United Air Lines, Inc. v. County of San Diego

FROEHLICH, J., Dissenting.

The taxability of possessory interests in real property, the fee of which is owned by tax-exempt entities, is well established. The evolution of the definition of a taxable “possessory interest” is set forth in a short but effective historical review in Freeman v. County of Fresno (1981) 126 Cal.App.3d 459, 462-464 [178 Cal.Rptr. 764], and described as a “protax trend.” (Id. at p. 463.) Ehraian and Flavin, in their text Taxing California Property, sum up the trend by stating: “There are almost no limits to which the possessory interest concept can be pushed.” (1 Ehrman & Flavin, Taxing Cal. Property (3d ed. 1989) § 3.08, ch. 3, at p. 22)

Originally viewed as an interest akin to a lease, as distinguished from a mere license (Kaiser Co. v. Reid (1947) 30 Cal.2d 610 [184 P.2d 879]), the definition of a “possessory interest” has been expanded to recognize a “property” interest in all manner of uses of tax-exempt property, many of which only vaguely resemble traditional common law concepts of an interest in land. (See the detailed summaries of uses set forth in Freeman v. County of Fresno, supra, 126 Cal.App.3d at p. 461, fn. 1, and Scott-Free River Expeditions, Inc. v. County of El Dorado (1988) 203 Cal.App.3d 896, 903, fn. 1 [250 Cal.Rptr. 504].)

Notwithstanding this trend, applicable law still purports to recognize standards distinguishing a “possessory interest” in land from other activities which take place thereon. In a sense, everything that is done by anyone of necessity takes place on real property (land, sea, tidelands, air space, etc.) but it is not, we presume, all subject to property tax. It was, to be sure, dictum, but the court in Freeman v. County of Fresno, supra, 126 Cal.App.3d 459 assumed that the street artist on Telegraph Avenue was not vested with a possessory interest.

We examined the definition of “possessory interest” at length in Cox Cable San Diego, Inc. v. County of San Diego (1986) 185 Cal.App.3d 368 [229 Cal.Rptr. 839]. We therein noted the definitions contained in Revenue and Taxation Code section 107, subdivision (a) (“Possession of, claim to, or right to the possession of land or improvements”) and in Board of Equalization regulations (“an interest in real property which exists as a result of *442possession, exclusive use, or a right to possession or exclusive use of land and/or improvements”) (Cal. Code Regs., tit. 18, § 21, subds. (c), (d) and (e).) We concluded that “The elements to be tested in order to determine the existence of a possessory interest are, generally, exclusiveness, durability, independence and private benefit.” (Cox Cable, supra, at p. 377.)

The element of durability has, I conclude, been diluted to a degree of almost nonexistence. In United States of America v. County of Fresno (1975) 50 Cal.App.3d 633 [123 Cal.Rptr. 548], the occupancy of a habitation maintained by the forestry service was deemed durable even though it could be terminated or modified on very short notice. The franchise to maintain amusement games in an airport was held in Freeman v. County of Fresno, supra, 126 Cal.App.3d 459 to be a possessory interest even though it could be terminated on 10 days’ notice. Grazing permits revocable at will were found taxable in Board of Supervisors v. Archer (1971) 18 Cal.App.3d 717 [96 Cal.Rptr. 379]. In light of these authorities I would be hard pressed to say that landing rights at Lindbergh Field, which have been used over a long period of time and probably (in light of the stipulated facts of this case) could not arbitrarily be terminated, are not sufficiently “durable” to warrant taxation.

Similarly, it cannot be disputed that the right to use the landing strip is a benefit, that it is valuable, and that its value can no doubt be appraised on some reasonable basis.

The difficulty I have with classification of this use as a possessory interest is the requirement that the right be “exclusive.” We of course know that the word “exclusive” in the property tax context does not carry the meaning it ordinarily exhibits. Grazing rights can be “exclusive” for property tax purposes even though they are held in common with other grazers on the same property. (Board of Supervisors v. Archer, supra, 18 Cal.App.3d 717.) City port facilities can constitute a sufficiently identifiable right of use to be taxable, even though they are used in common with others. (Sea-Land Service, Inc. v. County of Alameda (1974) 36 Cal.App.3d 837 [112 Cal.Rptr. 113].) The amusement machines placed by their owners on airport premises constituted an “exclusive” use of realty, even though competitors could be franchised to place machines on the same premises. (Freeman v. County of Fresno, supra, 126 Cal.App.3d 459.) The Cox company’s cables used only a small linear space under pavement utilized for many other purposes by many other entities, and yet constituted sufficiently “exclusive” possession of realty. (Cox Cable San Diego, Inc., supra, 185 Cal.App.3d 368.)

Nevertheless, a use sufficient to permit property taxation must somehow be distinct, as compared to the use permitted the public in general. As *443explained in United States of America v. County of Fresno, supra, 50 Cal.App.3d at page 638:

“To give rise to a taxable possessory interest, the right of possession or occupancy must be more than a naked possession or use; it must carry with it, either by express agreement or tacit understanding of the parties, the degree of exclusiveness necessary to give the occupier or user something more than a right in common with others, or, in the case of employment, something more than the means for performing his employer’s purpose, so that it can be said, realistically, that the occupancy or use substantially subserves an independent, private interest of the user or occupier.” (Italics in original.)

Hence, we understand that to be a “possessory interest” the right or power to conduct an activity on land must be in some way different from the right of use of everyone else on the same land. Since all people can traverse Telegraph Avenue for whatever purpose, the artist who occupies a corner with his painting easel exercises no special or “exclusive” activity.

In discussing this theme I must take issue with the position asserted in the lead opinion that when the use of public property is limited to a segment of the public the use of it by that spectrum becomes “exclusive” and taxable. Since only pilots can use the airport, the argument goes, and since pilots constitute only a small percentage of our populace, their use of it is by definition “exclusive.”

This approach is in error, I believe, because the very nature of our current political concept of the use of public property is such as to restrict its use, in many cases, to certain specially equipped or licensed people. Only pilots may use airports, but in a similar vein only licensed drivers may use the freeways. To use an absurd example, only tennis players may use public tennis courts—but this cannot constitute them a segment of the public with “exclusive” rights. In our state courtroom only licensed lawyers are privileged to occupy space beyond the rail, and members of the Bar are undeniably a small and exclusive slice of society. Is this a logical approach to the concept of exclusivity? I think not.

I suggest that the idea of exclusivity envisaged in the definition of possessory interest is a right to use limited to specific members of a given class of otherwise qualified people. If only grazers of beef could come upon government land, we would to a considerable degree have identified a limited class of licensees—how many grazers of beef does any of us know, for instance? The class does not become exclusive, however, until the actual *444licensees are a limited group drawn from the much larger class of grazers. In the river rafter case, to be discussed infra, the use of the river is exclusive because the class of river rafters entitled to use is limited and closed, thus excluding the whole world of river rafters and including only an exclusive group.

The use of the public airstrip by United Airlines and the other plaintiffs in this case is not exclusive because there is no limitation upon it. While the users have entered into a contract with the airport which regulates their use of the public airstrip, we know from the stipulated facts that, in accordance with federal regulations, no airline could be excluded. Not only is the class of commercial users open, but the airport can be used without limitation by the whole class of general aviation, which presumably includes every licensed person who can buy or rent a plane. In all of the cases we have cited above, the use in question—even though sometimes severely diluted by other activities on the same land—is in some way or degree an exclusive use. The holder of the use had a right, even though temporary or terminable, to exclude others of his same class from using the facility. Perhaps he could not exclude all others, but he belonged to a favored class.

It is this concept which precludes the taxation on real property tax theories of the use of the Coronado Bridge by tour buses—an example posed and discussed at oral argument. If use of a state-owned bridge by commercial carriers were restricted to a limited number of franchises, some sort of possessory interest subject to taxation would be created. When the bridge is open to all users, both commercial and private, I contend there is no exclusivity, and property taxation would be unauthorized. So it is, I believe, with the use of the landing strip at the airport.

The most difficult case to harmonize with this approach is Scott-Free River Expeditions, Inc. v. County of El Dorado, supra, 203 Cal.App.3d 896. The tax exempt property in this case was the South Fork of the American River—property of the State of California. Increasing use of the river for rafting (apparently all for pleasure rather than any cargo transport) resulted in control efforts by the County of El Dorado. Although private noncommercial rafting down the river continued uncontrolled, the county regulated commercial rafters by the issuance of permits. After a certain date no additional permits were issued, so that at the time the property taxability of the use was examined, the class of commercial users was limited and “exclusive.” The Court of Appeal found that because permits had been limited, and because no commercial use of the river could be made without a permit, “it is obvious plaintiffs have something more than a right in common with others.” (Id. at p. 910.) The fact that a large segment of users *445(private rafters) was not regulated or excluded did not impair, the court held, the exclusive nature of the commercial users. Further, the fact that there were some 80 commercial users—which one might consider constitute a large class indeed—did not impair the nature of their “special right.”

The Scott-Free authority refutes the argument of plaintiffs in our case insofar as such argument is based upon the fact that the airport is open to general aviation as well as commercial use. Scott-Free says that one can focus on the segment of use devoted to commerce, disregarding the fact that individuals may utilize the same ground for private nonprofit activities. This is an extension of the concept of stratified use of the same resource previously well established. The fact that the public may have free use of timber land or grazing land does not undermine the conclusion that the timber company or cattle grazing rancher has an exclusive prerogative. (International Paper Co. v. County of Siskiyou (9th Cir. 1974) 515 F.2d 285, 290; El Tejon Cattle Co. v. County of San Diego (1966) 64 Cal.2d 428 [250 Cal.Rptr. 504].)

Scott-Free carries this concept further, however, than any previous authority. In the timber and grazing cases the commercial user has an exclusive right to a particular asset on the land: the timber or the grass. In Scott-Free the private users are using the very same water, for the very same purpose, as are the commercial users. The premise of Scott-Free, therefore, is that one can view commercial use in a different light, or a different taxable compartment if you will, from private use. If within the special category of commercial use there is some restriction, and thus a creation of a favored class of users, a possessory interest can be recognized.

Adopting this analysis, there is no exclusivity and therefore no possessory interest in the use of the landing strip at Lindbergh Field. There is and can be no restriction of commercial use. No favored class exists. The only basis upon which one can differentiate the class of taxed users from the class of untaxed users is that the taxed people are commercial users. I do not believe this is a sufficient basis for claiming exclusivity. Not only is this distinction inaccurate, in my opinion, but in itself is flawed. It is common knowledge that a very large percentage of the “general aviation” at airports currently serving metropolitan areas is aviation engaged in commercial pursuits. We would assume that most of the “corporate” jets parked on the tarmac are operating in some way upon the basis of “ordinary and necessary” activities in connection with a business—to borrow a phrase from the Internal Revenue Code. These operations are not subject to tax; the only taxed aircraft are those transporting passengers or cargo for profit.

I therefore conclude that the category of activity carved out by this property tax assessment is not one which benefits from an exclusive right to *446use, sufficient to support a determination that it is a taxable “possessory interest.”

If this analysis is accepted, the imposition of tax fails because of construction of the state tax statute upon which it is premised, and there is no need to consider the several other grounds for invalidation asserted by the plaintiffs: grounds based upon federal statute or constitutional principles. This construction of the concept of “possessory interest” does lead, however, to the conclusion that the property tax sought in this case by the county is violative of one important federal prohibition—the Anti-Head Tax Act contained in 49 United States Code (1991 pocket supp.) appendix section 1513.

The lead opinion sets out appendix section 1513 of the United States Code in its entirety on page 429. As noted, the act precludes taxation based upon the number of persons transported or upon gross income. Subdivision (b) of appendix section 1513 contains two categories of exclusions from the terms of the act. The first category is broadly stated as “property taxes, net income taxes, franchise taxes, and sales or use taxes on the sale of goods or services.” The second category of exclusion includes “reasonable rental charges, landing fees, and other service charges from aircraft operators for the use of airport facilities.” In City & County of Denver v. Continental Air Lines (D.Colo. 1989) 712 F.Supp. 834, 840 it was held that this second category, which includes landing fees, permits taxation only to the extent the funds are used for airport operation and maintenance.

The lead opinion concludes that the Anti-Head Tax statute does not preclude the tax in this case because our tax is a “property tax,” not a “landing fee,” and hence falls within the first category of exclusion in United States Code, appendix section 1513, subdivision (b), which is not restricted to use for airport maintenance or improvements.

The difficulty with this argument is that the classification of a tax as property tax or not for purposes of the federal act is a matter of federal determination. In Aloha Airlines, Inc. v. Director of Taxation (1983) 464 U.S. 7 [78 L.Ed.2d 10,104 S.Ct. 291], the United States Supreme Court found the Hawaii tax to be an invalid tax on gross income even though it was labeled, and had been found by the Hawaii courts to be, a property tax. Thus, in our case the classification of the tax on use of the landing strip, even though we might find it a “property tax” for state purposes, could well be determined for federal purposes to be either a gross income tax or a landing fee. Plaintiffs have introduced evidence showing a direct and highly correlative relationship between the tax in this case and the persons transported by the several plaintiff airlines. We do not know what the net income of the *447several airlines is. The economics of the industry being what it is, however, we may be permitted to assume that the net income, if any, is undoubtedly not correlated to the gross income. Further, since the tax is computed upon the basis of landing fees, it is in effect another “landing fee” tax and hence in any event falls within the restriction of the second category of exception in United States Code, appendix section 1513, subdivision (b), since the tax proceeds are used by the county for its general purposes, not for airport maintenance or improvement. (See City & County of Denver v. Continental Air Lines, supra, 712 F.Supp. 834.)

Therefore, even if California law is stretched to the highly elastic extent necessary to find a “possessory interest” in the landing strip to be held by the airlines, I am convinced that this method of taxation is a “Head Tax” under federal law.

I would affirm the judgment of the trial court on the grounds that the exercise by the airlines of landing rights is not a “possessory interest” sufficient for imposition of property tax, and that the imposition of the tax in this case is precluded by the federal Anti-Head Tax statute.

A petition for a rehearing was denied December 24, 1991, and respondents’ petition for review by the Supreme Court was denied March 12, 1992. Panelli, J., and Baxter, J., were of the opinion that the petition should be granted.