King County Personal Property Tax Leasehold Improvements
Even if the rental assets were taxable entities in this case, they could not be valued on the basis of the cost of the improvements, but must be valued at a price that would lead to a fair and voluntary cash sale[6], as required by law. This was the precursor to our current charter, RCW 84.04.080, and it is clear that leases were defined as personal property for tax purposes, so interest on rent could be taxed and tax could be levied if the leased land was exempt. Shortly after this change in law, this court repeated the rule that, normally, in the case of leases between individuals, the entire estate must be estimated and taxed as a unit and that the tax burden is a contractual matter between the landlord and the tenant. Trimble *63 c. Seattle, 64 Wash. 102, 116 p. 647 (1911). This rule was expressly upheld by the U.S. Supreme Court in Trimble v. Seattle, 231 U.S. 683, 58 L. Ed. 435, 34 pp.
Ct. 218 (1914). If we understand the county`s argument, it does not resist the argument that the improvements are real estate, but apparently argues that the value of the property and use of the improvements reflects the taxable value of the hereditary building right[2] and, as such, is taxable for Clark corporations as additional personal property that has not been previously reported. The county also emphasizes that the property value of improvements is at least the cost of improvements and that, therefore, the cost of improvements can be used as a measure of lease value. [2] Ad valorem property taxes are primarily material in nature. The tax is levied on the property itself, not on the owners of the various interests in the land. *64 If the interest on the commission is private interest, a single tax is levied on the entire estate. If ownership of royalty interest is in the possession of the State and is therefore exempt from tax and unavoidable by tax privilege, the taxable interest on ownership must be taxed separately. The collection of the tax on land interest is carried out by the fact that the tenant is personally obliged to pay the tax. However, this legal framework does not intend to create the very complicated fragmentation that would occur if each of the myriads of sublets under a long-term lease of highly developed public lands were assessed separately and taxed as a property right. The single assessment rule requires that a crown land lease be assessed and taxed as a unit on the value of the primary leased property.
The county`s attempt to value the sublease based on the cost of the improvements and to value that value separately from the value of the master lease is not reflected in our tax structure. [4] We would like to highlight this « if any » because it is easy to see that improvements that could be of significant value to a tenant by using the premises for specific purposes would not add to the value of the building. We recently had the opportunity to reiterate unequivocally that a lease should not be valued separately when determining the value of a property for tax purposes. Alaska Land Co.c. King County, 77 Wn.2d 247, 254, 461 p.2d 339 (1969). This is an appeal against a decision ordering the sale by the King County Treasurer under an arrest warrant *60 of the seizure of personal property of four different companies that operate eight restaurants in King County. These companies had refused to pay certain « additional personal wealth taxes » levied on them, which they claim were illegal and void. It is therefore clear that the county`s attempt to identify the cost of improvements as a determination of the tax value of leases and to assess that value separately from interest on fees violates the general plan of our property tax laws with respect to the six restaurants located on private property. The potential value of the building improvements[4] should have been reflected in the assessments of the interest in the levy. The history of property tax laws shows that the legislator did not want to give the expert the alternative of taxing improvements on the hereditary building right and not on the hereditary building right itself. An in-depth analysis of this point can be found at Pier 67, Inc.
v. King County, 78 Wn.2d 48, 469 P.2d 902 (1970). [6] The factors that can reasonably be considered by the county in determining the price that would be obtained in the event of a fair and voluntary sale for cash payment are discussed in Pier 67, Inc.c. King County, 78 Wn.2d 48, 469 P.2d 902 (1970). Although we confirm the court of first instance by issuing an injunction, we do not agree that the reasons for this decision can be expressed in such a simple and summary manner. The importance of the questions asked warrants further examination of the district`s position. We would like to clarify at the beginning that the personal property of the traditional restaurant (the removable ones) of the eight restaurants of 1961 has been taxed and that the taxes have been paid. The taxes that the county is not allowed to levy are what it calls « additional personal property taxes. » These were valued against the four Clark companies, which cover the eight restaurants, for the year 1961, after King County tax authorities were informed by the State Tax Commission of an audit of the Clark companies` books, which found that in 1961, about $375,000 had been invested in improvements, additions and modifications to the eight restaurants leased by the Clark Companies. These expenses ranged from a high of $107,197.43 to a low of $13,771.98, including two in the range of $65,000 to $70,000. Based on these expenses (which included architects` fees), additional personal property taxes were levied on leasehold improvements at each of the eight restaurants. [3] This was a measure to prevent King County from levying personal property taxes on rental interests in tidal areas of the state. That court ruled that the hereditary right to build was immovable property and that the court of first instance had duly rejected the plaintiff`s claim.
The trial court accepted the Clark companies` theory that improvements resulting from expenses discovered by the audit could not be easily outsourced and attached to floors and walls, should be part of real estate and *61 should be taxed as such and not as personal property. The trial court therefore permanently prohibited King County, its agents or officials from « taking possession, offering, selling or selling the personal property of the Clark companies `for the satisfaction or payment` of the disputed taxes, calling it « illegal, illegal, void and taxable ». The county contends that the purpose of this act is to prohibit all tax actions brought after the expiry of the time limit provided for by the law. The Clark Companies are pushing for this not to apply to lawsuits filed to prohibit the collection of illegal and zero taxes. In Moeller v. Gormley, 44 Wash. 465, 87 P. 507 (1906)[3] This court held that a lease of Crown land constituted a taxable interest, but also found that such an interest was real property and that the King County official who had assessed it as personal property could be excluded from the collection of the personal property taxes so assessed. The difficulty of levying property taxes on hereditary rental property when the State or other government agency owned the costs was obvious, and Parliament reacted quickly by enacting chapter 108 of the Statutes of Session of 1907, which provided in section 1 of the Statutes of Session: (3) We would like to emphasize this, and this in itself should be decisive for this particular case, That even though the assets leased by the Clark Companies are considered « taxable leases, » King County has made no effort to determine the value of these property interests in accordance with RCW`s statutory mandate 84.40.030: The county`s position is not supported by the laws of that state with respect to the taxation of real estate and personal property. In order to clarify some existing confusions, which are exacerbated by the county`s arguments in this case, it becomes necessary to examine to some extent the historical evolution of our property tax laws in terms of hereditary building rights on private and public lands.
Although no argument was put forward in this case, County *65 could have argued that RCW 84,04,080 gives the appraiser the alternative of taxing improvements to the two restaurants directly on state land, rather than trying to tax the value of these leases relative to the cost of the improvements. We quote RCW 84.04.080 again with the addition we just referred to. [4] The limitation period is an affirmative defence, and since the county has not confirmed it, it is considered null and void. Boyle v. Clark, 47 Wn.2d 418, 287 p.2d 1006 (1955). Since the affirmative defence has been waived, it is not necessary to consider whether the law would apply to an application for an injunction. There is another issue that needs to be discussed in this case. The county submits that the injunction sought by clark corporations was time-barred by the statute of limitations, RCW 84.68.060. The law reads as follows: [5] This wording clearly considers property of building rights that are not taxable as separate entities […].