Washington Administrative Code › Title 458 - Revenue, Department of › Chapter 458-29A - Leasehold excise tax › Section 458-29A-100 - Leasehold excise tax - Overview and definitions

Current through Register Vol. 24-14, July 15, 2024
(1)
Introduction.
Chapter
			 82.29A RCW establishes an
			 excise tax on the act or privilege of occupying or using publicly owned real or
			 personal property or property of a community center which is exempt from
			 property tax through a leasehold interest. The intent of the law is to ensure
			 that lessees of property owned by public entities bear their fair share of the
			 cost of governmental services when the property is rented to someone who would
			 be subject to property taxes if the lessee were the owner of the property. The
			 tax is an excise tax triggered by the private use and possession of the public
			 property or property of a community center which is exempt from property tax.
			 RCW
			 82.29A.030.
(2)
Definitions.
For the
			 purposes of chapter 458-29A WAC, the following definitions apply unless the
			 context requires otherwise.
(a) "Department"
			 means the department of revenue.
(b) "Community center which is exempt from
			 property tax" means a community center as defined in
			 RCW
			 84.36.010(2)(a) that is
			 exempt from property tax under
			 RCW
			 84.36.010(1).
(c) "Concession" means the right to operate a
			 business in an area of public property or property of a community center which
			 is exempt from property tax.
(d)
			 "Contract rent" means that portion of the payment made by a lessee (including a
			 sublessee) to a lessor (or to a third party for the benefit of that lessor) for
			 a leasehold interest in land and improvements or tangible personal
			 property.
(e) "Franchise" means a
			 right granted by a public entity or community center which is exempt from
			 property tax to a person to do certain things that the person could not
			 otherwise do. A franchise is distinguishable from a leasehold interest even
			 when its exercise and value is inherently dependent upon the use and possession
			 of publicly owned property or property of a community center which is exempt
			 from property tax.
(f)
			 "Improvement" means a modification to real property, resulting in an actual
			 change in the nature of the property or an increase in the value of the
			 property. It is distinguishable from routine repair and maintenance, which are
			 activities resulting from normal wear and tear associated with the use of
			 property, and which do not result in a change in the nature or value of the
			 property itself. For example, replacing worn boards in a stairway is repair and
			 maintenance; removing the stairway and replacing it with an elevator or a ramp
			 is an improvement.
(g) "Leasehold
			 interest" means an interest granting the right to possession and use of
			 publicly owned real or personal property or real or personal property of a
			 community center which is exempt from property tax as a result of any form of
			 agreement, written or oral, without regard to whether the agreement is labeled
			 a lease, license, or permit.
(i) Regardless of
			 what term is used to label an agreement providing for the use and possession of
			 public property or property of a community center which is exempt from property
			 tax by a private party, it is necessary to look to the actual substantive
			 arrangement between the parties in order to determine whether a leasehold
			 interest has been created.
(ii)
			 Both possession and use are required to create a leasehold interest, and the
			 lessee must have some identifiable dominion and control over a defined area to
			 satisfy the possession element. The defined area does not have to be specified
			 in the agreement but can be determined by the practice of the parties. This
			 requirement distinguishes a taxable leasehold interest from a mere franchise,
			 license, or permit.
For example, Sam sells hot dogs from his own trailer at varying
				sites within a county fairgrounds during events. Sam is not assigned a
				particular place to set up his trailer nor does he store his trailer on the
				fairground between events. Sam's right to sell and his use of the property is
				considered a franchise and not a leasehold interest. The necessary element of
				possession, involving a greater degree of dominion and control over a more
				defined area, is lacking.
(iii) The use or occupancy of public property
			 or property of a community center which is exempt from property tax where the
			 purpose of such use or occupancy is to render services to the public owner or
			 community center which is exempt from property tax does not create a leasehold
			 interest. The lessee's possession and use of the property is in furtherance of
			 the purposes of the public owner or community center which is exempt from
			 property tax, and it is the public owner or community center which is exempt
			 from property tax which benefits from the governmental services rendered in
			 respect to the property.
For example, Contractor A operates a snack bar at a publicly
				owned facility where food and beverages are sold to members of the public, and
				derives a profit from the proceeds of the snack bar sales. Contractor B
				operates a cafeteria where food is provided at no charge to persons with
				appropriate I.D., and is reimbursed on a cost-plus basis. Contractor A is
				engaged in a business enterprise the same as any other restaurateur. Contractor
				A is using the public property for a private purpose, and has a taxable
				leasehold interest on the premises. Contractor B is merely providing a service
				to government personnel that the government agency would otherwise provide.
				Contractor B is using public property for a public purpose, and does not have a
				taxable leasehold interest.
(iv) "Leasehold interest" includes the use
			 and occupancy by a private party of property that is owned in fee simple, held
			 in trust, or controlled by a public corporation, commission, or authority
			 created under
			 RCW
			 35.21.730 or
			 35.21.660 if:
(A) The property is within a special review
			 district established by ordinance after January 1, 1976; or
(B) The property is listed on, or is within a
			 district listed on, any federal or state register of historical sites in
			 existence after January 1, 1987.
(v) "Leasehold interest" does not include:
(A) Road or utility easements;
(B) Rights of access, occupancy, or use
			 granted solely for the purpose of removing materials or products purchased from
			 a public owner or community center which is exempt from property tax or the
			 lessee of a public owner or community center which is exempt from property tax,
			 including permits to graze livestock, cut brush, pick wild mushrooms, or mine
			 ore; and
(C) Any right to use
			 personal property (excluding land or buildings) owned by the United States (as
			 a trustee or otherwise), or by a foreign government, when the right to use the
			 property is granted by a contract solely to manufacture or produce articles for
			 sale to the United States or the foreign government.
(h) "Lessee" means a private
			 person or entity with a leasehold interest in public property or property of a
			 community center which is exempt from property tax which would be subject to
			 property tax if the person or entity owned the property in fee.
(i) "Lessor" means an entity exempted from
			 property tax obligations pursuant to Article 7, section 1 of the state
			 Constitution or, for the property tax exempt period of forty years after
			 acquisition, a community center as defined by
			 RCW
			 84.36.010(2)(a) that is
			 exempt from property tax under
			 RCW
			 84.36.010(1) that grants a
			 leasehold interest in public property or property of a community center which
			 is exempt from property tax to a private person or entity.
(j) "License" means permission to enter on
			 land for some purpose, without conferring any rights to the land upon the
			 person granted the permission. For example, a permit to enter federal lands to
			 launch rafts into the water for the purpose of conducting whitewater river
			 rafting tours is a license, not a leasehold interest.
(k) "Management agreement" means a written
			 agency agreement between a public property owner or community center which is
			 exempt from property tax and a private person or entity for the use and
			 possession of public property or community center which is exempt from property
			 tax under the following circumstances:
(i) The
			 public property owner or community center which is exempt from property tax
			 retains all liability for payment of business operating costs and business
			 related damages (other than costs and damages attributable to the activities of
			 the private party);
(ii) The public
			 property owner or community center which is exempt from property tax has title
			 and ownership of all receipts from sales of services or products relating to
			 the management agreement (whether such amounts are collected by the private
			 party on behalf of the public owner or community center which is exempt from
			 property tax or whether the public owner or community center which is exempt
			 from property tax permits the private party to retain a portion of the receipts
			 as payment for services rendered by the private party), and the full discretion
			 of whether to eliminate, reduce or expand the business activity conducted on
			 the property; and
(iii) The public
			 property owner or community center which is exempt from property tax has full
			 control of the prices to be charged for the goods or services provided in the
			 course of use of the property.
If each of these criteria is met, the arrangement between the
				parties is considered a "true" management agreement which does not, by itself,
				create a taxable leasehold interest in the property.
(l) "Permit" means a written
			 document creating a license to enter land for a specific purpose.
(m) "Product lease" means a lease of public
			 property or property of a community center which is exempt from property tax
			 which will be used to produce agricultural or marine products (aquaculture)
			 wherein the lease or agreement requires that:
(i) The leasehold payment be made by
			 delivering a stated percentage of the agricultural or marine products to the
			 credit of the lessor; or
(ii) The
			 lessor be paid a stated percentage of the proceeds from the sale of the
			 agricultural or marine products.
(n) "Public property" means all property
			 owned by an entity exempted from property tax obligations pursuant to Article
			 7, section 1 of the state Constitution (and, in some instances, property held
			 in trust by the United States).
(o)
			 "Renegotiated" means a change in the leasehold agreement, other than one
			 specifically required by the terms of the agreement itself, which alters:
(i) The agreed time of possession and use of
			 the property;
(ii) The restrictions
			 on the manner in which the property may be used; or
(iii) The rate of cash rental or other
			 consideration paid by the lessee to or for the benefit of the lessor.
The term also includes the continued possession of the property
				by the lessee beyond the original date when, according to the terms of the
				agreement, the lessee had the right to vacate the premises without incurring
				further liability to the lessor.
(p) "Taxable rent" means the amount of rent
			 upon which the measure of leasehold excise tax is based. It is either the
			 contract rent or an amount established by the department in accordance with the
			 procedures set forth in
			 RCW
			 82.29A.020(2). (See also WAC
			 458-29A-200.)
(q) "Utility easement" means the right to use
			 publicly owned land or land owned by a community center which is exempt from
			 property tax for the purpose of providing access or installation of publicly
			 regulated utilities.