TAXATION ‑- MEANING OF "RENEGOTIATION" FOR THE PURPOSES OF TAXING CERTAIN LEASEHOLD INTERESTS UNDER CHAPTER 187, LAWS OF 1973, EX. SESS
The term "renegotiation" as it pertains to taxable leasehold interests in property owned by the state or its political subdivisions under chapter 187, Laws of 1973, Ex.Sess., refers only to a renegotiation involving an extension or renewal of the lease and does not include mutually agreed upon changes in the lease during its term which are not a part of any extension or renewal.
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August 1, 1973
Honorable Helen Sommers
State Representative, 36th District
2516 14th Avenue West
Seattle, Washington 98119
Cite as: AGO 1973 No. 17
Dear Representative Sommers:
By letter previously acknowledged you have requested an opinion of this office concerning the meaning of the word "renegotiation" as used in recently enacted legislation pertaining to the taxation of certain leasehold properties. We paraphrase your question as follows:
Does the word "renegotiation" as it pertains to taxable leasehold interests in property owned by the state or its political subdivisions include mutually agreed upon changes in the lease during its term which are not a part of any extension or renewal?
We answer this question in the negative.
Except as now qualified by § 11, chapter 187, Laws of 1973, Ex. Sess., to be noted below, private leasehold interests in publicly owned tax exempt land are taxable as personal property. See, RCW 84.04.080. InPier 67, Inc. v. King County, 78 Wn.2d 48, 469 P.2d 902 (1970), the Washington supreme court held that under this statute the [[Orig. Op. Page 2]] proper method of assessment of such interests is to determine the true cash value (or market value) of the leasehold using the same standards as for valuing taxable property in general. However, because the rental terms of many such leases entered into prior to that decision were predicated upon assessment practices resulting in lesser valuations than would have been produced by this approach, a consequence of this court decision was the imposition of an unanticipated financial burden upon those private lessees who had relied upon the correctness of such prior practices when entering into their leases with state agencies or political subdivisions of the state.
Chapter 187, Laws of 1973, Ex. Sess., represents a legislative response to this situation. Section 2 thereof states that:
"The legislature hereby recognizes that properties of the state of Washington, counties, school districts, and other municipal corporations are exempted by Article 7, section 1 of the state Constitution from property tax obligations, but that such public properties when under lease to private lessees receive substantial benefits from governmental services provided by the units of local government.
"The legislature further recognizes that leases of such property entered into prior to July 1, 1970, are often at a full and fair market rental predicated upon a tax obligation which was considerably less than established by the state supreme court in May of 1970 when the lessee is a nonexempt person or entity.
"The legislature therefore recognizes that equity requires that provision be made to alleviate the impact of added tax obligations upon the lessee of public properties and does hereby provide certain property tax exemptions for leasehold estates contracted prior to July 1, 1970, where the [[Orig. Op. Page 3]] lessee is paying a contract rent equal to or at least ninety percent of economic rent as defined in section 3 of this 1973 amendatory act and the legislature does hereby provide for a leasehold in lieu tax to fairly compensate local governmental units for services rendered to such properties and does hereby provide authorization for payment thereof. The legislature finds that public properties subject to leasehold estate taxation or to in lieu taxation are entitled to those same governmental services provided comparable property in private ownership."
The property tax exemption thus provided for is then spelled out in so much of § 11 as provides:
"The following property shall be exempt from taxation:
"(1) All leasehold estates in property owned in fee or held in trust by the government of the United States, or of the state of Washington or any political subdivision thereof, negotiated prior to July 1, 1970, which have not beenrenegotiated, extended, or renewed since July 1, 1970, and which have a contract rent equal to at least ninety percent of economic rent: . . ." (Emphasis supplied.)
In lieu of a property tax, those leaseholds to which this exception applies are, instead, to be subject to an excise tax as provided for in the following language of § 4 of the act:
"There is hereby levied and shall be collected an in lieu excise tax in 1974 and in each year thereafter from each lessor of a leasehold estate which is exempted from ad valorem property taxation pursuant to section 11(1) of this 1973 amendatory act. The tax shall be levied and collected in an amount equal to the value of the annual leasehold rent collected the previous year multiplied by the rate of fourteen percent: . . ."
[[Orig. Op. Page 4]]
Your question pertains to the meaning of the word "renegotiation" as used in the past tense in § 11,supra ‑ as well as being used in one form or another in various other sections of this 1973 act. Upon its answer will depend the tax status of those leaseholds with respect to which rental charges may have been negotiated by the parties since July 1, 1970, without any renewal or extension of the lease beyond its initial term.
Section 3 of chapter 187, supra, contains definitions of several terms used in this 1973 act, including, specifically, the word "renegotiation." This section reads as follows:
"As used in this 1973 amendatory act, the following terms shall be defined as follows, unless the context otherwise requires:
"(1) 'Economic rent' means the rental warranted to be paid in the open real estate market based on rentals being paid for comparable leases. In the determination of 'economic rent' the private rate of return and normal costs to be private sector shall be considered.
"(2) 'Contract rent' means the amount of consideration conveyed according to the leasehold instrument: PROVIDED, That any prepaid rent shall be considered to have been paid in the year due and not the year when paid.
"(3) 'Renegotiation' or 'renegotiated' means the process occasioned by any situation or circumstance which results in a change in the consideration to be paid by the lessee to the lessorfor any extension or renewal of a lease." (Emphasis supplied.)
In addition to its use in § 11, supra, this last defined term also appears in § 5 of the act which requires each state agency and political subdivision to furnish certain information to local county assessors concerning leaseholds including "renegotiation dates, if any, options to renew, and information about reversion of improvements."
[[Orig. Op. Page 5]]
Section 6, in turn, requires these assessors to determine and identify those properties which are subject to the in lieu excise tax imposed by § 4,supra, and to deliver certain information respecting such properties to their county treasurers ‑ including "the expiration date of the lease, renegotiation dates, if any, and options to renew." Finally, in much the same terms as § 11, supra, § 14 provides for exemptions from ad valorem taxation in the event the in lieu excise taxes provided for in § 4, supra, are held invalid ‑ such exemptions in that case applying to:
"(1) All leasehold estates in property of the state of Washington or any political subdivision thereof, negotiated prior to July 1, 1970, which have not been renegotiated, extended or renewed since July 1, 1970, and which have a contract rent equal to at least ninety percent of economic rent, . . ."
None of these several uses of the term "renegotiation," however, are in a context which would in any way cause modification of the definition of this term from that appearing in § 3(3),supra, which leads us to a cardinal rule of statutory construction that the legislative intent must be determined from the language employed by the legislature where that language is clear and unequivocal. Layton v. Home Indemnity Co., 9 Wn.2d 25, 113 P.2d 538 (1941); Driscoll v. Bremerton, 48 Wn.2d 95, 291 P.2d 642 (1955). Furthermore, the words used in a statute must be given the meaning accorded them by the statute. State v. Houck, 32 Wn.2d 681, 203 P.2d 693 (1949); Shelton Hotel Co., Inc. v. Bates, 4 Wn.2d 498, 104 P.2d 478 (1940).
In addition, while legislative history concerning an enactment is relevant only when a statute is ambiguous or its meaning doubtful or obscure (Shelton Hotel Co.,Inc. v. Bates, supra) even if such ambiguity were here to be found, it is clear from what recorded legislative history there is concerning your question that the legislature knew what it was doing in its use of the term "renegotiation" in this act. In proceedings before the Senate during that body's consideration of this measure the following "Point of Inquiry" and answer thereto was made:
[[Orig. Op. Page 6]]
"Senator Mardesich: 'Would Senator Durkan yield to a question? Senator Durkan, what is implied by the definition of "renegotiated" in Section 3, Subsection (3) on page 4?'
"Senator Durkan: 'It is the intent of this legislation that there is a "renegotiation" only when there is an adjustment of rent or other consideration payable to the lessor at the time of an extension or renewal of the lease itself.
"'Long-term leases including escalator clauses or rental readjustment clauses are not deemed renegotiated unless they are extended or renewed at the time of readjustment. . . .'"1/
In summary, although it could logically be argued that the underlying purpose of chapter 187,supra, would be served by applying the special in lieu excise tax fixed by § 4 only to those leaseholds with respect to which the amount of the consideration to be paid by the lessee could not be changed during the term of the lease, the definition of "renegotiation" in § 3(3) precludes any such construction. Your question, as above paraphrased, must therefore be answered in the negative with the result that this excise tax and not the regular ad valorem property tax is applicable to all pre‑July 1, 1970 leases of state or political subdivision property to private lease except where the lease has been renegotiated since that date as part of an extension or renewal, or has in any event been renewed or extended since then.2/
[[Orig. Op. Page 7]]
We trust that the above information will be of assistance to you.
Very truly yours,
WILLIAM D. DEXTER
Assistant Attorney General
*** FOOTNOTES ***
1/Point of Inquiry dated April 10, 1973, Tape 12, page 10.
2/Because § 11, supra, speaks not only of those leases which have been "renegotiated" since July 1, 1970, but of those that have been extended or renewed since then as well, it will be seen that a leasehold which has been extended or renewed since that date will be subject to the property tax and not the excise tax even if no change in consideration payable from lessee to lessor has been negotiated.