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Cantina Grill, JV v. City & County of Denver County Board of Equalization by and through Kennedy, 344 P.3d 870, 2015 CO 15

Facts

Concessionaires operated eleven restaurants and lounges at Denver International Airport (DIA) under concession agreements with the City, which owns the property. The City assessed property taxes on these concessionaires' possessory interests, arguing they were taxable despite the underlying property being tax-exempt. The concessionaires contested this assessment, claiming their interests did not meet the necessary criteria for taxation under the established legal test.

Concessionaires obtained their possessory interests from the City through written concession agreements. The concession agreements grant Concessionaires the 'right to occupy, improve, and use the Concession Space' for food and beverage services 'consistent with and subject to all of the terms and provisions of [the] Agreement.'

Issue

Whether the possessory interests of the concessionaires at a city-owned airport are taxable under Colorado law, despite the underlying property being tax-exempt.

The first issue in this case is whether Concessionaires' 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.

Rule

A private possessory interest in tax-exempt government property is taxable if it exhibits significant incidents of private ownership, which include: (1) revenue-generating capability independent of the government property owner; (2) the ability to exclude others from making the same use of the interest; and (3) sufficient duration to realize a private benefit.

We 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 is able to 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.

Analysis

The court applied the three-factor test from Vail Associates to determine the taxability of the concessionaires' interests. It found that the concessionaires had the right to exclude others from their specific concession spaces, thus meeting the exclusivity requirement. Additionally, the revenue generated by the concessionaires came primarily from the traveling public, indicating independence from the City. The court also confirmed that the City's valuation method was consistent with statutory requirements.

The court of appeals affirmed, concluding that Concessionaires' interests were taxable under Vail Associates. Cantina Grill, JV v. City & Cnty. of Denver Bd. of Equalization, 2012 COA 154, ¶¶ 28–42, 292 P.3d 1144, 1150–52.

Conclusion

The Supreme Court affirmed the lower court's ruling that the concessionaires' possessory interests were taxable and upheld the City's valuation of those interests.

We affirm. We agree with the court of appeals that the concessionaires' possessory interests in their concession spaces are taxable interests under the three-factor test established in Vail Associates.

Who won?

The City prevailed in the case because the court found that the concessionaires' possessory interests met the criteria for taxation and were properly valued by the City.

The City assessed property taxes on the concessionaires' possessory interests in their airport concession spaces and valued those interests in accordance with section 39–1–103(17).

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