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Vanguard Car Rental USA, Inc. v. County of San Mateo

February 8, 2010


(San Mateo County Super. Ct. No. CIV463140). Barbara J. Mallach, Judge.

The opinion of the court was delivered by: Bruiniers, J.


The County of San Mateo (County) assessed ad valorem property taxes on certain areas leased in common by Vanguard Car Rental USA, Inc. (Vanguard)*fn1 within a rental car facility at San Francisco International Airport (SFO). Vanguard protested the assessments, first to the County and then in the superior court, and sought a refund of taxes paid. The County denied the protest. The superior court, on a stipulated evidentiary record, concluded that Vanguard had a taxable possessory interest in the subject areas and entered judgment for the County. Vanguard appeals, broadly contending that a commercial tenant on public property cannot, as a matter of law, have a taxable possessory interest in defined common areas. We disagree and will affirm the judgment.

I. Factual and Procedural Background

SFO is located in San Mateo County, but owned by the City and County of San Francisco (City). In 1998, Alamo, by written agreement with City (Alamo Lease), leased space at SFO's rental car facility (RCF). At the same time, National entered into a nearly identical written lease agreement (National Lease). The two lease agreements reflect that six other rental car companies were also to lease space at the RCF. The RCF "is comprised of a five-story garage and associated quick turn around facilities (`QTA'), vehicle staging and storage space, all as described in Exhibit A . . . , and satellite buildings now or hereafter constructed."

The leased "Premises," under both the Alamo Lease and the National Lease, consists of three categories of space within the RCF: "Exclusive Space," "Common Use Space," and "Limited Common Use Space." Exclusive Space is described as "space leased by Tenant for its exclusive use."*fn2 Exclusive Space includes office space and "ready car" space. Common Use Space (CU Space) is described as "space used in common with all tenants of the Rental Car Facility."*fn3 The CU Space includes the ramps that connect each of the floors of the RCF. Limited Common Use Space (LCU Space) is defined as "space used in common with a limited number of companies leasing a specific area (`Shared Area')[,]"*fn4 and includes those areas on each floor of the RCF that are shared with the other tenants on the same floor. All of the CU Space and LCU Space are within the RCF.

The leases provide that Alamo and National are each "solely responsible for payment of rent on Exclusive Space." Rent for the CU Space and LCU Space, however, is based pro rata on the proportion of the total Exclusive Space that each rents in the RCF. The leases also provide that each tenant would concurrently enter into a concession agreement with City as well as a participation agreement with other tenants of the RCF "for the development of all common tenant improvements."*fn5

In addition to Exclusive Space, CU Space, and LCU Space, the leases also describe "Public Areas," for which no rent is paid. These "Public Areas" are "limited to the public lobbies, public bathrooms, public elevators and escalators, stairwells, emergency tunnel, and the Police substation in the Garage. No Public Areas exist in the QTA."

In tax years 2003, 2004, and 2005, the County assessed property taxes (on an income basis) on all leased property under the National Lease, including CU Space and LCU Space. In tax years 2004 and 2005, the County assessed property taxes on all property leased under the Alamo Lease, including CU Space and LCU Space. Both National and Alamo filed applications for changed assessment with the County Assessment Appeals Board (Board). The applications were also designated as claims for refund. After an evidentiary hearing, the Board concluded that the Alamo and National leases created taxable possessory interests in the CU Space and LCU Space and denied the applications.

Vanguard then filed a complaint in the superior court seeking refund of property taxes (in the sum of $74,395.93, plus interest) on the basis that it did not have taxable possessory interests in anything other than its Exclusive Space, as defined in each lease.*fn6 The parties stipulated that the Board's administrative record, including the Board's written findings of fact and decision, would be the only evidence considered by the trial court. The trial court's decision, after a bench trial, provides: "The court finds that [Vanguard] had possession or a right of possession in the property at issue. The court also finds that [Vanguard's] possession satisfied the statutory and regulatory requirements of independence. The court also finds that [Vanguard] has not met its burden of proving that its possession of the property in question was not exclusive." The court entered judgment against Vanguard. Vanguard filed a timely notice of appeal.

II. Discussion

The County has the right to assess taxes on nonexempt property within its jurisdiction. (Cal. Const., art. XIII, § 1; see also Rev. & Tax. Code, § 201 [all property within the state is subject to taxation if not exempt under federal law or other state law].) The basic legal principles applicable when otherwise tax exempt public property is subject to a private use were stated in City of San Jose v. Carlson (1997) 57 Cal.App.4th 1348, 1352-1353: "Because the facilities at issue are owned by the City, they are not subject to real property taxes. (Cal. Const., art. XIII, § 3.) Private uses of such property may be taxed, however, if those uses constitute `possessory interests.' (Cal. Const., art. XIII, § 1; Rev. & Tax. Code, §§ 104, [subd. (a),] 107, 201.)[*fn7 ] As the Supreme Court has explained, `When the city leases its land . . . it does not merely use it. It creates valuable privately-held possessory interests, and there is no reason why the owners of such interests should not pay taxes on them just as lessees of private property do through increased rents. Their use is not public, but private, and as such should carry its share of the tax burden.' (Texas Co. v. County of Los Angeles (1959) 52 Cal.2d 55, 63.) Thus, taxation of possessory interests is rooted in the belief that `the holder of a valuable use of public property that is tax exempt should contribute taxes to the public entity which makes its possession possible and provides a certain amount of exclusivity.' [Citations.]" (Ellipses in original, parallel citations omitted.)

Vanguard does not challenge taxation of its possessory interest in its Exclusive Space as identified in the two leases, but contends that no taxable possessory interests under section 107*fn8 were created in the CU Space or the LCU Space by the Alamo Lease and the National Lease. More than this, it makes the broader assertion that, almost definitionally, such areas used in common with others cannot as a matter of law meet the statutory "possessory" requirements to permit taxation. We find no support in either the statutory framework or in the decisional authority for such a sweeping proposition.

"When enacted in 1939, section 107, subdivision (a), was brief and defined a `possessory interest' as the `[p]ossession of, claim to, or right to the possession of land or improvements, except when resulting from ownership of the land or improvements.' [Citation.] In Kaiser Co. v. Reid (1947) 30 Cal.2d 610 [184 P.2d 879], the Supreme Court first set forth three essential elements for determining if a taxable possessory interest exists. [Citation.] `The agreement [between the possessor and the public owner] had to confer use and possession (1) for a reasonably certain determinable period, (2) which was exclusive against all the world, including the rightful owner, and (3) which generated a valuable private benefit.' [Citation.] [ΒΆ] Over time, the requirements were applied in a `less demanding way so as to find a taxable interest in most cases in which the private use of public property [had] been special to the person concerned and valuable.' [Citation.] In response to case law and the perceived protax trend, the Legislature in 1995 passed ...

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