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Avis Budget Car Rental LLC v. County of Hennepin

Supreme Court of Minnesota

January 15, 2020

Avis Budget Car Rental LLC, Relator,
County of Hennepin, Respondent.

         Tax Court Office of Appellate Courts

          Gary A. Van Cleve, Timothy A. Rye, Larkin Hoffman Daly & Lindgren Ltd., Minneapolis, Minnesota, for relator.

          Michael O. Freeman, Hennepin County Attorney, Sara L. Bruggeman, Assistant County Attorney, Minneapolis, Minnesota, for respondent.


         1. Concession fees paid for the use of airport property are subject to the mandatory-disclosure requirements of Minn. Stat. § 278.05, subd. 6 (2018).

         2. Minnesota Statutes § 278.05, subd. 6(a), requires that the mandatory disclosures be made by the petitioner, not by a third party.



         In this appeal from the Minnesota Tax Court, we consider whether the tax court erred in dismissing Avis Budget Car Rental's property tax petition for failure to disclose certain concession fee information as required by Minn. Stat. § 278.05, subd. 6 (2018). We conclude that it did not, and thus affirm.


         The facts of this case are largely undisputed.[1] Avis Budget Car Rental LLC (Avis) leases space within the Minneapolis-Saint Paul International Airport, which is owned and operated by the Metropolitan Airports Commission (MAC). The economic arrangements between MAC and Avis are governed by what the parties titled a "General Terms and Conditions Lease Agreement" (Lease Agreement) and by Supplemental Lease Agreements.[2] Pursuant to the Lease Agreement, and for each contract year, the companies make payments to MAC as either "concession fees" or as a "minimum annual guarantee," whichever is greater. The concession fee equals 10 percent of the car-rental companies' gross revenues from business authorized by the Lease Agreement. The minimum annual guarantee is the greater of 85 percent of the previous year's concession fee or the first-year bid amount, which was $4, 624, 512 for Avis. Pursuant to the Supplemental Lease Agreements, Avis pays rent for the use of identified space on the leased property.

         MAC itself is exempt from property taxation under Minn. Stat. § 360.035 (2018). But lessees of property at the Airport are assessed property tax "in the same amount and to the same extent as though the lessee or user was the owner of such property." Minn. Stat. § 272.01, subd. 2(a) (2018); see also Nw. Airlines, Inc. v. Cty. of Hennepin, 632 N.W.2d 216, 220-21 (Minn. 2001) (concluding that tax provisions "shift the real property tax liability to relator as a personal property tax in an amount MAC would have had to pay had MAC not been an exempt property owner"). In other words, the lessee-Avis-steps into the owner's-MAC's-shoes for tax purposes.

         Hennepin County assessed the value of Avis's property as of January 2, 2016, for taxes payable in 2017. Avis filed a petition challenging that valuation. Because the property is income-producing, Avis is subject to the property tax mandatory-disclosure provision, Minn. Stat. § 278.05, subd. 6, which requires that petitioners disclose certain income information by August 1 of the taxes-payable year.

         Hennepin County provided Avis with a compliance checklist, which Avis returned along with its disclosure. Avis represented in its disclosure that it had a lease agreement by which it was paying base rent of $30.46 per square foot on 459, 453 square feet. In a Lease Abstract Report attached to a later affidavit, Avis represented that the $30.46 base rent number had been calculated as the sum of three numbers: "Mag 1" (minimum annual guarantee); "Overflow Parking"; and "Rent Exp Facilities."[3]

         Thus, Avis disclosed base rent calculations that were based, in part, on the minimum annual guarantee. It did not disclose that, pursuant to the Lease Agreement, the fee it was obliged to pay was the higher of the concession fee-a percentage of gross revenue-and the minimum annual guarantee. And it did not disclose whether the actual payments to MAC were based on the fee or the guarantee.

         Independent of the petition process, Hennepin County received information from MAC regarding the sales revenue, percentage rent, minimum annual guarantees, and overall rent paid for 2014 and 2015 for MAC's car-rental lessees, including Avis. MAC provided this information as part of an informal disclosure that it makes to Hennepin County on an annual basis. In other words, MAC disclosed information that Avis did not. Avis acknowledges that it did not know about MAC's disclosure when it submitted its own disclosures.

         Hennepin County moved to dismiss Avis's petition for failure to comply with the mandatory-disclosure requirements of section 278.05, subdivision 6(a). The tax court found that the concession fees were rent, and were therefore subject to mandatory disclosure. It also found that Avis, not MAC, was required to make the disclosure under subdivision 6(a), which it had not done. Based on these findings, the tax court concluded that Avis had failed to comply with the mandatory-disclosure requirements and that dismissal was required. This appeal followed.


         "A review of any final order . . . may be had on the ground that the Tax Court was without jurisdiction, that the order of the Tax Court was not justified by the evidence or was not in conformity with law, or that the Tax Court committed any other error of law." Minn. Stat. § 271.10, subd. 1 (2018). The tax court's application of law is reviewed de novo, Langer v. Comm'r of Revenue, 773 N.W.2d 77, 80 (Minn. 2009), and the tax court's factual findings are reviewed for clear error, Antonello v. Comm'r of Revenue, 884 N.W.2d 640, 647 (Minn. 2016).

         Avis contends that the tax court erred in dismissing its petition for two reasons. First, it asserts that disclosure of the concession fee information was not required by the mandatory-disclosure provision. Second, it argues that, even if disclosure of the concession fee was mandatory, the information furnished by MAC to Hennepin County satisfied that requirement. We discuss each issue in turn.


         The Legislature's charge to property assessors is "to consider and give due weight to every element and factor affecting the market value [of properties]." Minn. Stat. § 273.12 (2018). To aid the assessors, Minnesota law requires that tax petitioners contesting the valuation of income-producing properties disclose six categories of information, as itemized in Minn. Stat. § 278.05, subd. 6. Failure to comply with the disclosure requirements "shall result in the dismissal of the petition." Minn. Stat. § 278.05, subd. 6(b). Relevant here, subdivision 6 requires disclosure of year-end financial statements, rent rolls and identification of lease agreements (including base rent and square footage leased), and anticipated income and expenses relative to the property. Id.

         Avis argues that the information-disclosure requirements in subdivision 6 did not require that it disclose concession fees paid under the Lease Agreement. The company's theory is that such fees are not income attributable to the property. The fees are paid, Avis contends, not as rent for property, but solely for the right to conduct business at the Airport. That is why they are denominated as "concession fees," while payments made on a square foot basis (detailed in the Supplemental Lease Agreements) are called "rent."[4]

         How a payment may be labeled is not irrelevant, but it is not dispositive. As we said recently, the question under the mandatory-disclosure rule is whether the property "generates income." See Wal-Mart Real Estate Bus. Tr. v. Cty. of Anoka, 931 N.W.2d 382, 388 (Minn. 2019). Thus, for example, in Wal-Mart, we decided that properties were generating disclosable income through what the property owner considered to be nationwide "licensing" agreements for "vestibule" businesses. Id.

         Here, viewing the agreements between Avis and MAC in their entirety, these concession fees do not escape the mandatory-disclosure provision's sweep. The fees were rent or, at least, income that needed to be disclosed under the statute, whether in the required financial statements, as rent information, or as anticipated income. See Minn. Stat. § 278.05, subd. 6(a). This is so for two reasons.

         First, the relevant agreements between MAC and Avis show that amounts paid as concession fees or as the minimum annual guarantee are income attributable to the property. The very name of the document that establishes the concession fee and the minimum annual guarantee shows the connection; it is entitled "General Terms and Conditions Lease Agreement." The title ...

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