Cantina Grill, JV v. City & County of Denver County Board of Equalization Ex Rel. Kennedy
344 P.3d 870
Colo.2015Background
- Eleven private concessionaires operate restaurants and lounges at Denver International Airport (DIA) under written concession agreements granting the right to occupy, improve, and use specific concession spaces on city-owned (tax-exempt) land.
- Agreements require concessionaires to pay the greater of a percentage of monthly gross revenue or a minimum monthly guarantee (MMG); concessionaires also bear costs for improvements, supplies, maintenance, and certain utilities.
- The City assessed property tax on the concessionaires’ possessory interests beginning in 2001 under the three-prong test from Board of County Commissioners v. Vail Associates, and valued the interests using section 39-1-108(17) by discounting expected future rent (the assessor used the MMG).
- Concessionaires protested, litigated in district court (trial de novo), and lost; the court of appeals affirmed. The Colorado Supreme Court granted certiorari to decide taxability under Vail and the correctness of the valuation.
- The Supreme Court affirmed: the possessory interests are taxable (exclusivity and independence prongs satisfied) and the assessor’s valuation using the MMG (with statutory exclusions applied) was supported by the record.
Issues
| Issue | Concessionaires' Argument | City/State's Argument | Held |
|---|---|---|---|
| Whether concessionaires’ possessory interests in city-owned airport space are taxable under Vail’s three-prong test | Interests are not sufficiently exclusive (city can authorize other concessions) and not sufficiently independent (extensive operating restrictions) | Interests are exclusive as to each particular space and generate revenue independent of the City (traveling public pays); restrictions do not make concessionaires government agents | Taxable: exclusivity and independence prongs met; duration undisputed, so Vail test satisfied |
| Scope of exclusivity prong (what exclusivity means) | Reservation allowing other concessions at DIA defeats exclusivity | Exclusivity focuses on ability to exclude others from that particular occupied space, not from other airport locations | Held: exclusivity satisfied because concessionaires can exclude others from their specific leased spaces |
| Scope of independence prong (whether revenue is independent) | City’s operational controls (price caps, menu/hours approval, other restrictions) mean revenue is not independent | Independence requires examining totality of circumstances (source of revenue, who supplies equipment, who pays maintenance, control over operations); City is not the dominant revenue source | Held: independence satisfied — concessionaires supply improvements/equipment, pay maintenance, derive revenue from public, and are not agents of City despite some regulatory controls |
| Proper valuation under §39-1-108(17) (use of MMG; exclusions) | Assessor should have used historical percentage rents (past percent-of-gross) or market comparables; portions of rent attributable to business value or reimbursements should be excluded | Statute requires present value of reasonably estimated future rents; MMG is a reasonable floor the concessionaires must pay and assessor excluded common-area rents; no contract language identifies reimbursements or business-value components to be excluded | Held: trial court properly adopted assessor’s use of MMG as reasonably estimated future rents and correctly refused to exclude amounts as business value or reimbursements, record supports valuation |
Key Cases Cited
- Board of County Commissioners v. Vail Associates, 19 P.3d 1263 (Colo. 2001) (articulates three-prong test for when private possessory interests in tax-exempt property are taxable)
- Mesa Verde Co. v. Montezuma County Board of County Commissioners, 495 P.2d 229 (Colo. 1972) (concessionaire’s significant incidents of ownership made improvements taxable)
- Mesa Verde Co. v. Montezuma County Board of County Commissioners (Mesa Verde III), 898 P.2d 1 (Colo. 1995) (invalidating legislative exemption of certain possessory interests as conflicting with Colo. Const. art. X)
- Rummel v. Musgrave, 350 P.2d 825 (Colo. 1960) (private leasehold of federal land was taxable where it was a distinct vendible interest)
- Southern Cafeteria, Inc. v. Property Tax Administrator, 677 P.2d 362 (Colo. App. 1984) (concession arrangement lacking independence because government provided equipment, maintenance, and controlled profits was not taxable)