 Colo. at 406,572 P.2d at 835; see also City of Sheridan v. City of Englewood, 199 Colo. 348, 350-51, 609 P.2d 108, 109 (1980)

("A tax imposed under [section 31-15-501(1)(c)] must therefore be a tax on the privilege of doing business. . . ."). With this precept in mind, the Minturn court read prior decisions of this court to limit an occupation tax to "a license fee, fixed at a flat rate," Minturn,

190 Colo. at 481,

548 P.2d at 1278, and expanded upon this interpretation through the non-fluctuation language quoted above.

Minturn's approach fails to encompass fully the nature and purpose of the taxing power granted to municipalities by section 31-15-501(1)(c) as recognized by this court in other cases. In adopting a more expansive approach than Minturn, these cases have determined that an occupation tax need not be limited to persons or entities conducting their own businesses, but may apply to employees as well as employers. See Duffy, 168 Colo. at 100-02,

450 P.2d at 343-45. Similarly, an occupation tax is not necessarily a tax on a company's privilege to do business. See Union Pac. R.R. Co. v. City & County of Denver, 182 Colo. 136, 140, 511 P.2d 497, 499 (1973) (recognizing that Denver's occupation tax was not a tax on a company's privilege to do interstate...