Source: https://utah.lexroll.com/abco-enterprises-v-utah-state-tax-commi-2009-ut-36/
Timestamp: 2020-06-03 23:06:01
Document Index: 673078190

Matched Legal Cases: ['§ 3', '§ 59', '§ 59', '§ 54', '§ 24', '§ 1', '§ 63', '§ 63']

ABCO ENTERPRISES v. UTAH STATE TAX COMMI., 2009 UT 36 | LexRoll (UT)
ABCO ENTERPRISES v. UTAH STATE TAX COMMI., 2009 UT 36
LexRoll.com > LexRoll (UT) > Utah Court Opinions > ABCO ENTERPRISES v. UTAH STATE TAX COMMI., 2009 UT 36
211 P.3d 382
June 12, 2009. Rehearing Denied June 12, 2009.
Mark L. Shurtleff, Att’y Gen., Bradley C. Johnson, Asst. Att’y Gen., Salt Lake City, for Tax Commission.
Monette Hurtado, Ogden, for Board of Equalization.
[*] The Court has rewritten paragraph number 7.
INTRODUCTION ¶ 1 As part of a land exchange agreement with Ogden City, ABCO Enterprises (ABCO) occupied and used for several years two parcels of property owned by Ogden City. Because of Ogden City’s ownership, the properties were exempt from property tax under the Utah Constitution. In spite of the exempt nature of the properties, the Weber County Board of Equalization (Weber County) assessed a privilege tax against ABCO pursuant to Utah Code section 59-4-101. Under the statute, because ABCO used the properties to conduct a for-profit business ABCO must pay a privilege tax in the same amount as the property taxes that would have been owed by an owner of nonexempt property. Both Weber County and the Utah State Tax Commission (the Commission) ruled that Weber County properly assessed the privilege tax. ABCO now asks us to determine whether section 59-4-101, by assessing a privilege tax on a leasehold interest at the same amount that a fee simple interest would be assessed, violates the uniform operation of laws provision of article I, section 24 of the Utah Constitution or the Equal Protection Clause of the Fourteenth Amendment to the United States Constitution. We hold that section 59-4-101 does not violate Utah’s uniform operation of laws provision, and therefore does not violate the Equal Protection Clause. Accordingly, we affirm the decision of the Commission.
BACKGROUND[1] ¶ 2 In 1997, ABCO entered into an agreement with Ogden City to exchange two parcels of its property for two parcels owned by Ogden City. The two parcels owned by Ogden City included existing buildings and are numbered parcel number 30-300-7173 with Building 6D, and parcel number 30-300-7089 with Building 9A (hereafter the land and all the improvements will be referred to as Building 6D and Building 9A respectively). Building 9A and Building 6D are located in the Business Depot, a former military base which Ogden City purchased and redeveloped as a business park in the mid-nineties. Since the federal government needed to complete the environmental and
title work before title could transfer to ABCO, ABCO entered into a property exchange agreement with Ogden City. Under the agreement, Ogden City would retain title to its properties until the environmental studies and title work were finished and ABCO would occupy and use the properties. ABCO occupied the buildings and used the properties during all periods at issue in this case.
¶ 3 In 2005, Weber County assessed a privilege tax on Building 6D for the tax years 1999 through 2005, and on Building 9A for the tax years 2002 through 2005. Since Ogden City still held title to the properties, it was exempt from taxation pursuant to the Utah Constitution. See Utah Const. art. XIII, § 3(1) (exempting property owned by the State or by a political subdivision of the State from property taxes). ABCO was nonetheless subject to a privilege or use tax pursuant to Utah Code section 59-4-101 based on its for-profit business use of the exempt property. Under the statute, the privilege tax is “imposed under this chapter [in] . . . the same amount that the . . . tax would be if the possessor or user were the owner of the property.” Utah Code Ann. § 59-4-101(2) (2006). Consequently, as here, if the property is owned by a tax-exempt entity but it is leased to another entity in connection with a for-profit business, then the lessee is liable for the privilege tax in the same amount as the owner would be if the owner were using the property in connection with a for-profit business.
STANDARD OF REVIEW ¶ 7 In reviewing a formal adjudicative proceeding of the Utah State Tax Commission, we look to Utah Code section 59-1-610. See Utah State Tax Comm’n v. Stevenson, 2006 UT 84, ¶ 20, 150 P.3d 521. We grant deference to the Commission’s “findings of fact, applying a substantial evidence standard on review.” Utah Code Ann. § 59-1-610(1)(a) (2008). We review the Commission’s conclusions of law for correctness, granting no deference where the statute at issue, as here, gives no explicit grant of discretion to the Commission. Id. 59-1-610(1)(b). Also, “[a] matter `of statutory interpretation [is] a question of law that we review on appeal for correctness.'” MacFarlane v. Utah State Tax Comm’n, 2006 UT 25, ¶ 9, 134 P.3d 1116 (second alteration in original) (quoting State v. Schofield, 2002 UT 132, ¶ 6, 63 P.3d 667).
ANALYSIS I. THE PRESERVATION RULE DOES NOT BAR ABCO’S STATE CONSTITUTIONAL CLAIM ¶ 8 Before proceeding to ABCO’s state and federal constitutional challenges, we address Weber County’s contention that ABCO waived its state constitutional claims because it only raised-federal equal protection claims below. We hold that where, as here, the sole issue on appeal is a facial constitutional challenge to a tax statute, we may address that challenge on appeal even if it has not been explicitly raised before the administrative agency.
¶ 9 Generally, the preservation rule applies in three different situations, none of which are present in this case. First, where an appeal is made from a trial court, an issue must be preserved below “to give the trial court an opportunity to address the claimed error,” and to “prevent[] a party from avoiding an issue at trial for strategic reasons only to raise the issue on appeal if the strategy fails.” Tsckaggeny v. Milbank Ins. Co., 2007 UT 37, ¶ 20, 163 P.3d 615
(quoting State v. Cram, 2002 UT 37, ¶ 10, 46 P.3d 230) (internal quotation marks omitted).
¶ 10 Second, the preservation rule applies to appeals from administrative agencies when mandated by statute. See
Utah Code Ann. § 54-7-15(2)(b) (Supp. 2008) (stating in statutory section regarding judicial review of Public Service Commission decisions that “[a]n applicant may not urge or rely on any ground not set forth in the application in an appeal to any court”); Ball v. Pub. Serv. Comm’n, 2007 UT 79, ¶ 42, 175 P.3d 545 (ruling that judicial review of issues of agency error were waived where issues were not preserved in request for agency reconsideration as dictated by statute) Westside Dixon Assoc. L.L.C. v. Utah Power Light Co., 2002 UT 31, ¶ 22, 44 P.3d 775 (concluding that failure to raise claims on petition before the Public Service Commission constituted waiver on appeal).
¶ 11 Third, as we explained in Nebeker v. Utah State Tax Commission, when not mandated by statute, the preservation rule applies when the issue raised on appeal could have been resolved in the administrative setting, or would have allowed the agency to “obviate the need to address the constitutional” issue. 2001 UT 74, ¶ 20 n. 4, 34 P.3d 180
(holding constitutional claims waived when “there are also non-constitutional claims that can be resolved before the Tax Commission that may obviate the need to address the constitutional question”). The rationale behind this rule permits courts to avoid “procedural confusion and piecemeal litigation.” Id. ¶ 19. We also noted i Nebeker that raising the constitutional issue in the administrative proceeding might have put the Commission on notice of potential constitutional challenges and allow it to rethink its administrative rules. Id. ¶ 20.
II. THE UNIFORM OPERATION OF LAWS PROVISION PROTECTS PERSONS FROM DISCRIMINATION AT LEAST AS MUCH AS THE EQUAL PROTECTION CLAUSE ¶ 13 ABCO argues that the privilege tax imposed by Utah Code section 59-4-101 is unconstitutional under the uniform operation of laws provision of the Utah Constitution
and under the Equal Protection Clause of the Fourteenth Amendment to the United States Constitution because the statute impermissibly treats differently situated parties in the same manner by applying the same tax to lessees of exempt property as to owners.
¶ 14 Despite differing language, the uniform operation of laws provision affords protection similar to that of the Equal Protection Clause. Article I, section 24 of the Utah Constitution states: “All laws of a general nature shall have uniform operation.” Utah Const. art. I, § 24. The Fourteenth Amendment to the United States Constitution prohibits states from enacting laws that “deny to any person within its jurisdiction the equal protection of the laws.” U.S. Const. amend. XIV, § 1. Both the uniform operation of laws provision and the Equal Protection Clause “`embody the same general principle: persons similarly situated should be treated similarly, and persons in different circumstances should not be treated as if their circumstances were the same.'” Gallivan v. Walker, 2002 UT 89, ¶ 31, 54 P.3d 1069 (quotin Malan v. Lewis, 693 P.2d 661, 669 (Utah 1984)) see also State v. Merrill, 2005 UT 34, ¶ 31, 114 P.3d 585 (stating that the state and federal constitutional provisions are “substantially parallel”); Wood v. Univ. of Utah Med. Ctr., 2002 UT 134, ¶ 32, 67 P.3d 436 (stating that the uniform operation of laws provision “is, in fact, the Utah equal protection guarantee”); Lee v. Gaufin, 867 P.2d 572, 577 (Utah 1993) (stating that though the language and history of the two provisions are different, “there are important areas of overlap in the concepts embodied in the two provisions”). Since “our analysis under the uniform operation of laws provision is at least as rigorous as it would be under the federal equal protection provision,” we accordingly limit our review to ABCO’s state constitutional claim Merrill, 2005 UT 34, ¶ 31, 114 P.3d 585.
III. UNDER OUR THREE-PART INQUIRY, THE PRIVILEGE TAX STATUTE COMPLIES WITH THE UNIFORM OPERATION OF LAWS PROVISION OF THE UTAH CONSTITUTION ¶ 15 In analyzing a legislative enactment under article I, section 24, we must make three determinations:. (1) whether the classification is reasonable; (2) whether the objective of the legislative action is legitimate; and (3) whether there is a reasonable relationship between the legislative purpose and the classification. Blue Cross Blue Shield of Utah v. State, 779 P.2d 634, 637 (Utah 1989); see also Anderson v. Provo City Corp., 2005 UT 5, ¶ 18, 108 P.3d 701; Gallivan v. Walker, 2002 UT 89, ¶ 43, 54 P.3d 1069. While the analytical model used to determine if the uniform laws provision is met is the same in all inquiries, we give broad deference to legislative enactments in the area of taxes and purely economic regulation. Blue Cross Blue Shield, 779 P.2d at 637; Mountain Fuel Supply Co. v. Salt Lake City Corp., 752 P.2d 884,.888 (Utah 1988). Further, we strongly presume tax statutes are constitutional Kennecott Corp. v. Utah State Tax Comm’n, 858 P.2d 1381, 1384 (Utah 1993).
¶ 16 ABCO argues that it is unreasonable to include lessees of exempt property in the same class as fee simple owners for the purposes of the privilege tax, and thus the uniform operation of laws provision is violated by the legislature’s failure to treat lessees as a differently situated class. We are not persuaded. Utah Code section 59-4-101, which includes lessees of exempt property in the same class as fee simple owners of exempt property, is not unreasonable or arbitrary, nor does it lack a reasonable relationship to the purpose of the taxing scheme.
A. The Privilege Tax Statute Creates a Reasonable Classification ¶ 17 Broad deference is given to the legislature when assessing “the reasonableness of its classifications and their relationship to legitimate legislative purposes.” Blue Cross Blue Shield, 779 P.2d at 637. But classifications and their relationship to legislative purposes must be reasonable and not arbitrary. State v. Merrill, 2005 UT 34, ¶ 34, 114 P.3d 585. To determine whether an “imperfect classification” is an impermissible classification, we “examin[e] . . . the impact
of the misclassification.” See Blue Cross Blue Shield, 779 P.2d at 643 (noting that examination of the impact of a classification is not constitutionally required, but “can be relevant to determining whether the legislative body has exceeded the bounds of its broad discretion” by creating the classification at issue). Among the factors we have used to evaluate a possibly overinclusive tax-related classification, three are relevant here: (1) the choice made by the potentially distinct class to voluntarily join the classification, (2) the extent of the competitive disadvantage caused by the classification, and (3) the effectiveness of the tax in accomplishing the taxing entity’s aims. See Amax Magnesium Corp. v. Utah State Tax Comm’n, 796 P.2d 1256, 1261-62 (Utah 1990); Blue Cross Blue Shield, 779 P.2d at 644-45; Mountain Fuel Supply, 752 P.2d at 891.
1. ABCO Voluntarily Joined the Classification
¶ 18 A classification may be unreasonable if fundamentally different groups are compelled to be treated similarly under an overinclusive classification. In Lee, we found that the legislature had created an unreasonable and arbitrary classification under the statute of limitations provision of the Medical Malpractice Act because it “treat[ed] minors and adults as if they were situated the same under the law.”867 P.2d at 578. The “targets” of the classification “could do nothing to escape their fate.” They did not join their statutory classification by choice. They “were not volunteers.”Merrill, 2005 UT 34, ¶ 38, 114 P.3d 585
(discussing Lee, 867 P.2d at 577). Some of the rationales for finding the classification unreasonable were the historically different rules “necessary to protect the legal rights of children,” and the “fundamental differences between minors and adults with respect to their status in the law.”Lee, 867 P.2d at 578-79.
2. The Privilege. Tax Does Not Create a Competitive Disadvantage
¶ 20 ABCO does not suffer from a substantial competitive disadvantage from the classification. In Mountain Fuel Supply, we concluded that a potentially underinclusive taxing scheme at issue did not create a competitive disadvantage for the taxed entity and effectively accomplished the aims of the taxing body. 752 P.2d at 891. There, Mountain Fuel Supply was able to pass on the tax in question to its customers without a large administrative burden and its customers continued to overwhelmingly choose natural gas and electricity over other heating fuel possibilities regardless of a tax added solely to natural gas and electricity. Id.
3. The Classification Effectively Achieves the Aims of Weber County
¶ 22 We have found that a classification reasonably achieves the aims of a taxing entity where it would be too administratively burdensome to collect the tax by creating
different classifications or where the classification is a reasonable means to equalize the tax burden generally. See Mountain Fuel Supply, 752 P.2d at 891 (holding that a potentially underinclusive tax classification was reasonable because it would be too large an administrative burden to collect such a tax from “small-scale fuel suppliers”); Amax Magnesium Corp., 796 P.2d at 1261-62 (finding that the tax scheme was not an effective method to accomplish the aim of equalizing the tax burden among state and county assessments because the valuation method actually aggravated the disparity between tax burdens rather than equalizing it). In the end, “we do not require perfection” in the area of purely economic regulation and recognize that “[l]egislative enactments that are basically economic in nature rarely affect all persons equally.” Blue Cross Blue Shield, 779 P.2d at 644 (citation omitted).
¶ 23 Here, the statute serves to equalize tax burden. Its objective is to “close any gaps in the tax laws” between those who possess or use exempt property for a profit and those who possess or use nonexempt property for a profit. Great Salt Lake Minerals Chem. Corp. v. State Tax Comm’n, 573 P.2d 337, 339 (Utah 1977). The privilege tax — regardless of whether the taxee is the possessor or lessee of the tax-exempt property used for profit — effectively achieves this purpose with less administrative burden. The privilege tax ensures that exempt property used in connection with a for-profit business is taxed at an equal rate to the same business conducted on nonexempt property.
B. The Legislative Purpose of the Privilege Tax Statute Is Legitimate ¶ 24 Even if some distinctions could be made among groups within a classification, under the second step we may still affirm the validity of the statute where “on the whole, after considering the burdens it imposed on those taxed, it appear[s] to be a reasonable attempt to achieve the legitimate government ends.” Blue Cross Blue Shield, 779 P.2d at 644
(discussing this court’s affirmation of a classification scheme in Mountain Fuel Supply that may “[a]t the margins . . . not have stood the test of its justifications”).
It is evident that the 1959 Legislature, by the enactment of Section 59-13-73, [later renumbered as section 59-4-101,] intended to close any gaps in the tax laws by imposing a tax on any property possessed or used in connection with a business for profit which was otherwise exempt from taxation. It closely resembles the Michigan statute of similar purpose, which was recently held constitutional in a series of U.S. Supreme Court cases. They are grounded on the proposition that a private contractor’s right to use property in a business for profit may be made subject to a nondiscriminatory tax based on its value, even though title to the property may be in the United States; and that the burden of the tax may ultimately fall on it.
15 Utah 2d 355, 393 P.2d 391, 393-94 (1964) (footnotes omitted) (emphasis added). In Mountain Fuel Supply, we upheld the legitimacy of a similar statute, which raised revenue and equalized the tax burden in a more fair and uniform manner. 752 P.2d at 890. ABCO contends that under our reasoning i Beaver County v. WilTel, Inc., 2000 UT 29, ¶ 34, 995 P.2d 602, the legitimacy of the legislative purpose to “close any gaps in the tax law” is discounted. But that reliance is misplaced. In WilTel, we held that there was “no `gap’ to close” because the intangible property at issue was subject to an entirely different tax scheme and thus had “not escaped taxation.” Id.
¶ 26 ABCO’s position would lead to a gap in the tax scheme because ABCO is actually petitioning to be taxed for a lesser amount. This lesser amount would create a gap in the tax scheme by allowing lessees who use exempt property in connection with a for-profit business to pay less tax than an owner of nonexempt property. The full value of the exempt property would thus escape taxation. Consequently, the gap would establish an incentive for an owner of exempt property to
lease the property, and thus lower tax liability and for businesses to rent from exempt over-nonexempt property owners. Indeed, such a gap would create a potential competitive disadvantage for businesses that lease from private property owners. These are the sort of gaps that the legislature sought to avoid. Thus, the legislative purpose for the statute is legitimate.
C. A Rational Relationship Exists Between the Legislative Purpose and the Classification ¶ 27 The legislative purpose of the statute is “to close any gaps in the tax laws by imposing a tax on any property possessed or used in connection with a business for profit which was otherwise exempt from taxation.” Thiokol Chem. Corp., 393 P.2d at 393. This allows Weber County to raise revenue for governmental expenses, which we have held is a legitimate governmental purpose. Blue Cross Blue Shield, 779 P.2d at 640. Further, so long as there is no “unreasonable burden on the affected parties,” Weber County “is not to be denied the . . . effective means of raising . . . revenue[].” Mountain Fuel Supply, 752 P.2d at 891.
[1] On appeal from an order of an administrative agency, the appealing party, in this case ABCO, “bears the burden of demonstrating that the agency’s factual determinations are not supported by substantial evidence . . . [and] we state the facts and all legitimate inferences drawn therefrom in the light most favorable to the agency’s findings.” Zissi v. State Tax Comm’n, 842 P.2d 848. 852 (Utah 1992) (citing Utah Code Ann. § 63-46b-16(4)(g) (current version at Utah Code Ann. § 63G-4-403(4)(g) (2008))).