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District of Columbia v. 17M Associates, LLC

Court of Appeals of Columbia District

September 4, 2014

DISTRICT OF COLUMBIA, APPELLANT,
v.
17M ASSOCIATES, LLC, APPELLEE

Argued October 22, 2013

Appeals from the Superior Court of the District of Columbia. (CVT-10601-10, CVT-10802-10). (Hon. John M. Campbell, Trial Judge).

James C. McKay, Jr., Senior Assistant Attorney General for the District of Columbia, with whom Irvin B. Nathan, Attorney General, Todd S. Kim, Solicitor General, and Donna M. Murasky, Deputy Solicitor General, were on the brief, for appellant.

Stanley J. Fineman, with whom Scott B. Cryder was on the brief, for appellee.

Before BECKWITH, EASTERLY, and MCLEESE, Associate Judges.

OPINION

Page 955

Beckwith, Associate Judge

Appellant District of Columbia contends that the Superior Court erred in deferring to a decision of the Board of Real Property Assessments and Appeals (BRPAA) that found appellee 17M Associates LLC (17M) exempt from the possessory interest tax codified at D.C. Code § 47-1005.01 (b) (2012 Repl.).[1] The District also claims that the Superior Court further erred in finding, on the merits, that 17M's Lease Agreement with the District exempted 17M from the tax. We hold that the Lease Agreement did not exempt 17M from the tax and that BRPAA acted ultra vires in concluding that it did. We therefore reverse the judgment of the Superior Court and remand the case for further proceedings.

I. Background

On December 14, 1982, the District executed a Lease Agreement with 17M, under which the District " demised" (that is, leased) " certain parcels of land located on M Street between 16th and 17th Streets, Northwest" to 17M for eighty years. 17M built " Improvements" on the land, including commercial office buildings.[2] Section 19.01 of the Lease Agreement was titled " Taxes on Improvements" and required 17M to pay " all taxes, assessments, duties, impositions, and burdens assessed, charged or imposed, upon the Improvements." [3] Section 19.02, which is central

Page 956

to the present dispute, was titled " New Taxes on Improvements" and required 17M to " pay any new tax of a nature not presently in effect but which may be hereafter levied, assessed, or imposed upon the District or the Demised Premises, if such tax shall be based on or arise out of the ownership, use or operation of the Improvements."

In 2000, the Council of the District of Columbia sought to close a " present loophole in the District's tax laws," D.C. Council, Comm. on Fin. & Revenue Report on Bill 13-586, the " Tax Clarity Act of 2000" (Sept. 28, 2000) at 17 [hereinafter Committee Report], by enacting a possessory interest tax on lessees who lease certain government-owned, and therefore tax-exempt,[4] real property but who are not themselves " exempt or immune from income taxation" and are not using the property " for an exempt or immune purpose." D.C. Code § 47-1005.01 (b).[5] The measure taxed the " leasehold interest, possessory interest, beneficial interest, or beneficial use of the lessee or user of the real property." Id. The tax is paid in the same manner and assessed at the same rate as a real property tax, but is imposed on the lessee or user and not on the property itself. D.C. Code § 47-1005.01 (f)(3).[6] The new tax would permit the District " to tax possessory interests in immune property which cannot at the present time be taxed." Committee Report, at 16. The Report cited the Old Post Office Pavilion and Union Station as examples " where businesses have possessory interests in the property that go untaxed in the District, but would be taxed in the majority of jurisdictions, including Maryland and Virginia." Committee Report, at 16-17. The tax may not be imposed when doing so " would cause the District of Columbia to breach a pre-existing agreement or other legal obligation." D.C. Code § 47-1005.01 (c)(2).

In March 2006, the District sent 17M a Notice of Proposed Possessory Interest Assessment for Tax Year 2007, describing the property as being in " Tax Class 2" and assessing its value for purposes of the possessory interest tax at $24,670,490. The District had not previously levied the tax against 17M. 17M appealed to BRPAA[7](after its First Level Appeal with the District of Columbia Office of Tax and Revenue (OTR) went unanswered), arguing that imposition of the tax breached its Lease Agreement with the District. OTR responded that BRPAA ...


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