Opinion ID: 2823829
Heading Depth: 1
Heading Rank: 3

Heading: Taxability of Concessionairesâ Possessory Interests

Text: Â¶16Â Â Â Â Â Â The first issue in this case is whether Concessionairesâ possessory interests in their concession spaces at DIA are taxable property even though the underlying real property is tax-exempt because it is owned by the City. We first discuss the principles that underlie taxation of possessory interests in tax-exempt property and relate these principles to the three-prong test set forth in Board of County Commissioners v. VailÂ Associates, Inc., 19 P.3d 1263, 1275 (Colo. 2001). We then apply the Vail Associates test to Concessionairesâ possessory interests.
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.
Â¶32Â Â Â Â Â Â Concessionairesâ written concession agreements grant them the âright to occupy, improve, and useâ their respective concession spaces for food and beverage services âconsistent with and subject to all of the terms and provisions of [the] Agreement.â Concessionaires contend that their possessory interests in concession spaces at DIA are not taxable under the first two factors of this courtâs test in Vail Associates. Specifically, Concessionaires contend that: (1) their use and possession of the concession spaces are not sufficiently exclusive; and (2) their revenue-generating capability is not independent of the City.
Â¶33Â Â Â Â Â Â Concessionaires argue that their use is not exclusive because the concession agreements permit the City to grant other concessionaires the right to operate restaurants and sell food and beverages in other locations at DIA. We disagree. Â¶34Â Â Â Â Â Â The exclusivity factor of the Vail Associates test ensures that the interest to be taxed is indeed a property interest that is taxable under article X and the revenue statutes. To be taxable under article X of the Colorado Constitution, the possessory interest must be sufficiently exclusive to qualify as a real property interest as definedÂ under the revenue statutes. In Vail Associates, we indicated that the exclusivity prong turns on âthe ability of the possessory interest owner to exclude others from making the same use of the interest.â 19 P.3d at 1279. We noted that although some degree of exclusivity is required for possessory interest taxation, âneither absolute control nor absolute exclusivity is required.â Id. at 1279 n.21 (quoting Power Res. Coop. v. Depât of Revenue, 996 P.2d 969, 973 (Or. 2000)). We also noted that âconcurrent uses of property are not necessarily inconsistent with exclusivity.â Id. (citing City of San Jose v. Carlson, 67 Cal. Rptr. 2d 719, 725 (Cal. Ct. App. 1997); ScottâFree River Expeditions, Inc. v. Cnty.Â of El Dorado, 250 Cal. Rptr. 504, 508 (Cal. Ct. App. 1988)). Therefore, we determined that even though Vail was operating under a special use permit that reserved the right of the Forest Service to allow uses by others that did not materially interfere with the ski resortâs uses under its permit, its interest was sufficiently exclusive because the ski resort could âexclude others from using the federal property it occupie[d] for the same use.â Id. at 1266, 1280. Â¶35Â Â Â Â Â Â Importantly, our analysis in Vail Associates focused on whether the ski resortâs use of the particular area it occupied was sufficiently exclusive. In other words, our inquiry regarding exclusivity did not turn on whether the Forest Service leased lands to other ski resorts on nearby government land. Â¶36Â Â Â Â Â Â Case law in the real property context supports the notion that exclusivity refers to the interest holderâs ability to exclude others from the same use of the particular areaÂ it occupies. 9 In Bernhardt v. Hemphill, 878 P.2d 107, 113 (Colo. App. 1994), the court of appeals analyzed whether a real property interest was created through a time-share contract. In its analysis, the court of appeals focused on whether the contract entitled the time-share owner to the exclusive use of any particular unit. Id. The court of appeals held that the time-share contract did not transfer a real property interest because it did not provide the right to reserve âany particular unit, for any particular annual period.â Id. In contrast, a âtime-span estate,â which is legislatively recognized as a distinct interest in real property, includes, among other requirements, â[a]n exclusive right to possession and occupancy of the unit during an annually recurring period of time.â Â§ 38-33-110(8)(b), C.R.S. (2014); see Bd. of Cnty Commârs v. Colo. Bd. of Assessment Appeals, 628 P.2d 156, 158 (Colo. App. 1981) (stating that section 38-33-110 is âa legislative recognition of the time share estate as a distinct interest in real propertyâ). Â¶37Â Â Â Â Â Â In this case, the concession agreements and testimony at trial established that each Concessionaire has the right to exclude others from using that Concessionaireâs particular concession space to operate a concession business. The concession agreements grant Concessionaires the âright to occupy, improve, and use the Concession Space consistent with and subject to all of the terms and provisions of [the] Agreement.â Nothing in the concession agreements allows the City to permit a secondÂ concessionaire the right to operate out of an existing Concessionaireâs location. Indeed, Concessionairesâ witness, who is a managing member of all the concessions at issue in this case, admitted at trial that only the particular Concessionaire âhas the right to occupy, use, improve, and generate revenue from that concession space.â Based on the concession agreements and testimony at trial, the trial court found that â[n]o other concessionaires have the right to use the [Concessionairesâ] concession spaces,â and âthe City does not permit anyone else to use those particular concession spaces to operate a business[].â Â¶38Â Â Â Â Â Â Concessionaires point to language in the concession agreements to argue that their interests are not exclusive: City reserves the right to grant to other concessionaires the right to operate restaurants and sell food and beverages in other locations in the Airport, and Concessionaire understands and agrees that its right to theÂ permitted uses is not exclusive. (Emphasis added.) Testimony at trial established that under this provision, the City has permitted Concessionairesâ direct competitors to operate in areas near Concessionairesâ existing spaces. Â¶39Â Â Â Â Â Â We disagree that this language in the agreements is fatal to the taxability of Concessionairesâ interests. The provision permits the City to enter into agreements with other concessionaires to sell food and beverages at other locations at DIA. It does not permit the City to allow a second concessionaire to operate a concession out of an existing Concessionaireâs location. Because the exclusivity factor focuses on whether the interest holderâs use of a particular area it occupies is sufficiently exclusive, the interest holderâs inability to exclude competition from other locations is not probative of exclusivity. Therefore, we find Concessionairesâ reliance on this provisionunpersuasive. Â¶40Â Â Â Â Â Â In sum, the exclusivity factor in this case is met because Concessionaires have the right to exclude others from using each of their concession spaces to operate a concession business. That a competitor may operate a concession at a nearby location has no bearing on this factor.
Â¶41Â Â Â Â Â Â Concessionaires argue that their revenue-generating capability is not independent of the City because of the extensive operating restrictions imposed on them under their concession agreements. The court of appeals rejected this argument, concluding that the independence prong of Vail Associates turns not on the level of control exercised by the government owner, but instead on the source of the possessory interest holderâs revenue and, more specifically, whether the government owner is the only or the dominant source of that revenue. Cantina Grill, Â¶ 33, 292 P.3d at 1150â51. We disagree with the court of appeals that operating restrictions are irrelevant to the independence inquiry. See id. at Â¶ 35, 292 P.3d at 1151. However, we conclude that the Cityâs operating restrictions in this case do not deprive Concessionaires of the independent revenue-generating capability of their concession spaces. Â¶42Â Â Â Â Â Â As discussed above, in considering the taxability of private possessory interests in tax-exempt land, care must be taken to ensure that the tax is indeed imposed on a private interest, rather than on the underlying government-owned property. Thus, a possessory interest is taxable only if âit provides a revenue-generating capability to the private owner independent of the government property owner.â Vail Assocs., 19 P.3d at 1279 (emphasis added). This factor ensures that the tax falls on the private interest, as distinguished from the government. See id. Â¶43Â Â Â Â Â Â In Vail Associates, we concluded that âVail owns a significant ownership interest in federal property from which it derives revenues for private benefit.â Id. at 1280. Although this statement acknowledged Vailâs ârevenue-generating capability,â it did not analyze the requisite degree of âindependenceâ from the government property owner. We discussed neither the source of the ski resortâs revenues nor any restrictions the government placed on the resortâs operations. Â¶44Â Â Â Â Â Â Because Vail Associates does not further define the independence factor, we look to other Colorado case law for additional guidance. This case law demonstrates that the degree of control exercised by the possessory interest holder, not merely its source of revenue, is relevant to determining whether the possessory interest holderâs revenue-generating capability is sufficiently independent from the government. Â¶45Â Â Â Â Â Â In Mesa Verde I, we upheld a property tax on improvements located on federally owned property used by Mesa Verde Company, a private concessionaire. 495 P.2d at 234. In upholding the tax, we emphasized that the contractual provisions reflected the partiesâ intent to accord Mesa Verde âa large amount of decisional authority and discretion with respect to its improvements.â Id. at 232. We observed, for example, that Mesa Verde had authority, subject to the governmentâs approval, to build improvements; to transfer, assign, encumber, or mortgage its possessory interest; and toÂ charge the public appropriate rates in connection with its use. Id. We further observed that Mesa Verde was contractually required to provide all necessary maintenance and repairs on the improvements. Id. Â¶46Â Â Â Â Â Â By contrast, the concessionaire in Southern Cafeteria, Inc. v. Property TaxÂ Administrator lacked sufficient independence from the federal government. 677 P.2d 362, 364â65 (Colo. App. 1983). In that case, Southern Cafeteria provided food service at the Denver Federal Center under a General Services Administration contract. Id. at 363. The court of appeals distinguished Southern Cafeteriaâs interest from the concessionaireâs interest in Mesa Verde I. Under Southern Cafeteriaâs contract, the federal government provided essentially all of the equipment necessary for the operation. Id. The government also maintained and repaired the building structures. Id. at 365. Finally, the government also controlled the pricing structure and fixed the amount of profit the cafeteria could realize. Id. at 363, 365. Under these circumstances, the court of appeals determined that Southern Cafeteria was not independent of the federal government and its interest under its concession agreement was not taxable. Id. Â at 365. Importantly, the court of appeals rejected the property tax administratorâs argument that the assessment was lawful because Southern Cafeteria was not paid a fee but instead operated cafeterias and snack bars for a profit, meaning that its revenues did not come directly from the government. The court focused not on the source of the revenue but on the concessionaireâs lack of independence, finding no distinction between the government âpaying [a contractor] a fixed profit and fixing a ceiling on Southern Cafeteriaâs profits on its own operation.â Id.Â Â¶47Â Â Â Â Â Â The principles embodied in Mesa Verde I and Southern Cafeteria are reflected in section 39-1-103(17)(a)(III), C.R.S. (2014), which excludes management contracts from possessory interest taxation. Under section 39-1-103(17)(a)(III), the source of revenue is not dispositive as to whether a government contractor is statutorily exempt from possessory interest taxation. Rather, the exemption may apply either where the contractor operates the governmentâs property for a fee, or where the government controls the amount of profit the contractor can realize or sets the prices charged by the contractor. Â§ 39-1-103(17)(a)(III)(C). This section also sets forth additional criteria, namely: (1) whether the government provides all funds to operate the property; (2) whether the government owns all of the property used in the operation of the property subject to the contract; (3) whether the government reserves the right to use the property; (4) whether the property is maintained and repaired at the expense of the government; and (5) whether the management contractor has no leasehold or similar interest in the property. 10 Â§ 39-1-103(17)(a)(III)(A), (B), (D), (E), (G). Â¶48Â Â Â Â Â Â Finally, case law we relied upon in Vail Associates in articulating the three-factor test supports the notion that the independence inquiry does not turn on the source of revenue alone. For instance, in California, the independence factor is âmeasured by the amount of routine control and supervision enjoyed by the user, with the recognition that the government owner necessarily retains ultimate control.â City of San Jose, 67 Cal. Rptr. 2d at 723 (internal quotation marks and citations omitted); see also Cal. Rev. & Tax Code Â§ 107(a)(1) (defining independent as âthe ability to exercise authority and exert control over the management or operation of the property or improvementsâ), cited in Vail Assocs., 19 P.3d at 1279 n.21. If the government owner retains sufficient control, âthe user may be considered to be an agent, and the [governmentâs] immunity from taxation extends to the user.â City of San Jose, 67 Cal. Rptr. 2d at 723 (citations omitted). This agency approach is consistent with the United States Supreme Courtâs view that the Supremacy Clause bars taxation where âthe levy falls on the [federal government] itself, or on an agency or instrumentality so closely connected to the Government that the two cannot be realistically viewed as separate entities, at least insofar as the activity being taxed is concerned.â United States v. New Mexico, 455 U.S. 730, 735 (1982). Â¶49Â Â Â Â Â Â Thus, the independence factor, first articulated in Vail Associates, does not focus solely on the interest holderâs source of the revenue. Instead, we look to the totality of the circumstances to determine whether an interest holderâs revenue-generating capability is truly independent from the government, or whether the interest holder is merely an agent of the government, such that any tax on the interest holder would be a tax on the government. These circumstances include, but are not limited to: (1) whether the government pays a fee to the interest holder for its operation of the property in question; (2) whether the government controls the prices the interest holder can charge or restricts the profits the interest holder can generate; (3) whether the interest holder provides the supplies, equipment, and improvements necessary for the operation of the property; (4) whether the interest holder is responsible for the expenseÂ of maintaining and repairing the property; and (5) whether the interest holder has sufficient control and supervision of its operation. 11 See Mesa Verde I, 495 P.2d at 232; Southern Cafeteria, 677 P.2d at 363â65; see also Â§ 39-1-103(17)(a)(III). Â¶50Â Â Â Â Â Â Applying this test to the facts here, we conclude that Concessionairesâ revenue-generating capability is sufficiently independent from the City that the independence factor is met. Â¶51Â Â Â Â Â Â First, Concessionairesâ revenue comes from the traveling public, and, in contrast to Southern Cafeteria, the City does control the amount of profit that Concessionaires can make. Concessionaires can set their own prices, subject to the Cityâs approval. Although the City restricts the prices to a maximum of 110% of âstreet prices,â this restriction protects the traveling public from price-gouging; its purpose is not to control Concessionairesâ profit. Â¶52Â Â Â Â Â Â Second, Concessionaires are responsible for the cost of supplies, equipment, and improvements for the operation of their concession spaces. The concession agreements require Concessionaires to âsupply sufficient goods and products to fully stock [their] concession spaces.â Concessionaires are also required by the agreements to install a water meter, electric meter, and gas meter, if required, at Concessionairesâ expense. Finally, the concession agreements require Concessionaires to renovate their concession spaces at their âsole cost and expense.â Such renovations include furniture, fixtures,Â and equipment. Though the improvements affixed to the realty become property of the City, private commercial leases similarly vest ownership of the improvements in the lessor upon termination. See, e.g., Highlands Ranch Univ. Park, LLC v. Uno of Highlands Ranch, Inc., 129 P.3d 1020, 1022 (Colo. App. 2005) (evaluating a lease that required lessee to construct building and that vested ownership in lessor upon termination). Â¶53Â Â Â Â Â Â Third, Concessionaires are responsible for the expense of maintaining and repairing their concession spaces. The concession agreements provide that Concessionaires are responsible for the expense of janitorial services and maintenance for the concession spaces, including redecoration, painting, and repair and replacement of the worn furnishings. Moreover, Concessionaires are responsible for casualty loss of the improvements, as provided by the concession agreements. Â¶54Â Â Â Â Â Â Finally, while the City imposes operating restrictions related to some aspects of Concessionairesâ operations, such as the price of their products, hours of operation, and menus, these operating restrictions do not deprive Concessionaires of control and supervision of their operations. Cf. United States v. Colorado, 460 F. Supp. 1184, 1186 (D. Colo. 1978) (noting that the government contractorâs âentire role or relationshipâ to the property it managed was defined by contract), affâd, 627 F.2d 217 (10th Cir. 1980), cited in Vail Assocs., 19 P.3d at 1279. Nor do the operating restrictions in this case convert Concessionaires into agents or partners of the City. Importantly, the concession agreements provide that âit is expressly understood and agreed that the City shall not be construed or held to be a partner, associate, or joint venture of Concessionaire.âÂ Moreover, many of the terms concerning hours of operation and menus may be modified with the consent of the City. Concessionaires may even assign their concession agreements with City approval. This is similar to Mesa Verde I, where many of the concessionaireâs actions were subject to the governmentâs prior approval. 495 P.2d at 232. That the City maintains ultimate control over some aspects of Concessionairesâ operations is not dispositive because â[t]he governmental body that contracted with the user has the responsibility to safeguard the use of public property, and would be remiss if it did not retain ultimate control over such use, by grantees as well as by the public.â City of San Jose, 67 Cal. Rptr. 2d at 725 (internal quotation marks and citations omitted). Â¶55Â Â Â Â Â Â In sum, although we disagree with the court of appeals that operating restrictions are not relevant to the independence prong, we conclude that the independence factor is met in this case because the totality of the circumstances indicates that Concessionairesâ revenue-generating capability is independent from the City, such that Concessionaires are not merely the Cityâs agents, and a tax on Concessionairesâ possessory interest would not be effectively a tax on the government.
Â¶56Â Â Â Â Â Â Because Concessionairesâ interests are sufficiently exclusive and independent, and Concessionaires do not dispute that their interests are of sufficient duration, we conclude that Concessionairesâ interests exhibit significant incidents of ownership under the Vail Associates test. Therefore, Concessionairesâ possessory interests areÂ taxable property under article X of the Colorado Constitution and the revenue statutes, even though the underlying government-owned land is tax-exempt.