Case Name: In the Matter of the Consolidated Protests of Valuation of Property for Property Taxation Purposes of, CUTTER FLYING SERVICE, INC., Southwest Air Rangers, Inc., Frontier Airlines, Inc., Continental Airlines, Inc., Trans World Airlines, Inc., and Texas International Airlines, Inc., Protestants-Appellants, v. PROPERTY TAX DEPARTMENT of the State of New Mexico, Valuation Authority-Appellee
Court: Court of Appeals of New Mexico
Jurisdiction: New Mexico
Decision Date: 1977-08-30
Citations: 91 N.M. 215
Docket Number: No. 2773
Parties: In the Matter of the Consolidated Protests of Valuation of Property for Property Taxation Purposes of, CUTTER FLYING SERVICE, INC., Southwest Air Rangers, Inc., Frontier Airlines, Inc., Continental Airlines, Inc., Trans World Airlines, Inc., and Texas International Airlines, Inc., Protestants-Appellants, v. PROPERTY TAX DEPARTMENT of the State of New Mexico, Valuation Authority-Appellee.
Judges: SUTIN, J., specially concurs.
Reporter: New Mexico Reports
Volume: 91
Pages: 215–232

Head Matter:
572 P.2d 943
In the Matter of the Consolidated Protests of Valuation of Property for Property Taxation Purposes of, CUTTER FLYING SERVICE, INC., Southwest Air Rangers, Inc., Frontier Airlines, Inc., Continental Airlines, Inc., Trans World Airlines, Inc., and Texas International Airlines, Inc., Protestants-Appellants, v. PROPERTY TAX DEPARTMENT of the State of New Mexico, Valuation Authority-Appellee.
No. 2773.
Court of Appeals of New Mexico.
Aug. 30, 1977.
Thomas F. Keleher, Keleher & McLeod, Albuquerque, for Cutter.
Peter J. Adang and Jeffrey W. Loubet, Modrall, Sperling, Roehl, Harris & Sisk, Albuquerque, for Southwest Air Rangers.
John G. Jasper, Jasper & Buell, Santa Fe, for Frontier Continental, Trans World, and Texas International Airlines, Inc.
Toney Anaya, Atty. Gen., Santa Fe, John C. Cook and Arthur Encinias, Property Tax pellee. Dept., Asst. Attys. Gen., Santa Fe, for ap-

Opinion:
OPINION
HERNANDEZ, Judge.
This is an appeal for review of an order of the Director of the Department of Property Tax denying appellants' protest of assessment and levy of ad valorem taxes on their respective leasehold and other interests in the Albuquerque International Airport.
Appellants Continental Airlines, Inc., Trans World Airlines, Inc., Frontier Airlines, Inc., and Texas International Airlines, Inc., will be referred to collectively as "airlines." Appellants Cutter Flying Service, Inc., and Southwest Air Rangers, Inc., will be referred to as "airport operators."
Each of the airlines entered into separate agreements entitled "leases" at different times with the City of Albuquerque for the use of some of its improvements and facilities at the municipal airport. Although differing in some respects, these agreements can, for the purposes of this opinion, all be divided into five parts:
1. Areas used exclusively by the lessor airline: offices, a ticket and baggage-handling counter, and operations space.
2. Areas used jointly with other airlines: passenger gates and holding areas, baggage claim area, ground area for parking, taxiing, loading and unloading aircraft.
3. Facilities used jointly with other airlines: public address system, aircraft toilet waste disposal facility.
4. Areas in terminal building used in common with public.
5. Runways used jointly with other airlines, military and others.
The agreements of the two airport operators can be divided into three parts:
1. Space in hangar building and adjacent land used exclusively by the lessor airport operator.
2. Aircraft tiedown areas used jointly with others.
3. Collection of fees for use of runways, paid by individual users in the form of a tax on aviation fuel and oil and remitted to the city by the airport operator. Southwest Air Rangers' lease (which is more recent than Cutter's) provides that if a private plane does not purchase fuel from Southwest, "the Lessee shall immediately upon notice thereof advise the Aviation Director so that Lessor may property [sic] compute and bill necessary landing fees.''
In his order, the Director made the following two pertinent conclusions of law:
"1. Taxpayers' fractional interests in the improvements located at Albuquerque International Airport are not exempt by reason of Section 72-29-2.4 NMSA 1953 (1976 Interim Supp.) of the Property Tax Code or Article VIII, Section 3 of the New Mexico Constitution.
"2. Taxpayers' fractional interests in the improvements located at Albuquerque International Airport are within the definition of 'property' found in subsection G of Section 72-28-2 NMSA 1953 (Supp.1975) of the Property Tax Code, and that taxpayers are 'owners' of those fractional interests pursuant to Subsection E of Section 72-28-2, supra."
The pertinent constitutional provisions are:
"Taxes levied upon tangible property shall be in proportion to the value thereof, and taxes shall be equal and uniform upon subjects of taxation of the same class. N.M.Const. art. 8, § 1.
"The property of the United States, the state and all counties, towns, cities and school districts, and other municipal corporations, public libraries, community ditches and all laterals thereof, all church property, all property used for educational or charitable purposes, all cemeteries not used or held for private or corporate profit, and all bonds of the state of New Mexico, and of the counties, municipalities and districts thereof shall be exempt from taxation." N.M.Const. art. 8, § 3.
The pertinent statutory provisions from the Property Tax Code, Chapter 72, Articles 28, 29, 30, and 31, N.M.S.A.1953 (Supp.1975) are: Section 72-28-2(E):
"E. 'owner' means the person in whom is vested any title to property".
Section 72-28-2(G):
"G. 'property' means tangible property, real or personal".
Section 72-29-2.2 (1976 Interim Supp.):
"As used in this section and sections 72-29-2.3 and 72-29-2.4 NMSA 1953:
"A. 'fractional interest' means a tangible interest in real property, except for mineral property as defined in section 72-29-11 NMSA 1953, that is less than the total of the interests existing in the property, but 'fractional interest' does not include those property interests described in section 72-29-2.1 NMSA 1953;
"B. 'exempt entity' means any person whose real property is exempt from taxation under the New Mexico Constitution or the Enabling Act (36 Stat. 557, as amended) by reason of ownership;
"C. 'improvements' includes surface and subsurface structures, fixtures, transmission lines, pipelines and other works . ."
Section 72-29-2.3 (1976 Interim Supp.):
"A. In the enactment of section 72-29-2.4 NMSA 1953, the legislature finds that:
"(1) it has legislative authority and should exercise it to impose the state's property tax on improvements owned or used by a nonexempt entity when the improvements are on the land of an exempt entity;
"(2) nonexempt entities having fractional interests in exempt real property of Indian tribes, pueblos and individuals should be treated under the law in the same manner as nonexempt entities having fractional interests in exempt real property of other exempt entities; and
"(3) for the purpose of property taxation, and only for that purpose, fractional interests are personal property and are thus subject to exemption by the legislature under the New Mexico Constitution.
"B. In the enactment of section 72-29-2.4 NMSA 1953, it is the expressed legislative purpose that:
"(1) fractional interests of a nonexempt entity in real property of an exempt entity be exempted from property taxation subject to the limitation contained in that section . ."
Section 72-29-2.4 (1976 Interim Supp.):
"Fractional interests of nonexempt entities in real property of exempt entities are exempt from property taxation under the Property Tax Code . . . Nothing contained in this section shall affect the liability for tax of improvements located upon the real property of exempt entities."
The appellants allege seven points of error. Their first point, which is dispositive of this appeal, reads as follows:
"The interests of the taxpayers in the Albuquerque International Airport are not subject to valuation for property taxation purposes and the actions of the Director of the Department in valuing the interests for property taxation was contrary to law."
As a preliminary matter it is necessary to determine the nature of the interests created by the agreements between the appellants individually and the City of Albuquerque. The applicable law is as follows:
"[A] lease is an agreement under which the owner gives up the possession and use of his property for a valuable consideration and for a definite term." Transamerica Leasing Corp. v. Bureau of Revenue, 80 N.M. 48, 450 P.2d 934 (Ct.App. 1969).
3 Thompson on Real Property § 1031 at 97-98:
"The relation of landlord and tenant cannot be inferred as a matter of law from the mere fact of lawful occupancy. The tenant must acquire some definite control and possession of the premises." See, Chavez v. Torlina, 15 N.M. 53, 99 P. 690 (1909).
"It is said that the difference between a license and a lease is that a lease gives to the tenant the right of possession against the world, while a license creates no interest in the land, but it is simply the authority or power to use it in some specific way." Thompson, supra, § 1032 at 106.
"A lease is a separation of the entire group of possessory rights, immunities, privileges and liabilities out of the entire bundle of titular rights, privileges, immunities and liabilities and their transfer to the lessee. In this it differs from all kindred legal concepts. The tenant acquires all of the possessory interests except those which the landlord specifically reserves unto himself by express covenants in the lease." Thompson, supra, § 1032 at 109.
"A license to occupy land is in the nature of a tenancy at will; but a license confers no title or interest in the land." Thompson, supra, § 1032 at 105.
Tidwell v. State ex rel. Herman, 21 Ariz. App. 3, 514 P.2d 1260 (1973):
"Appellants' permit from the federal government was a mere license and gave them no estate or property right in the land [Citations omitted.] A license, being a mere permissive user, is not 'property' in a constitutional sense." See, Board of County Com'rs. of Dona Ana County v. Sykes, 74 N.M. 435, 394 P.2d 278 (1964).
"The character of the instrument is not to be determined by its form, but from the intention of the parties' as shown by the contents of the instrument." Transamerica Leasing Corp. v. Bureau of Revenue, supra.
It is readily apparent from the foregoing and from a study of the agreements that the airlines acquired a leasehold interest in those areas of which they had exclusive use. They acquired a mere license to use the rest, runways, etc. Stated negatively, they did not acquire the dominion and control necessary to constitute a leasehold as to those areas.
The airport operators likewise acquired a leasehold interest only in those areas over which they had exclusive control and a mere license to use the other areas and facilities. The airport operators had, in addition, the task of collecting fees for the city from all those using the runways except the airlines and, impliedly, the military, in the form of a tax on the gasoline and oil purchased.
This, then, brings us to the question of whether any or all of the interests acquired by the appellants are subject to the property tax provided for in § 72-29-3(A), N.M.S.A.1953 (Supp.1975):
"Except for the property listed in subsection B of this section, all property is subject to valuation for property taxation purposes under the Property Tax Code . if it has a taxable situs in the state."
(We note that all of the improvements and facilities were built by and are owned by the City of Albuquerque.) The answer as to leasehold interests is "yes": generally the leasehold interest of a nonexempt lessee in property leased from an exempt owner is taxable. See Annot. Availability of Tax-Exemption to Property Held on Lease from Exempt Owner, 54 A.L.R.3d 402 (1973). Justice Holmes, in Trimble v. Seattle, 231 U.S. 683, 34 S.Ct. 218, 58 L.Ed. 435 (1914), referring to the assessment of a leasehold interest in state tidelands, stated:
"If these leaseholds are not taxable, they are a favored class of property; for ordinarily leaseholds are taxed even if they are lumped and included in the value of the fee. When an interest in land, whether freehold or for years, is severed from the public domain and put into private hands, the natural implication is that it goes there with the ordinary incidents of private property, and therefore is subject to being taxed." See also, Village of Deming v. Hosdreg Company, 62 N.M. 18, 303 P.2d 920 (1956).
The grant of a license does not vest the grantee with sufficient incidents of ownership to make the grantee's interest subject to ad valorem taxation. In other words, a license, not constituting an interest in real property, does not meet the definition of a "fractional interest" set forth in § 72-29-2.2(A), supra.
The leasehold interests of the appellants, which do constitute fractional interests in real property, however, are specifically exempt from property taxation by the following part of § 72-29-2.4, supra: "Fractional interests of nonexempt entities in real property of exempt entities are exempt from property taxation under the Property Tax Code."
The Department argues that the Legislature, by enacting the following intended to and did impose the property tax on the appellants' interests in the improvements (as distinct from their interest in the land) at the airport:
"In the enactment of Section 72-29-2.4, N.M.S.A.1953, the legislature finds that: (1) it has legislative authority and should exercise it to impose the state's property tax on improvements owned or used by a nonexempt entity when the improvements are on the land of an exempt entity; . . (§ 72-29-2.3(A), supra) and the following part of § 72-29-2.4, supra: "Nothing contained in this section shall affect the liability for tax improvements located upon the real property of exempt entities."
The Department does not define what it means by the term "interests;" neither is it defined in the Property Tax Code.
Looking then at § 72-29-2.3(A), supra: prior to the enactment of this section, which was in 1976, any improvements owned by the appellants which were located on the land of the City of Albuquerque (of which there were none) would have been subject to the property tax by reason of § 72-29-3(A), supra, enacted in 1973. As to the right to tax appellants' use of the City's improvements, as we previously stated, their leasehold interests could be made subject to the property tax, but not the use made under their licenses. The legislature could impose an excise tax on such a use. Excise taxes, such as occupational, license, privilege and franchise taxes, are charges for the privilege arising from the use of property, while property tax are taxes directly on property itself. Chesapeake & Potomac Tel. Co. v. City of Morgantown, 143 W.Va. 800, 105 S.E.2d 260 (1958).
Looking next at § 72-29-2.4, supra: the language of the first sentence is clear and unequivocal. However, the same cannot be said for the second sentence. Assuming that the improvements referred to are owned by an exempt entity, such an interpretation would have the affect of levying an unconstitutional tax upon the property of exempt entities. Although the Property Tax Code does not include a definition of "real property," it is generally understood to mean a parcel of land together with all structures, fixtures and improvements upon it. See, Dona Ana Development Corp. v. Commissioner of Revenue, 84 N.M. 641, 506 P.2d 798 (Ct.App.1973). Assuming that the improvements (which of necessity would have to be personal property) were owned by a nonexempt entity and used for business purposes, then they were already subject to the property tax prior to the enactment of this section by reason of § 72-30-2: "A tax is imposed upon all property subject to valuation for property taxation purposes under article 29 of Chapter 72 NMSA 1953. The tax shall be imposed at the rates authorized and in the manner and for the purposes specified in this article." The Department's interpretation requires rewriting the second sentence of § 72-29-2.4 as follows: "Nothing contained in this section shall affect the liability for tax of [the use of] improvements by [nonexempt entities] located upon the real property of exempt entities." What the intention of the legislature was, we can only speculate.
When the provisions of a statute are so vague and conflicting that we must guess as to its meaning then we have no alternative but to declare it void, State v. Humble Oil & Refining Co., 55 N.M. 395, 234 P.2d 339 (1951). As Judge Seth stated in United States v. Community T. V., Inc., 327 F.2d 797 (10th Cir. 1964):
"Without question, a taxing statute must describe with some certainty the transaction, service, or object to be taxed, and in the typical situation it is construed against the Government."
"A statute is void where it is so vague as to embrace acts which it is unreasonable to presume were intended to be made subject to its sanctions." Telephone News Systems, Inc. v. Illinois Bell Telephone Co., 220 F.Supp. 621 (N.D.Ill. 1963), aff'd, 376 U.S. 782, 84 S.Ct. 1134, 12 L.Ed.2d 83 (1964).
Accordingly, we declare all of § 72-29-2.3, supra, and the second sentence of section 72-29-2.4 void for vagueness.
The foregoing is sufficient to dispose of this appeal. However, we feel compelled to comment upon the method of valuation used by the Department.
The procedure followed by the Department was as follows:
(1) It determined that the unexpired term of the fractional interests of the appellants was five years, although actual terms in the agreements differ.
(Z) Next, it determined the annual gross sums to be paid for the unexpired terms of the agreements. In doing so, the Department included the full amount remitted to the City by the taxpayers for their leasehold interests and licenses and, in the case of the airport operators, the amounts they collected as landing fees in the form of fuel tax and passed on directly to the City. These sums were:
Continental $159,620
Frontier $ 64,399
Texas International $ 34,816
TWA . $161,387
Cutter $ 63,450
Southwest Air Rangers $ 43,673
(3) It then determined the present value of gross sums to be paid in the future under the agreements. This was done by obtaining a capitalization rate for the entire airport and its improvements (12.1%) and rounding that off into an interest rate (12%) that was in turn used in obtaining the present value of future gross payments to the City under the agreements. A discount factor of 3.605 was obtained from a standard table and applied to the sum paid annually to the City by each taxpayer to determine the present worth of the gross sums to be paid to the City by the taxpayers over the next five years. The resulting valuation of the taxpayers' fractional interests was as follows:
Continental $575,430
Frontier $232,158
Texas International $125,512
TWA $581,800
Cutter $228,737
Southwest Air Rangers $157,441
(4) The department then deducted any value attributable to exempt fractional interests (i. e., land). Land was taken as representing 23.9% of the taxpayers' total fractional interest and the value of each fractional interest was reduced accordingly. The resulting amounts were as follows:
Continental $437,902
Frontier $176,672
Texas International $ 95,515
TWA $442,750
Cutter $174,069
Southwest Air Rangers $119,813
These amounts were taken as the value of the taxpayers' fractional interest in improvements for taxation purposes.
For the future guidance of the Department in evaluating leasehold interests in property, we would point out that the method used is arbitrary and not in accordance with the law.
The method of determining the market value of leasehold interests is well established in the law of condemnation. § 72-29-5 of the Property Tax Code provides that the value of property for property taxation purposes shall be its "market value." The Supreme Court of the United States in United States v. Petty Motor Co., 327 U.S. 372, 66 S.Ct. 596, 90 L.Ed. 729 (1946) stated the following:
"There was a complete taking of the entire interest of the tenants in the property. It has been urged that to measure just compensation for the taking of a leasehold by its value on the market or by the difference between a fair rental as of the time of taking and the agreed rent, is unfair. It is said the unfairness comes from the fact that there is really no market for leaseholds We think the sounder rule under the federal statutes is to treat the condemnation of all interests in a leasehold like the condemnation of all interests in the fee.
"The measure of damages is the value of the use and occupancy of the leasehold for the remainder of the tenant's term, plus the value of the right to renew . less the agreed rent which the tenant would pay for such use and occupancy."
Canterbury Realty Company v. Ives, 153 Conn. 377, 216 A.2d 426 (1966):
"The value of the lease is properly arrived at, in the case of a complete taking [of the leasehold], by subtracting the rent provided for under the lease from the fair market value of the lease."
Furthermore, by including the value of all of the City's improvements in arriving at these valuations, the Department is attempting to do by indirection what it is constitutionally prohibited from doing directly, that is, taxing the City. We think there can be little doubt that, should these valuations be allowed to stand, it would have an adverse effect on the rents and fees that the City could charge in the future. And thus, ultimately, the City would bear a large part of the economic burden of the tax.
The Decision and Order of the Director is reversed.
IT IS SO ORDERED.
SUTIN, J., specially concurs.
LOPEZ, J., specially concurs in part, and dissents in part.