Current through Register Vol. 24-06, March 15, 2024
(1)
Introduction.Chapter
82.29A RCW establishes an
excise tax on the act or privilege of occupying or using publicly owned real or
personal property or property of a community center which is exempt from
property tax through a leasehold interest. The intent of the law is to ensure
that lessees of property owned by public entities bear their fair share of the
cost of governmental services when the property is rented to someone who would
be subject to property taxes if the lessee were the owner of the property. The
tax is an excise tax triggered by the private use and possession of the public
property or property of a community center which is exempt from property tax.
RCW
82.29A.030.
(2)
Definitions. For the
purposes of chapter 458-29A WAC, the following definitions apply unless the
context requires otherwise.
(a) "Department"
means the department of revenue.
(b) "Community center which is exempt from
property tax" means a community center as defined in
RCW
84.36.010(2)(a) that is
exempt from property tax under
RCW
84.36.010(1).
(c) "Concession" means the right to operate a
business in an area of public property or property of a community center which
is exempt from property tax.
(d)
"Contract rent" means that portion of the payment made by a lessee (including a
sublessee) to a lessor (or to a third party for the benefit of that lessor) for
a leasehold interest in land and improvements or tangible personal
property.
(e) "Franchise" means a
right granted by a public entity or community center which is exempt from
property tax to a person to do certain things that the person could not
otherwise do. A franchise is distinguishable from a leasehold interest even
when its exercise and value is inherently dependent upon the use and possession
of publicly owned property or property of a community center which is exempt
from property tax.
(f)
"Improvement" means a modification to real property, resulting in an actual
change in the nature of the property or an increase in the value of the
property. It is distinguishable from routine repair and maintenance, which are
activities resulting from normal wear and tear associated with the use of
property, and which do not result in a change in the nature or value of the
property itself. For example, replacing worn boards in a stairway is repair and
maintenance; removing the stairway and replacing it with an elevator or a ramp
is an improvement.
(g) "Leasehold
interest" means an interest granting the right to possession and use of
publicly owned real or personal property or real or personal property of a
community center which is exempt from property tax as a result of any form of
agreement, written or oral, without regard to whether the agreement is labeled
a lease, license, or permit.
(i) Regardless of
what term is used to label an agreement providing for the use and possession of
public property or property of a community center which is exempt from property
tax by a private party, it is necessary to look to the actual substantive
arrangement between the parties in order to determine whether a leasehold
interest has been created.
(ii)
Both possession and use are required to create a leasehold interest, and the
lessee must have some identifiable dominion and control over a defined area to
satisfy the possession element. The defined area does not have to be specified
in the agreement but can be determined by the practice of the parties. This
requirement distinguishes a taxable leasehold interest from a mere franchise,
license, or permit.
For example, Sam sells hot dogs from his own trailer at varying
sites within a county fairgrounds during events. Sam is not assigned a
particular place to set up his trailer nor does he store his trailer on the
fairground between events. Sam's right to sell and his use of the property is
considered a franchise and not a leasehold interest. The necessary element of
possession, involving a greater degree of dominion and control over a more
defined area, is lacking.
(iii) The use or occupancy of public property
or property of a community center which is exempt from property tax where the
purpose of such use or occupancy is to render services to the public owner or
community center which is exempt from property tax does not create a leasehold
interest. The lessee's possession and use of the property is in furtherance of
the purposes of the public owner or community center which is exempt from
property tax, and it is the public owner or community center which is exempt
from property tax which benefits from the governmental services rendered in
respect to the property.
For example, Contractor A operates a snack bar at a publicly
owned facility where food and beverages are sold to members of the public, and
derives a profit from the proceeds of the snack bar sales. Contractor B
operates a cafeteria where food is provided at no charge to persons with
appropriate I.D., and is reimbursed on a cost-plus basis. Contractor A is
engaged in a business enterprise the same as any other restaurateur. Contractor
A is using the public property for a private purpose, and has a taxable
leasehold interest on the premises. Contractor B is merely providing a service
to government personnel that the government agency would otherwise provide.
Contractor B is using public property for a public purpose, and does not have a
taxable leasehold interest.
(iv) "Leasehold interest" includes the use
and occupancy by a private party of property that is owned in fee simple, held
in trust, or controlled by a public corporation, commission, or authority
created under
RCW
35.21.730 or
35.21.660 if:
(A) The property is within a special review
district established by ordinance after January 1, 1976; or
(B) The property is listed on, or is within a
district listed on, any federal or state register of historical sites in
existence after January 1, 1987.
(v) "Leasehold interest" does not include:
(A) Road or utility easements;
(B) Rights of access, occupancy, or use
granted solely for the purpose of removing materials or products purchased from
a public owner or community center which is exempt from property tax or the
lessee of a public owner or community center which is exempt from property tax,
including permits to graze livestock, cut brush, pick wild mushrooms, or mine
ore; and
(C) Any right to use
personal property (excluding land or buildings) owned by the United States (as
a trustee or otherwise), or by a foreign government, when the right to use the
property is granted by a contract solely to manufacture or produce articles for
sale to the United States or the foreign government.
(h) "Lessee" means a private
person or entity with a leasehold interest in public property or property of a
community center which is exempt from property tax which would be subject to
property tax if the person or entity owned the property in fee.
(i) "Lessor" means an entity exempted from
property tax obligations pursuant to Article 7, section 1 of the state
Constitution or, for the property tax exempt period of forty years after
acquisition, a community center as defined by
RCW
84.36.010(2)(a) that is
exempt from property tax under
RCW
84.36.010(1) that grants a
leasehold interest in public property or property of a community center which
is exempt from property tax to a private person or entity.
(j) "License" means permission to enter on
land for some purpose, without conferring any rights to the land upon the
person granted the permission. For example, a permit to enter federal lands to
launch rafts into the water for the purpose of conducting whitewater river
rafting tours is a license, not a leasehold interest.
(k) "Management agreement" means a written
agency agreement between a public property owner or community center which is
exempt from property tax and a private person or entity for the use and
possession of public property or community center which is exempt from property
tax under the following circumstances:
(i) The
public property owner or community center which is exempt from property tax
retains all liability for payment of business operating costs and business
related damages (other than costs and damages attributable to the activities of
the private party);
(ii) The public
property owner or community center which is exempt from property tax has title
and ownership of all receipts from sales of services or products relating to
the management agreement (whether such amounts are collected by the private
party on behalf of the public owner or community center which is exempt from
property tax or whether the public owner or community center which is exempt
from property tax permits the private party to retain a portion of the receipts
as payment for services rendered by the private party), and the full discretion
of whether to eliminate, reduce or expand the business activity conducted on
the property; and
(iii) The public
property owner or community center which is exempt from property tax has full
control of the prices to be charged for the goods or services provided in the
course of use of the property.
If each of these criteria is met, the arrangement between the
parties is considered a "true" management agreement which does not, by itself,
create a taxable leasehold interest in the property.
(l) "Permit" means a written
document creating a license to enter land for a specific purpose.
(m) "Product lease" means a lease of public
property or property of a community center which is exempt from property tax
which will be used to produce agricultural or marine products (aquaculture)
wherein the lease or agreement requires that:
(i) The leasehold payment be made by
delivering a stated percentage of the agricultural or marine products to the
credit of the lessor; or
(ii) The
lessor be paid a stated percentage of the proceeds from the sale of the
agricultural or marine products.
(n) "Public property" means all property
owned by an entity exempted from property tax obligations pursuant to Article
7, section 1 of the state Constitution (and, in some instances, property held
in trust by the United States).
(o)
"Renegotiated" means a change in the leasehold agreement, other than one
specifically required by the terms of the agreement itself, which alters:
(i) The agreed time of possession and use of
the property;
(ii) The restrictions
on the manner in which the property may be used; or
(iii) The rate of cash rental or other
consideration paid by the lessee to or for the benefit of the lessor.
The term also includes the continued possession of the property
by the lessee beyond the original date when, according to the terms of the
agreement, the lessee had the right to vacate the premises without incurring
further liability to the lessor.
(p) "Taxable rent" means the amount of rent
upon which the measure of leasehold excise tax is based. It is either the
contract rent or an amount established by the department in accordance with the
procedures set forth in
RCW
82.29A.020(2). (See also WAC
458-29A-200.)
(q) "Utility easement" means the right to use
publicly owned land or land owned by a community center which is exempt from
property tax for the purpose of providing access or installation of publicly
regulated utilities.
Statutory Authority:
RCW
82.29A.140. 10-18-034, § 458-29A-100,
filed 8/25/10, effective 9/25/10; 99-20-053, § 458-29A-100, filed 10/1/99,
effective 11/1/99.