IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON UNITED AIRLINES, INC., a Delaware corporation, Appellant,

KING COUNTY, a governmental entity, and WASHINGTON STATE DEPARTMENT OF REVENUE, Respondents. No. 73606-0-1 DIVISION ONE

PUBLISHED OPINION FILED: June 6, 2016 rso o C=3 t^C5

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Becker, J. — An administrative refund oftaxes under chapter 84.69 RCW is not available as an avenue for challenging an alleged error indetermining the valuation ofproperty. To challenge a tax as unlawful orexcessive, a taxpayer must pay the tax underwritten protest and then file suit under RCW 84.68.020. Because the appellant inthe present case attempted to use the administrative refund process to challenge the appraisal method by which appellant's property interest was valued, the trial court properly dismissed the action on summary judgment. Summaryjudgment rulings are reviewed de novo. Summaryjudgment is authorized when no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law. A material fact is one upon which theNo. 73606-0-1/2
outcome ofthe litigation depends inwhole or inpart. Samis Land Co. v. City of Soap Lake. 143 Wn.2d 798, 803, 23 P.3d 477 (2001). Appellant United Airlines is a commercial air carrierthatflies in and out of 

### SeaTac International Airport, which is located in KingCounty. United has leased property at SeaTac since the airport opened inthe 1940's. Several ofthe leases 

### have been short innature, butthey have always been renewed. InJanuary 2006, United and the Port ofSeattle agreed to a six-year lease. 

### The port, as a municipal corporation, is exemptfrom taxation on property it
owns at SeaTac. RCW 84.36.451 (1)(a). This exemption does not apply to United's leasehold. RCW 84.36.451 (2)(a). A nongovernment entity leasing government-owned property has a taxable possessory interest. Clark-Kunzl Co. 

### v. Williams, 78 Wn.2d 59, 64, 469 P.2d 874 (1970).1 The basis ofvaluation of a taxable leasehold estate is established by statute. "Taxable leasehold estates must be valued at such price as they would 

### bring at a fair, voluntary sale for cash without any deductions for any indebtedness owed including rentals to be paid." RCW 84.40.030(2). The parties agree thatthe value of a taxable possessory interest "is normally something less" than the value of a fee ownership. See George Kinnear &



### 1United, an "airplane company," RCW 84.12.200(1 )-(2), is subjectto assessment by the Department of Revenue, ratherthan by the county in which it operates. RCW 84.12.270; see also RCW 82.29A. 130(1) (exempting such companies from paying the leasehold excise tax).No. 73606-0-1/3 Clyde B. Rose, Wash. Dep'tofRevenue, Procedure Guide fortheAppraisal 

### ofPossessory Interests 2 (Nov. 1970),2which provides as follow: 1. DEFINITIONS AND NATURE OF POSSESSORY INTERESTS Taxable possessory interests are private interests in 

### property owned by a tax exempt body, usually a public agency. Ataxable possessory interest constitutes a private right to the possession, and use ofsuch property for a period oftime. It constitutes the ownership ofproperty for some time less than 

### perpetuity. It is a portion ofthe bundle of rights thatwould normally be included in a fee ownership, and its value therefore is normally something less than the value inperpetuity ofthe whole bundle. 

### Before 2006, the department employed an imputed return approach to valuing possessory interests in airline leaseholds at SeaTac. The value was computed using a discounted cash-flow model that capitalized the net annual 

### lease payments assuming a seven-yearremaining life.3 In 2006, the department decided to change to a variation ofwhat is known as a residual approach for valuing possessory interests. The residual 

### approach first computes the present value ofthe leasehold by capitalizing the net amount oflease payments for a single year using a capitalization rate determined from a review ofrate studies. The second step is to considerthe present value ofthe government-owned reversionary interest and to subtract it if ithas any material value. Using the residual approach, the department "looked for evidence suggesting that the lease would not be renewed atthe end of its express term." Where the evidence suggested thatthe lease would continue to be renewed into the foreseeable future, the port's reversionary interest "was 

### 2Clerk's Papers at 45 (Exhibit 1, declaration of Kathy Beith, assistant director ofthe property tax division for the Washington State Department of Revenue). 

### 3Clerk's Papers at 33 (declaration of Kathy Beith).No. 73606-0-1/4 

### considered to be minimal." According to the department, a significantdifference is that the residual approach used a direct capitalization method, whereas the 

### imputed return approach used limited-life yield capitalization.4 The residual approach resulted invaluations that were significantly higher 

### than the valuations calculated underthe imputed return approach.5 Using the residual approach, the department, at least insome cases, calculated the value 

### of the government-owned reversionary interest at "nil" or "zero."6 After receiving objections from airline companies, and after internal study and discussion, the department agreed to change from the residual approach to
a modified version ofthe earlier imputed return approach. This methodology 

### used the actual lease term rather than a hypothetical perpetual lease.7 United requested an administrative refund oftaxes paid to King County 

### from 2009 through 2011. For each year, the department had valued United's possessory interest by using the residual approach and assuming a hypothetical perpetual lease. The county denied the request. 

### United broughtthis action insuperiorcourt inDecember2013. The department intervened to defend the county and to protect its own interests. The department moved for summaryjudgment seeking affirmance ofthe county's denial of United's refund claim. United filed a cross motion for summary 

### judgment. The court granted the department's motion. United appeals.

4Clerk's Papers at 34 (declaration ofKathy Beith). 5Clerk's Papers at 320-21 (declaration of Kathy Beith). 

### 6Clerk's Papers at 331 (deposition testimony of Kathy Beith). 7Clerk's Papers at 35 (declaration ofKathy Beith).No. 73606-0-1/5 At the outset, it is important to understand that requesting an administrative refund oftaxes is differentfrom filing suitto challenge a tax as unlawful or excessive. To challenge a tax as unlawful or excessive, a taxpayer 

### must pay the tax underwritten protest. The protest must setforth all ofthe 

### grounds upon which such tax is claimed to be unlawful orexcessive. RCW 84.68.020. The next step, which must be taken within a shortwindow of time, is 

### to bring an action incourtto recoverthe tax. RCW 84.68.060. United paid the taxes, but not under protest. United did not file suit to challenge the tax as unlawful or excessive. United is proceeding underthe administrative refund statute, RCW 84.69.020. A requestfor an administrative refund is directed to the county treasurer 

### ratherthan to a court. RCW 84.69.030(1 )(b).8 A refund request may be filed withinthree years afterthe due date ofthe paymentto be refunded. RCW 84.69.030(1). Payment under protest is notrequired. RCW 84.69.170. With


### some exceptions not relevant here, a requestfor an administrative refund will not 

### be granted ifthe basis for the request is a claimed error in the valuation of the property. RCW 84.69.020. 

### Upon receiving a requestfor an administrative refund of ad valorem taxes, 

### the countytreasurerdetermines whetherthe requestfits any of the limited statutory circumstances setforth in 16 subsections of RCW 84.69.020. Ifthe countytreasurer rejects the request, an action may be brought insuperiorcourt
to contest the treasurer's decision. RCW 84.69.120. 

### 8InKing County, the responsibility forhandling such requests has been delegated to the county assessor.No. 73606-0-1/6 The 16 subsections are, ingeneral, readily recognizable as situations in which there has been an administrative mistake in the collection oftaxes that can be corrected without a reappraisal ofthe property. For example, taxes may be refunded ifthey were paid more than once, paid as a result of a clerical error in extending the tax rolls, paid with respectto an improvementwhich did not exist

on the assessment date, or paid under levies or statutes adjudicated to be illegal

or unconstitutional. RCW 84.69.020(1), (3), (5)-(6). United based its requestfor a refund on RCW 84.69.020(2). Underthis subsection, taxes must be refunded ifthey were paid "as a result ofmanifest

error indescription." Manifest error means "an error in listing or assessment, which does not involve a revaluation ofproperty." WAC 458-14-005(14). A manifest error may be, for example, an error inthe legal description, a clerical or posting error, double assessments, misapplication of statistical data, incorrect characteristic data, incorrect placement of improvements, or erroneous measurements. WAC 458-14-005(14)(a)-(g). Relevant here, a "manifest error" includes "the assessment of property exempted by law from taxation." WAC 458-14-005(14)(h). United claims itwas taxed on the port's reversionary interest, which is tax-exempt. According to United, the department's use ofthe residual approach violated the legal requirements ofWashington law for valuing a possessory interest because it determined the value ofthe port's reversionary interest to be nominal or nil. The value to be taxed in a leasehold overtax-exempt public property is the "value ofthe right to use the property overthe periodofthe lease." Pier 67,No. 73606-0-1/7 Inc. v. King County, 78 Wn.2d 48, 55-56, 469 P.2d 902 (1970) (emphasis added), cert, denied. 401 U.S. 911 (1971). United relies on Pier 67, and particularly the 

### above-quoted statement, as authority demonstrating that itwas manifesterrorfor the department to use a methodology that assumes a hypothetical perpetual lease term. But the suit in Pier 67 was brought as a challenge to valuation of 

### taxes paid under protest, not as a challenge to the denial of a requestfor an administrative refund. Pier 67, 78 Wn.2d at 49. The court discussed the standards to be used in valuing leaseholds under RCW 84.40.030(2). The court 

### recognized thatthe statute makes no particular method ofappraisal mandatory


### so long as the assessorfulfills his ultimate responsibility "todetermine the true cash value ofthe property." Pier67, 78 Wn.2d at 58 (emphasis added). Because the court was concerned with the standards and methods for valuation 

### ofproperty, the reasoning inPier67 is not on point in this case. United also relies on Duwamish Warehouse Co. v. Hoppe, 102 Wn.2d 

### 249, 684 P.2d 703 (1984). Butthat case also involved a challenge to valuation, 

### not a requestfor an administrative refund. Awarehouse was built on land leased from the port. The assessorvalued the warehouse at itsfull marketvalue, even though the lease provided that ownership ofthe structure would automatically be transferred to the port at the end ofthe leaseterm. The Supreme Court held that the assessorwas obliged to considerthe port's reversionary interest. "To 

### disregard the fact that this building reverts to the Port at the end of the lease term, long before its useful life is up, would be to disregard a factor which plainly would affectthe price negotiations between a willing buyer and a willing seller.No. 73606-0-1/8 The result is a nonuniform valuation much higherthan the true and fair market value in money which the statute commands." Duwamish Warehouse Co., 102 Wn.2d at 256. United argues that in this case, the department similarly disregarded the 

### port's reversionary interest. The facts here are not necessarily similar. Unlike in Duwamish Warehouse Co., the department's methodology for valuing airline leaseholds did not fail to considerthe port's reversionary interest; rather, the 

### department considered the port's reversionary interest and assigned it a value of nil if it was reasonable to assume that the airline would continue to renew its lease into the foreseeable future. But in any event, what United is challenging is 

### the department's use of a particular appraisal methodology to determine the amount a willing buyerwould pay a willingsellerfor United's possessory interest. 

### Ifthe department erred by determining that the value ofthe port's reversionary 

### interestwas negligible underthe circumstances, itwas an error in valuingthe port's reversionary interest, not an error indescribing United's possessory interest. As discussed above, an error in valuation is not allowed as a basis for

an administrative refund. RCW 84.69.020. An error in valuation can be 

### redressed only ifthe taxpayer pays the tax under protestand brings suit under chapter 84.68 RCW. A manifest errorthat willjustify an administrative refund must be an error 

### that "can be corrected by reference to the records and valuation methods applied 

### to similarlysituated properties, withoutexercising appraisaljudgment." WAC 458-14-005(14)(j). United contends the county assessor could have easily

8No. 73606-0-1/9 corrected the alleged error without exercising appraisaljudgment. "All that is necessary is to determine the remaining life ofthe lease and capitalize the lease 

### income overthe remaining life ofthe lease." It is not obvious that capitalizing the lease income overthe remaining life of United's lease would yield the true cash value of United's possessory interest. The department contends that United's proposed approach is flawed because it

uses a direct capitalization rate in a yield capitalization model without any analytical data to support that choice. United does not refute this contention. And even ifUnited's proposed approach is an acceptable method ofappraisal, it is not the only one. No rule ofthumb can be formulated to fitevery situation. Pier 67, 78 Wn.2d at 58. Appraisaljudgment is required. United offers a California case as authority for the proposition thattaxation 

### of an airline's possessory interest must be based on the remaining term of its lease. Am. Airlines v. County of Los Angeles, 65 Cal. App. 3d 325, 135 Cal. Rptr. 261 (1976). To the extentthatAm. Airlines holds it is illegal to anticipate that an airline lease willbe renewed when itdoes not include a renewal option, it does not change our conclusion that United is alleging an error invaluation. UnderWashington's statutory scheme, an error invaluation is not a proper subjectfor a requestfor an administrative refund. United contends a trial is necessary because the expert witnesses inthe


### case offered contradictory opinions. An appraisertestifying on behalfof United 

### opined thatthe department effectively taxed the airline as if itowned the leasehold property infee simple. An expertwitness testifying on behalfoftheNo. 73606-0-1/10 department disagreed. These disagreements do not create a material issue of fact because they relate to a dispute over how to arrive at a fair and accurate valuation of United's property. Insummary, the use ofan appraisal method that assigned a nilvalue to the port's reversionary interest after consideration of all the circumstances cannot be characterized as the manifest error ofassessing property exempted by law 

### from taxation. The trial court did not err indismissing United's suit on summary judgment. Affirmed.

WE CONCUR: 

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