Opinion ID: 2823829
Heading Depth: 2
Heading Rank: 1

Heading: The Vail Associates Test

Text: Â¶17Â Â Â Â Â Â The Colorado Constitution requires uniform taxation of all real and personal property unless article X specifically exempts the property from taxation. Colo. Const. art. X, Â§ 3(1)(a) (âEach property tax levy shall be uniform upon all real and personal property not exempt from taxation under this article located within the territorial limits of the authority levying the tax.â); id. Â§ 6 (âAll laws exempting from taxation property other than that specified in this article shall be void.â); see also Mesa Verde Co. v.Â Montezuma Cnty. Bd. of Equalization (Mesa Verde III), 898 P.2d 1, 7 (Colo. 1995) (â[T]he general assembly may not exempt from taxation any property which is not specifically exempted in Article X of the Colorado Constitution.â); Denver Beechcraft,Â Inc. v. Bd. of Assessment Appeals of Colo., 681 P.2d 945, 948 (Colo. 1984) (same). 4 Â¶18Â Â Â Â Â Â Article X exempts certain classes of property from taxation, including, as relevant here, âproperty . . . of the state, counties, cities, towns, and other municipal corporations and public libraries.â Colo. Const. art. X, Â§ 4. Although not listed in article X, we have also long recognized that âproperty owned by the United States government may not be subjected to state taxation under the Supremacy Clause of the United States Constitution.â Vail Assocs., 19 P.3d at 1271 (quoting Mesa Verde III, 898 P.2d at 7). Â¶19Â Â Â Â Â Â Coloradoâs property tax statutes likewise reflect that all real and personal property is taxable, except that exempted by law. Section 39-1-102(16), C.R.S. (2014), states that taxable property âmeans all property, real and personal, not expressly exempted from taxation by law.â As relevant here, âreal propertyâ includes â[a]ll lands or interests in landsâ and â[i]mprovements.â Â§ 39-1-102(14)(a), (c) (emphasis added). This statutory definition of âreal propertyâ has remained essentially unchanged for over a century. See ch. 3, sec. 13, 1901 Colo. Sess. Laws, 43, 45. Â¶20Â Â Â Â Â Â Generally, interests in real property that are less than fee ownership are assessed under the âunit assessment rule,â a rule of property taxation that requires all estates in a unit of real property to be assessed together and the real estate, as an entirety, to be assessed to the owner of the fee. City & Cnty. of Denver v. Bd. of Assessment Appeals, 848 P.2d 355, 358 (Colo. 1993). 5 The rule prohibits assessments on multiple taxpayersÂ holding different interests in a single property. See id. at 359. Thus, where there are taxable interests in property that are less than fee ownership, such as a leasehold interest, âboth the lessorâs interest and the lesseeâs interest are assessed simultaneously,â and the property is taxed to the fee owner âas though it was an unencumbered fee.â Id. Under this method, âtaxation of the whole is presumed to include taxation of the derivative parts, with the owner passing on the burden of taxation as the fee owner chooses.â Vail Assocs., 19 P.3d at 1278. Â¶21Â Â Â Â Â Â However, where the fee owner is the government and therefore not subject to taxation, âthe unit assessment rule operates to tax the private ownership interest in the land and improvements together in the absence of a fee owner who pays the full taxes.â Id. at 1279 (emphasis added). Section 39-1-107(4), C.R.S. (2014), now expressly provides that â[t]he property tax on a possessory interest in real or personal property that is exempt from taxation under this article shall be assessed to the holder of the possessory interest and collected in the same manner as property taxes assessed to owners of real or personal property.â 6 Â¶22Â Â Â Â Â Â Our jurisprudence reflects that taxation of private possessory interests in government-owned land is both appropriate and required under article X of the Colorado Constitution and Coloradoâs property tax statutes where: (1) the private possessory interest is distinct from the governmentâs ownership interest; and (2)Â taxation of the private interest does not effectively constitute a tax on the governmentâs ownership interest. 7 Â¶23Â Â Â Â Â Â For example, in Rummel v. Musgrave, 350 P.2d 825 (Colo. 1960), we held that a private possessory interest in producing uranium lands obtained under a lease with the United States was subject to taxation by the State. We first determined that â[t]he lease in question is separate property, vendible, subject to the consent of the lessor and inheritable.â Id. 826. Accordingly, the possessory interest was taxable unless the tax could be said to be upon the âseparate and distinct ownership of the federal government.â Id. Turning to whether taxation would be a tax on the governmentâs ownership interest, we concluded that âit is obvious that no burden is placed upon the United States Government in either a direct or indirect manner by the tax in question.â Id. at 827. Thus, we concluded that the State had properly levied and collected taxes on the possessory interests held by the mining company. Â¶24Â Â Â Â Â Â Similarly, in Mesa Verde Co. v. Board of County Commissioners (Mesa Verde I),495 P.2d 229, 234 (Colo. 1972), we held that a concessionaireâs possessory interest in the improvements it constructed to conduct its services for the public at Mesa Verde National Park were taxable even though the federal government retained title to the improvements. We first ascertained the concessionaireâs interest in the improvementsÂ by analyzing the concessionaireâs contract with the government as well as the partiesâ actions under the contract. Id. at 232â33. We noted, for example, that the contract provisions revealed âthe partiesâ intention to accord Mesa Verde Company a large amount of decisional authority and discretion with respect to its improvements,â id. at 232, and that the concessionaire normally paid âthe entire cost of constructing its improvementsâ and retained âall profits derived from its operations.â Id. at 233. We concluded that the concessionaireâs interests reflected âsignificant incidents of ownership.â Id. at 233. As such, we determined that the concessionaireâs interests were taxable. See id. We observed that strong policy considerations supported our decision to allow ad valorem taxation of the concessionaireâs improvements, noting that âwhere a party has the right to possession, use, enjoyment, and profits of the property, that party should not be permitted to use the bare legal title of the Government to avoid his fair and just share of state taxation.â Id. Â¶25Â Â Â Â Â Â After we decided Mesa Verde I, the General Assembly enacted a statute exempting certain private possessory interests from taxation, including interests in federal park land obtained under a lease or concession agreement. See Mesa Verde III, 898 P.2d at 6â7 (citing Â§ 39-3-135(4)(c), C.R.S. (1994)). Despite this provision, the Montezuma County Assessor assessed Mesa Verde Companyâs use of, and possessory interest in, federal land for its concession at Mesa Verde National Park. Id. at 2. 8 MesaÂ Verde challenged the assessment, contending it was exempt from property tax under the statute. The County argued that, to the extent the statute created an exemption for Mesa Verdeâs possessory interest, it violated article X of the Colorado Constitution. Id. Â at 3. We agreed. Â¶26Â Â Â Â Â Â We determined that Mesa Verdeâs possessory rights under its concession agreement were âinterest[s] in landâ and âreal property,â and thus taxable under article X and the General Assemblyâs definition of taxable property in section 39-1-102(16). Id. Â at 4â5. We then held that the statute exempting such possessory interests from taxation was unconstitutional because âthe general assembly may not exempt from taxation any property which is not specifically exempted in Article X of the Colorado Constitution.â Id. at 7. Finally, we held that state taxation of such possessory interests did not violate the Supremacy Clause because âthe federal governmentâs constitutional immunity from state taxation is not infringed when a state imposes a tax on private corporations and they are entities independent of the United States using property in connection with their own commercial activities for profit-making.â Id. at 9. Â¶27Â Â Â Â Â Â In 1996, in response to Mesa Verde III, the General Assembly again sought to exempt certain possessory interests from taxation. The General Assembly enacted section 39-3-136, declaring that certain possessory interests in tax-exempt property âshall not be subject to property taxation unless specific statutory provisions have been enacted that direct the taxation of such possessory interests.â Vail Assocs., 19 P.3d at 1272 (citing Â§ 39-3-136(2), C.R.S. (2000)). Around the time of this enactment, the Eagle County Assessor assessed Vail Associates, Inc.âs possessory interests in land obtained under a special use permit from the U.S. Forest Service. The permit entitled Vail to occupy, use, and enjoy 12,590 acres of national forest land to operate the Vail ski resort. Id. at 1267. Vail challenged Eagle Countyâs assessment on the grounds that its possessory interest was exempt from taxation under section 39-3-136. Id. at 1267â68. In Vail Associates, we ultimately held that this legislation unconstitutionally exempted some private possessory interests in tax-exempt property from taxation, contrary to article X and our decision in Mesa Verde III. Id. at 1267. Â¶28Â Â Â Â Â Â We observed that âthe principal design of the constitutionâs revenue provisions is to subject all private real and personal property to the payment of its fair proportion of taxation necessary for governmental purposes, unless the property falls within a constitutionally stated category of exemption.â Id. at 1273. We also observed that the 1996 amendments to the property tax statutes did not alter the longstanding statutory definition of âreal propertyâ in section 39-1-102(14)(a), or otherwise redefine real or personal property to exclude possessory interests. Id. at 1275. We concluded that the statutory provision instead improperly exempted certain possessory interests from taxation in violation of the Colorado Constitutionâs requirement in article X that all real and personal property be taxed. Id. at 1278. Â¶29Â Â Â Â Â Â After concluding that the exemption in section 39-3-136 was unconstitutional, we discussed the necessary requirements for lawful taxation of a private possessory interest in tax-exempt government property. Id. at 1278â79. Drawing from our prior cases, we determined that âfor taxation to occur, the possessory interest in tax-exempt property must exhibit significant incidents of private ownership that distinguish it from theÂ underlying tax-exempt ownership.â Id. at 1279. This is because the taxation of private possessory interests in government landsâwhich is permissibleâmust be distinguished from taxation of the governmentâs underlying ownership of the land. Id. Â at 1278. We then articulated three factors demonstrating such incidents of private ownership: (1) whether the possessory interest provides a revenue-generating capability independent of the government property owner; (2) whether the possessory interest owner can exclude others from making the same use of the interest; and (3) whether the possessory interest is of sufficient duration to realize a private benefit therefrom. Id. at 1279. Â¶30Â Â Â Â Â Â Finally, applying this three-factor test, we concluded that Vailâs possessory interest under the special use permit was real property taxable under article X because Vail âowns a significant ownership interest in federal property from which it derives revenues for private benefit; it can exclude others from using the federal property it occupies for the same use, and its interest extends to the year 2031, a significant period of time for realizing its private benefit.â Id. at 1280. Â¶31Â Â Â Â Â Â In sum, Coloradoâs constitution and property tax statutes reflect that all real and personal property is taxable, except for property that is expressly exempted from taxation by law. Colo. Const. art. X, Â§Â§ 3(1)(a), 4, 6, 9, 10; Â§ 39-1-102(16). Moreover, Colorado property tax statutes have long defined âreal propertyâ to include âinterests in landâ and â[i]mprovements.â Â§ 39-1-102(14)(a), (c). Our case law reflects that a possessory interest in tax-exempt property is taxable where the interest exhibits significant incidents of private ownership that distinguish it from the underlyingÂ government ownership. The factors demonstrating significant incidents of private ownership ensure that the interest is indeed a taxable property interest under article X of the Colorado Constitution and the property tax statutes and, importantly, that taxation of the interest does not effectively constitute a tax on the governmentâs underlying ownership interest.