The Colorado Court of Appeals issued its opinion in Cantina Grill, JV v. City & County of Denver County Board of Equalization on September 13, 2012.
Ad Valorem Property Tax—Possessory Interests—CRS § 39-1-103—Constitutionality—Valuation.
In this property tax case, plaintiffs, food and beverage concessionaires at Denver International Airport (DIA) and holders of possessory interests in real property owned by the City and County of Denver (City), appealed the trial court’s judgment affirming the valuation of those possessory interests as assessed by defendants, the City and County of Denver County Board of Equalization (Board) and the County Assessor. The judgment was affirmed.
Plaintiffs serve food and beverages to the traveling public at DIA. The City is the owner of the real estate and improvements at DIA and operates the airport through its Department of Aviation. In May 2010, plaintiffs received notices of valuation for ad valorem property tax purposes for their respective spaces. Plaintiffs contested the valuations by unsuccessfully petitioning the Board. Plaintiffs then sought review in the trial court, which rejected their claims. Plaintiffs appealed that judgment.
Plaintiffs contended that CRS § 39-1-103(17)(a)(II)(A) and (B) is unconstitutional both on its face and as applied to them, because the Colorado Constitution, not the statute, imposes the tax. The statute merely creates a methodology for valuing a taxable possessory interest in tax exempt property—for ad valorem tax purposes—by the use of the rents and fees paid by the occupier to the owner; therefore, the statute is not facially unconstitutional. Further, plaintiffs’ possessory interests are made taxable by the Colorado Constitution under the test announced by the Colorado Supreme Court in Board of County Commissioners v. Vail Associates, Inc., 19 P.3d 1263 (Colo. 2001). Therefore, the statute, a set of procedures for tax valuation, was not applied to plaintiffs’ properly taxable possessory interests in an unconstitutional manner. Additionally, because the statute’s tax valuation provisions do not infringe on any constitutionally protected right, the statute is not unconstitutionally overbroad.
Plaintiffs also contended that the trial court abused its discretion in concluding that their possessory interests are taxable under the first two prongs of the Vail Associates analysis. To be taxable, the possessory interest must be such that (1) it provides a revenue-generating capability to the private possessor independent of the government property owner; (2) the private owner is able to exclude others from making the same use of the interest; and (3) the private ownership is of sufficient duration to realize a private benefit. Although the City has imposed operational restrictions on plaintiffs relating to the price of their products, hours of operation, and menus, and requires that employees be cleared by security, the record is clear that all, or virtually all, of plaintiffs’ revenue is generated from the traveling public. Thus, the trial court did not abuse its discretion in concluding that plaintiffs’ possessory interests are capable of generating revenue independent of the City. Further, although competition is permissible pursuant to their contract, others may not make the same physical use of the possessory interest as that of plaintiffs. Therefore, the second prong is satisfied.
Plaintiffs further contended that the trial court erred in approving the City’s valuation of their possessory interests. Pursuant to the agreement, plaintiffs must pay to the City rents and fees that are the greater of either a minimum monthly guaranteed rent or a percentage of their monthly gross revenues. The minimum monthly guaranteed rent is the minimum rent for the premises occupied by the plaintiffs, which, presumably, benefits the plaintiff. The trial court properly accepted the City’s valuation of the plaintiffs’ possessory interests, which was the minimum monthly guaranteed rent, reduced for the value of the use of the common area for those plaintiffs with such use, as the reasonably estimated future annual rents or fees.
Summary and full case available here.