Title: Avis Rent A Car System, Inc. v. Dept. of Rev.
Citation: N/A
Docket Number: S46390
State: Oregon
Issuer: Oregon Supreme Court
Date: March 3, 2000

Filed: March 3, 2000
IN THE SUPREME COURT OF THE STATE OF OREGON

AVIS RENT A CAR SYSTEM, INC.,BUDGET RENT A CAR SYSTEMS, INC.,
DOLLAR RENT A CAR and THE HERTZ
 CORPORATION,
	Plaintiffs-Appellants,
		v.
DEPARTMENT OF REVENUE,State of Oregon,
	Defendant-Respondent, 
		and
MULTNOMAH COUNTY,a political subdivision of the State of Oregon,
	Intervenor-Respondent.
(TC 4138; SC S46390 (Control))

_________________________________________________________________
NATIONAL CAR RENTAL SYSTEMS, INC.,
	Plaintiff-Appellant,  
		v.
DEPARTMENT OF REVENUE,State of Oregon,
	Defendant-Respondent, 
		and
MULTNOMAH COUNTY,a political subdivision of the State of Oregon,
	 Intervenor-Respondent.
(TC 4139; SC S46402)

_________________________________________________________________
(Cases Consolidated)

	En Banc
	On appeal from the Oregon Tax Court.*
	Argued and submitted January 7, 2000.
	James N. Gardner, of Gardner &amp; Gardner, Attorneys, P.C.,
Portland, argued the cause for plaintiffs-appellants Avis Rent A
Car System, Inc., Budget Rent A Car Systems, Inc., Dollar Rent A
Car, and the Hertz Corporation.  With him on the briefs was Lynda
N. Gardner.
	Timothy E. Miller, of Miller &amp; Associates, Lake Oswego, on
behalf of plaintiff-appellant National Car Rental Systems, Inc.,
adopted in whole the briefs filed by James N. Gardner, with one
supplement.
	James C. Wallace, Assistant Attorney General, Salem, argued
the cause for defendant-respondent.  With him on the brief was
Hardy Myers, Attorney General.
	No appearance by intervenor-respondent.
	KULONGOSKI, J.
	The judgment of the Tax Court is affirmed.
	*14 OTR 487 (1998).
		KULONGOSKI, J.
In these consolidated cases, taxpayers are five rental
car companies operating out of the Portland International
Airport. (1)  The airport is owned and operated by the Port of
Portland (Port), a political subdivision of the State of Oregon
whose property is exempt from taxation.  See ORS chapter 778
(creating Port and defining its functions and powers); ORS
307.090 (exempting Port property from taxation).  Under written
"Operating Agreements" (agreements) executed by taxpayers and the
Port, taxpayers operated as "Concessionaires," utilizing
designated areas of airport property for car rental, return, and
maintenance.  The Multnomah County Assessor assessed ad valorem
taxes on taxpayers' property based on the value of the Port's
publicly owned property that taxpayers were using as private
parties.  The Tax Court upheld the assessments, and this appeal
followed.
		In general, state and local government property is
exempt from property taxation.  ORS 307.090.  An exception to
that general rule is set out in ORS 307.110(1), which provides:
"Except as provided in ORS 307.120, all real and
personal property of this state or any institution or
department thereof or of any county or city, town or
other municipal corporation or political subdivision of
this state, held under a lease or other interest or
estate less than a fee simple, by any person whose real
property, if any, is taxable, except employees of the
state, municipality or political subdivision as an
incident to such employment, shall be subject to
assessment and taxation for the assessed or specially
assessed value thereof uniformly with real property of
nonexempt ownerships."
Thus, in order for the municipal property used by taxpayers to be
taxable under ORS 307.110(1), it must be "held under a lease or
other interest or estate less than a fee simple."  We begin,
then, by examining whether the agreements entered into by
taxpayers and the Port were leases, making the subject property
taxable under ORS 307.110(1).
		 There are three essential elements of a lease:  a
description of the property, the duration of the term, and the
rental consideration.  See Port of Coos Bay v. Dept. of Rev., 298
Or 229, 233, 691 P2d 100 (1985) (discussing whether agreement
entered into by taxable individuals and port was a lease, making
subject property taxable under ORS 307.110(1)).  Examining the
agreements in this case, we observe that the three essential
elements of a lease were present:  (1) the agreements described,
in detail, the premises designated for use by taxpayers; (2) the
agreements expressly terminated June 10, 1994, and provided that,
on termination, taxpayers could hold over on a month-to-month
basis; and, (3) taxpayers were required to pay annual rental and
"privilege" fees "[a]s part of the consideration for the rights
and privileges granted [in the agreement] and the use of the
Designated Premises."  We note also that, although the agreements
imposed more detailed obligations upon taxpayers than are found
in a typical lease, "[n]o particular words are necessary to
create a lease.  If the agreement grants sufficient control over
the premises to fulfill the requirement of possession, a
leasehold is created."  Id. at 234.
In that regard, taxpayers contend that, under the
agreements, they did not have sufficient control over the
designated premises to constitute a taxable possessory interest
in the property.  Taxpayers concede that the exclusivity inquiry
is governed by the legally permitted use of the designated
premises as provided by the agreements.  However, taxpayers
assert that, because the agreements themselves reserved to the
Port, its agents, and the general public the right of ingress and
egress through the designated premises, taxpayers did not enjoy
"exclusive possession" of the property within the meaning of OAR
150-307.110(1)(2) and, consequently, that ORS 307.110(1) does not
apply. (2)  Relying on the last two sentences of OAR 150-307.110(1)(2), taxpayers argue that the agreements expressly
provided that they could not "exclude others," and that the
premises "must be shared," rendering their interest in the
designated premises less than possessory.  
In Port of Coos Bay, 298 Or at 233, this court held
that the inability to exclude others does not prevent an
agreement from creating a leasehold interest.  Port of Coos Bay
involved an agreement entered into by the port and private
individuals concerning the use of a dry boat storage unit.  That
agreement reserved to the port and its agent the right of "free
access at all times" for inspection purposes.  Id.  Applying ORS
307.110(1), the court held that the dry boat storage units were
leased to taxable individuals within the meaning of the statute
and, thus, were subject to ad valorem taxation.  Id. at 234. 
Similarly, in Sproul et al v. Gilbert et al, 226 Or 392, 359 P2d
543 (1961), this court held that the possessory interests of the
taxpayers, who had grazing privileges on federal land, were
taxable. (3) As in the case at bar, Sproul involved a situation in
which third parties were permitted to enter upon and use the
property at issue.  Despite that limited use by third parties,
the court in Sproul concluded that the taxpayers had exclusive
possession with respect to the principal character of the
property and, therefore, had a taxable possessory interest.  Id.
at 408-10, 420.
		In both Port of Coos Bay and Sproul, the taxpayers were
held to have taxable possessory interests in the subject property
despite the fact that the agreements at issue in those cases
expressly provided for limited "shared" use by third parties. 
Taxpayers in this case nonetheless assert that, because OAR 150-307.110(1)(2) provides that "shared" use is less than exclusive,
their interest in the designated premises is not taxable.  We
note, however, that OAR 150-307.110(1) is an interpretive rule,
not separately substantive -- that is, the rule merely explains
the way in which the Department of Revenue (department)
understands that the legislature intended ORS 307.110(1) to be
interpreted.  See ORS 305.100 (granting to department
interpretative, but not substantive, rulemaking authority).  To
the extent that the rule is inconsistent with legislative intent,
as determined by this court, the rule is invalid.  See Fisher
Broadcasting, Inc. v. Dept. of Rev., 321 Or 341, 355, 898 P2d
1333 (1995) (legislative choice under statute not subject to
being overruled by department regulation); U. of O. Co-Oper. v.
Dept. of Rev., 273 Or 539, 550-51, 542 P2d 900 (1975) ("[A]n
administrative agency may not, by its rules, amend, alter,
enlarge or limit the terms of a legislative enactment."). 
Consequently, we reject taxpayers' argument that OAR 150-307.110(1) is dispositive of this case.  We conclude that,
despite the limited use by the Port and third parties, taxpayers
enjoyed exclusive possession of the principal character of the
property.  
		Because we agree with the Tax Court that the reasoning
in Sproul and its analysis under ORS 307.060 apply equally under
ORS 307.110(1) to the facts of this case, we affirm the Tax
Court's holding that "[taxpayers] ha[d] sufficient control and
exclusive rights to constitute an interest subject to taxation
under ORS 307.110."
		Taxpayers also argue that the assessments of the
subject property were invalid, because the assessments did not
identify and describe accurately the specific airport property
subject to property taxation under ORS 307.110(1).  We have
considered all taxpayers' arguments on that issue and conclude
that none is well taken.  Further explication of our reasoning on
this fact-bound issue would not benefit the public or the bar.
		The judgment of the Tax Court is affirmed. 

1. 	Taxpayers in the first case are Avis Rent A Car System,
Inc., Budget Rent A Car Systems, Inc., Dollar Rent A Car, and the
Hertz Corporation.  Taxpayer in the second case is National Car
Rental Systems, Inc.  All references to taxpayers herein include
all five rental car companies. 

2. 	OAR 150-307.110(1) (1994) provided, in part:
"(1)  Qualifying Conditions.  The assessor shall
assess and tax publicly owned real or personal property
for the real market value thereof uniformly with real
property of nonexempt ownerships when the following
conditions of a lease or other interest or estate less
than fee simple are met.  A lease or other possessory
interest exists if the occupant is granted exclusive
possession of a definitely described area for a
specified period of time[.]
		"(2)  Exclusive Possession.  The test is whether
the occupant has sufficient control over the premises
to warrant the label of possession.  If the occupant
can exclude others, including the owner (except for
inspection, making repairs etc.) the occupant has
possession.  But, if the premises must be shared with
others, such as a common pasture, the occupant does not
have a possessory interest."
OAR 150-307.110(1) was amended in 1998.  Those amendments took
effect on December 31, 1998, and are not relevant here.  All
further references in this opinion are to the 1994 version of the
rule.  

3. 	Sproul involved interpretation and application of ORS
307.060, a statute providing an exception to the exemption of
federal property from taxation.  Although the statute at issue
here, ORS 307.110(1), involves an exception to the exemption of
state, county, and city property, the same possessory interest
principle applies under both statutes.  See, e.g., Sproul, 226 Or
at 406 (substantiality of occupant's interest under ORS 307.060
tested by sufficiency of control over premises to warrant label
of possession); Port of Coos Bay, 298 Or at 234 (leasehold
created under ORS 307.110(1) where agreement grants sufficient
control over premises to constitute possession).