City & County of Denver v. Fey Concert Co.

Justice SCOTT

specially concurring:

I join in the judgment of the majority. However, I do not join in its opinion holding that the “concert series is not eligible for [the] tax exemption because an agency relationship did not exist between the Foundation and the joint venture_” Maj. op. at 658. In my view, the majority incorrectly assumes the concert series or joint venture, and not a purchaser of admission, is subject to the admissions tax at issue. Moreover, I believe this incorrect assumption is further aggravated by the majority’s reliance on the lack of an agency relationship in reaching its result. Together, in this manner, the majority fails to apply the controlling ordinance *662and, in its analysis, unnecessarily exalts form over substance to resolve the question before us.

I.

The form of the joint venture is material and controls the, result under my analysis, however, because I would not conclude the existence of an agency relationship by itself to be determinative, I write separately. In doing so, I look to the tax ordinance and the essence of the joint venture relationship, that is, control and economic participation, thereby making reliance upon standards of agency law unnecessary. Accordingly, while I join the judgment of the majority, I do not subscribe to the rationale it has adopted.

II.

First and foremost, this is a tax case. Therefore, in my view, this case must turn upon the provisions of the Denver Revised Municipal Code (D.R.M.C.) adopted by the taxing authority, the Denver City Council.

A.,

The purpose and nature of the Denver facilities development admissions tax. is prescribed in Article VII of the D.R.M.C. D.R.M.C. section 58-343 provides that the purpose of the facilities development admissions tax “is for the payment of expenses in acquiring, constructing, installing, maintaining, repairing, operating or improving facilities of the city.” Id. The tax is directly imposed on “every person who purchases an admission” ticket, and not concert promoters. D.R.M.C. §§ 53-342(a); 53-346(a). The “amount of the tax is ten (10) percentum of the price of each admission,”1 which is then added to the cost of the ticket. D.R.M.C. § 55-346(b), § 55-348(c), (d). The vendor, “as trustee for and on account of the city, is required at the time of making such sale to collect the tax imposed” from “the purchaser.” D.R.M.C. § 55-348(a). The- tax is a “debt from the purchaser to the vendor until paid.” D.R.M.C. § 53-348(c). In the event the purchaser of an admission fails to pay the tax, it may be recovered by the vendor “in the same manner as other debts.” Nonetheless, “the vendor, who, as trustee for and on account of the city, shall be liable to the city for the collection” of such taxes owed by purchasers. D.R.M.C. §§ 53-348(c); 53-348(d).

B.

Prior to May 1993, the Denver Zoological Foundation (Foundation) and Fey Concert Company (Fey) agreed to eo-promote “a series of concerts for Summer 1993 to be known as ‘Zoofest.’ ” The “verbal agreement” was reduced to writing by the execution of the “Denver Zoological Foundation Co-promotional Agreement For Fey Concert Company/Zoofest Concerts” (Co-promotional Agreement) with a May 1, 1993, effective date for concerts during June, July, and August of the same year. Under the terms of the Co-promotional Agreement, Fey and the Foundation organized a joint venture (Zoo-fest Joint Venture). Under section 1.3 of the Co-promotional Agreement, the Zoofest Joint Venture was initially capitalized by a single $28,000 contribution made by Fey as an advance to the Foundation against the Foundation’s future share of any profits of the enterprise. Thus, under its terms, while Fey placed capital at risk, before the Foundation was paid any share of profits, Fey would be reimbursed for the initial capital contribution. Presumably, to make clear the relationship was not one of employment between the Zoofest Joint Venture and its participants (Foundation or Fey), the agreement also provided: “No party is entitled to a salary.”

As discussed further below, Fey was entitled to 70%. of all profits and losses and the Foundation was to receive, after payment of the $28,000 advance made by Fey, 30% of *663any profits and would be allocated 30% of any losses. The duties and responsibilities of each party to the Zoofest Joint Venture were further set forth in the Co-promotional Agreement,' a thirteen-page document. Section 1.4, consisting of pages two through eight, set forth Fey’s “duties [and] obligations on behalf of the Zoofest co-promotional joint venture.” Fey was responsible for “production of the Zoofest and each Event,”2 “to act as the joint venture’s representative in ... the production of each event,”3 and, among other things, “make all decisions concerning the actual operation and production” of Zoofest.4 The Foundation’s duties are located in Section 1.5 and are designed, generally, to facilitate Fey’s activities, including Fey’s exclusive right outside the Zoofest Joint Venture to “sell novelties, merchandise, programs, etc., and to retain all of the proceeds therefrom....”5

C.

The majority holds that “the concert series is not eligible for [the] tax exemption [for sales by the city or a department of the city] because an agency relationship did not exist between the Foundation and the joint venture .... ” Maj. op. at 658. In my view, however, it is not the joint venture or the “concert series” that is subject to any admission tax and therefore eligible for exemption from that tax. Hence, it is not the concert series, the Zoofest Joint Venture, Fey, or the Foundation that is being taxed, but rather, the audience or purchasers of admission to Zoofest who are subject to the tax. The joint venture created by the “Denver Zoological Foundation Co-promotional Agreement For Fey Concert Company, Zoofest Concerts” between Fey and the Foundation, is merely obligated as “vendor to collect the tax from the purchasers on behalf of the City of Denver.” D.R.M.C. § 53-348(a). Thus, agency law does not resolve the tax dispute here.

What is in dispute is whether the joint venture’s promotion of the Zoofest concert series is tantamount to the sale of admission by the city. To resolve, that question, I look to the terms and conditions of the Co-promotional Agreement to determine whether the city government is sponsoring the Zoo-fest concert series. Examining, then, the Co-promotional Agreement and applying the city’s tax ordinance, I agree that the Zoofest Joint Venture, as promoter and vendor of the concert series,6 is liable for the tax it failed to collect from purchasers of admission. I reach this result not because of agency law principles, but in light of the plain legal fact that the exemption from the admissions tax is generally available only to a purchaser from the government. D.R.M.C. § 53-347(3).

ni.

A.

D.R.M.C. section 55-347 provides an exemption from the admissions tax to “All sales to or by the United States government or the state, its departments or institutions, and the political subdivisions thereof, in their governmental capacities only; and all sales to or by the city or any department thereof [.] ” Id. (emphasis added). Because there is no dispute that the Zoofest concert series did not result in a sale of admission “to ... the city,” we must next determine whether the joint venture’s sale of admissions was, in effect, a “sales ... by the city or any department thereof.” In other words, only if the vendor in its capacity is equivalent to “the city or any department thereof,” does the vendor qualify for the exemption. Therefore, the principal issue here is not whether the joint venture is an agent of the Foundation, but rather, whether the co-promotional activities of the joint venture constitute actions of “the city or any department thereof.”

*664After examining the terms and conditions of the joint venture as set forth in the Co-promotional Agreement between Fey and the Foundation, I conclude that the joint venture in its conduct of the Zoofest concert series was not the equivalent to “the city or any department thereof.” My conclusion is supported by several factors, including the fact that: (1) Fey was in control of the joint venture, and (2) Fey was to share in 70% of the profits.

In Section 1.2, the Co-promotional Agreement set forth an allocation of profits and losses of 30% to the-Foundation and 70% to Fey. Section 1.4.1 provided that Fey was responsible for the:

production of the Zoofest and each Event, negotiation and making arrangements with vendors for any goods and services needed to produce each event (including, but not limited to the providing of police and security, talent transportation to and from their hotel and the Event site, medical, ASCAP/BMI and other related fees), setting up and dismantling of the Event site, arranging for the sale of novelties-both Event and talent (artist), and arranging for ticket sales and distribution....

Under Section 1.4.2, almost all expenses of the series were joint venture expenses, which Fey was responsible for, except for a limited number of items which the zoo agreed to absorb. Thus, clearly, Fey was the principal benefactor of the joint venture’s promotional activities, not the Foundation and indirectly, the city.

Moreover, Fey was the manager or controlling partner in the joint venture. Fey, not the Foundation, was obligated to obtain, book, and contract all talent, which would be subject to the reasonable approval by the Zoo. § 1.4.3. Section 1.4.4 provided that Fey was in control of “mak[ing] all decisions concerning the actual operation and production of the Event, which are FEY’S expertise and not the expertise of the Zoo.” Fey was also obligated to obtain liability insurance for its own negligence during the event and named the City as an additional insured. § 1.4.7.

B.

The Foundation also had duties specified in the joint venture agreement. Many of these duties, however, merely delegated authority to help Fey promote the concert series. For instance, section 1.5.1’stated that the Zoo was obligated “to allow and make available a portion of the Zoo facility, as hereinafter set forth, for the production and promotion a series of concerts, to be titled ‘Zoofest’_” Section 1.5.2 specified exactly which portion of the Zoo facility Fey would be allowed to use. Section 1.5.6 stated that the Zoo would “grant to Fey the right to sell novelties, merchandise, programs, etc. and to retain all (100%) of the proceeds there-from_” Under section 1.5.8, the Zoo was obligated to furnish to Fey “at no extra charge to the Zoofest co-promotional joint venture, the following services as may be required for the use of said Zoo facility for said purpose: General house lighting, general stage lighting, one mobile parking lot security officer, and open and clean restrooms at the entrance and cafeteria plaza, and janitorial services before and following each Event.”

From the foregoing, it is evident that Fey was the dominant party in the joint venture, controlling all aspects of the Zoofest. concert series for private benefit, entitled to 70% of the profits, as well as public good (to. benefit the foundation).7 An examination of the dis*665tribution of profits is important because it is doubtful that the City Council intended a scenario whereby a private party, entitled to the bulk of the profits, could qualify for a tax exemption applicable only to government entities. It follows, therefore, that because the joint venture, in its capacity as promoter of the concert series, was not “the city or any department thereof,” its arguments today must fail.

Accordingly, I agree with the majority that the tax exemption is not applicable to purchasers of admission to the Zoofest concert series and, hence, the joint venture is “required at the time of making such sale [of admission] to collect the tax imposed” on behalf of the City.

C.

The district court observed:

There is little doubt that if the Foundation completed 100 percent, of the tasks involved in putting together the concert series that ticket sales would have been exempt from the FDA tax. There is also little doubt that the FDA tax would apply if the joint venture or Fey completed 100 percent of the tasks involved in putting together the concert series and simply used the Zoo facility as a venue. Somewhere in the middle of those two extremes the Zoofest concert series stopped being the Foundation’s concert series and became a concert series produced and run by the joint venture and/or Fey. At that point, the, Zoofest tickets were no longer sold “to or by the city or any department thereof.”

The district court’s observation is correct. Whether or not the joint venture is an agency of the Foundation, the principal issue upon which the majority and dissenting opinions turn, is not, in my view, controlling. Because the exemption for purchasers itself turns on whether the sales are “by the city,” the substance and not the form of the joint venture enterprise should control, whether or not. the concert series is the Foundation’s or Fey’s. And to resolve this issue, in my view, an examination of which party has the power to control the joint venture and collect a greater share of its profits is determinative.

. Where, as here, a private person obtains a position of control, financially and administratively, of an independent enterprise, the hallmarks of government fail to exist. And, therefore, any benefit dependent upon government status should not be acknowledged.

The majority’s analysis utilizing agency principles, therefore, does not extend far enough to reach the substance of the transactions (involving purchases of admission) to resolve the issue presented here. The majority holds that “the concert series is not eligible for [the] tax exemption [for sales by the city or a department of the city] because an agency relationship did not exist between the Foundation and the joint venture_” Maj. op. at 658. For future concerts, therefore, if the joint venture agreement is amended to provide a clause declaring that for all purposes, Fey or the joint venture has entered into an agency relationship with the Foundation, the majority’s objection is answered without any substantive change to the Co-promotional Agreement. I do not believe this mere change in form alone should be determinative of the issue before us. Therefore, without an examination of which party in particular had control of the operation and was entitled to the economic benefits of the profits, we cannot resolve whether the joint venture was acting as “the city or any departmfent thereof.”

*666IV.

I would conclude that because admission to the concert series was not sold in transactions “to or by the city or any department thereof,” D.R.M.C. § 53-347(3), the claimed tax exemption is not available to purchasers of admission tickets. Hence, the joint venture was “required to collect the tax ... from the purchasers],” D.R.M.C. § 53-348(a), and because it failed to do so, it is liable to the city, as a penalty, for the amount of tax it did not collect plus 10% of said amount, and interest, D.R.M.C. § 53-358(a).

Accordingly, while I join in the judgment of the majority and agree that the judgment of the court of appeals must be reversed, I cannot join in its reasoning and its opinion.

SCOTT, J., specially concurs.

HOBBS, J., dissents, and MARTINEZ, J., joins in the dissent.

. An "admission” is defined in section 53-345(1) as:

the right to an entrance and an occupancy of a seat or an entrance alone, of a person who, for a consideration ... uses, possesses or has the right to use or possess entrance and occupancy of a seat or an entrance alone to any entertainment, amusement, athletic event, exhibition or other production or assembly staged, produced, convened or held at or on any facility or property owned or leased by the city....

. § 1.4.1, Co-promotional Agreement.

.” § 1.4.2, Co-promotional Agreement.

. § 1.4.4, Co-promotional Agreement.

. § 1.5.6, Co-promotional Agreement.

.In its Decision and Order, the administrative law judge found that "The concerts were held at the zoo facility. The concerts were advertised as ‘Budweiser Summer of Stars '93 Zoofest Concert Series Proudly Presented by the Denver Post.' "

. The concerts were profitable and Fey and the Foundation split the "net profits” with “Fey's net profits [at] $76,628, and the Foundation’s net profits [at] $32,840,” as found by the administrative law judge. However, that computation does not reflect the deduction of the $28,000 to be paid to Fey for the advance charged against the Foundation and made in accordance with section 1.3 of the Co-promotional Agreement.

The dissenting opinion states: "Under the majority’s holding that the joint venture is liable for the uncollected tax, the [Foundation's] profits drop from $32,840 to $19,735 when the seat tax is included as an expense, for a total reduction of $13,105. Fey’s profits drop from $76,628 to $46,049, for a total reduction of $30,579.” Dis. op. at 19. This suggests that under the terms of the Co-promotional .Agreement that: (1) the Foundation would not folly benefit from the joint venture if the taxes imposed by law are collected from purchasers, or (2) the Foundation's share of net profits will suffer and is reduced by the admissions tax.

That suggestion, however, is simply incorrect. Nowhere is it stated here or in the majority opinion that the Foundation is to be taxed, or *665that it would be liable for the penalty, or that its profits need be reduced: The tax at issue here is imposed on" purchasers of admission and is -to be added to ticket prices. Therefore, when properly added to the price of tickets and collected by a vendor as required by ordinance, there is no basis to assume a tax would make the joint venture and its participants’ net profits any less than set forth in the record — except, of course, to the extent of any liability of the joint venture for the failure to collect the admissions tax.

Finally, even if Fey is not only an agent of the joint venture, but also an agent of the Foundation, the result here is not harsh or unanticipated by the parties; principals are bound by the acts of their agents and may be held accountable for any unlawful or inappropriate agent conduct. Cf. Montoya v. Grease Monkey Holding Corp., 883 P.2d 486, 488 (Colo.App.1994).