     The summaries of the Colorado Court of Appeals published opinions
  constitute no part of the opinion of the division but have been prepared by
  the division for the convenience of the reader. The summaries may not be
    cited or relied upon as they are not the official language of the division.
  Any discrepancy between the language in the summary and in the opinion
           should be resolved in favor of the language in the opinion.


                                                                 SUMMARY
                                                             August 29, 2019

                               2019COA134

No. 18CA0535, Rare Air Ltd. v. Prop. Tax Adm’r — Taxation —
Property Tax — Improvements

     A division of the court of appeals considers whether an

improvement located on tax exempt land is subject to property tax

when the underlying land is government-owned land that is leased

from a private party that holds a possessory interest in the land.

The division concludes that tax assessments on improvements are

properly made even against mere lessees when the lessee is, for all

practical purposes, the owner of the improvements. This is so

where a lessee’s possessory interest in the land includes rights such

as exclusive use, the right to encumber, and the retention of all

income generated, because such an interest constitutes the
substantial equivalent of complete ownership for property tax

purposes.

     The division therefore concludes that the Board of Assessment

Appeals (BAA) correctly determined that Rare Air Limited, LLC (Rare

Air), possesses a taxable ownership interest in the hangar facility.

And, absent a lawful exemption, such an interest is properly

assessed taxes on that interest. In so concluding, the division

rejects Rare Air’s contention that because its interest in the

improvement should be assessed as a possessory interest, such

assessment is barred by section 39-1-103(17), C.R.S. 2018. The

division further concludes that, in the absence of multiple

taxpayers with interests in a single property, the unit rule

established by section 39-1-106, C.R.S. 2018, has no application.

     Accordingly, the division affirms the BAA’s order upholding the

2015 tax assessment on Rare Air’s property.
COLORADO COURT OF APPEALS                                     2019COA134


Court of Appeals No. 18CA0535
Board of Assessment Appeals Case No. 69880


Rare Air Limited, LLC,

Petitioner-Appellant,

v.

Property Tax Administrator,

Respondent-Appellee,

and

Board of Assessment Appeals,

Appellee.


                               ORDER AFFIRMED

                                    Division II
                            Opinion by JUDGE TERRY
                         Pawar and Márquez*, JJ., concur

             Prior Opinion Announced July 18, 2019, WITHDRAWN

     OPINION PREVIOUSLY ANNOUNCED AS “NOT PUBLISHED PURSUANT TO
     C.A.R. 35(e)” ON JULY 18, 2019, IS NOW DESIGNATED FOR PUBLICATION

                           Announced August 29, 2019


Kutak Rock LLP, Kenneth K. Skogg, Dana B. Baggs, Denver, Colorado, for
Petitioner-Appellant
Philip J. Weiser, Attorney General, Robert H. Dodd, First Assistant Attorney
General, Allison Robinette, Assistant Attorney General, Denver, Colorado, for
Respondent-Appellee

Philip J. Weiser, Attorney General, Evan P. Brennan, Assistant Attorney
General, Denver, Colorado, for Appellee

Kristin M. Bronson, City Attorney, Charles Solomon, Assistant City Attorney,
Noah Cecil, Assistant City Attorney, Denver, Colorado, for Amicus Curiae City
and County of Denver


*Sitting by assignment of the Chief Justice under provisions of Colo. Const. art.
VI, § 5(3), and § 24-51-1105, C.R.S. 2018.
¶1    In this property tax case, taxpayer, Rare Air Limited, LLC

 (Rare Air), appeals the order of the Board of Assessment Appeals

 (BAA) upholding the 2015 tax assessment on its property. We

 affirm.

                           I.    Background

¶2    This appeal arises out of a dispute over a property tax

 assessment made on an aircraft hangar facility located at

 Centennial Airport.

¶3    Centennial Airport, located in Arapahoe and Douglas

 Counties, Colorado, is owned by the Arapahoe County Airport

 Authority (Authority), which is tax-exempt as a political subdivision

 of the State of Colorado. The Authority holds title to land in

 Arapahoe and Douglas Counties.

¶4    In 2006, the Authority leased approximately seventy acres of

 airport land in Douglas County, at a rate of five cents per square

 foot, to Denver jetCenter (DJC) pursuant to a Master Lease. The

 initial term of the Master Lease is forty years with optional

 extensions of another fifty years.

¶5    Under the terms of the Master Lease, DJC is required to

 construct, or contract for the construction of, certain improvements

                                      1
 on the leased land. Those improvements include an aircraft hangar

 facility to provide specified aviation-related services. The Master

 Lease further provides that DJC may enter into a sublease, with the

 Authority’s approval, to provide some of the required improvements

 and services.

¶6    DJC entered into a sublease (Ground Lease) in 2011 with Rare

 Air to satisfy its obligation to construct the hangar facility. The

 Ground Lease covers about three acres out of the seventy acres

 DJC leases from the Authority under the Master Lease. The

 Ground Lease includes only land, requires rent payments of

 thirty-five cents per square foot, and has a base term of twenty-five

 years with an option to extend for an additional five years. If the

 lease is extended the rent will be adjusted to include the land and

 any improvements.

¶7    The Ground Lease obligates Rare Air to construct

 improvements consisting of a building containing an aircraft

 hangar, storage, and office space with a minimum area of 25,000

 square feet. The Ground Lease provides that Rare Air will be

 deemed to own, and will hold title to, all improvements made by

 Rare Air, until the expiration of the lease, at which time title will

                                     2
  vest in DJC. If the lease is extended, title to the improvements will

  then vest in DJC.

¶8     Constructed in 2012 at a cost of approximately $2.4 million,

  the hangar facility consists of 30,000 square feet of hangar space

  and 9900 square feet of office and support space. The hangar can

  accommodate five jet aircraft, and contains office space, meeting

  rooms, a lounge, a kitchen, and interior automobile parking. The

  hangar facility is located on tax-exempt land owned by the

  Authority.

¶9     Rare Air has the exclusive right to possess, use, operate, and

  receive revenues from the hangar facility and owns and holds title

  to all improvements it constructs on the leased land, including the

  hangar facility. Rare Air further has the rights to all depreciation

  and tax advantages, to assign or transfer the improvements with

  proper authorization, and to encumber the improvements. It also

  has the duty to obtain insurance and maintain any improvements

  at its own expense.

¶ 10   For tax year 2015, the Douglas County Assessor’s Office

  issued a notice of valuation to Rare Air for the value of the hangar

  facility of $2,871,708.00. The value of the hangar has not been

                                    3
  disputed by the parties. Claiming that the hangar facility should be

  assessed to DJC’s leasehold interest in the seventy acres of land

  under the Master Lease, Rare Air sought and obtained from

  Douglas County an abatement for the tax assessment.

¶ 11   But due to the size of the abatement, review by the Property

  Tax Administrator was required. The Tax Administrator overruled

  the abatement, stating that “all property, real and personal, located

  in the State of Colorado on the assessment date . . . is taxable

  unless expressly exempted by the Constitution or state statutes.”

¶ 12   Rare Air appealed the Tax Administrator’s decision to the BAA,

  which upheld the decision of the Tax Administrator, determining

  that Rare Air had been correctly assessed for its interest in the

  hangar.

                              II.   Analysis

¶ 13   Rare Air contends that the BAA erred in upholding the tax

  assessment on improvements — the hangar facility — because (1)

  DJC — not Rare Air — holds a taxable interest in the hangar

  facility; (2) the assessment violates the statute governing taxation of

  possessory interests; and (3) the assessment violates the unit

  assessment rule. We disagree with each of these contentions.

                                     4
              A.   Standard of Review and Applicable Law

¶ 14   Review of the BAA’s decision presents a mixed question of law

  and fact. Farny v. Bd. of Equalization, 985 P.2d 106, 109 (Colo.

  App. 1999). It is the function of the BAA to weigh the evidence,

  make credibility determinations, and resolve any factual conflicts.

  Bd. of Assessment Appeals v. Sampson, 105 P.3d 198, 208 (Colo.

  2005). We therefore defer to the BAA’s factual findings and will not

  disturb them unless they are clearly erroneous, meaning they are

  unsupported by the record. Id.

¶ 15   Questions of law, including the meaning and scope of property

  tax statutes, are reviewed de novo. Boulder Cty. Bd. of Comm’rs v.

  HealthSouth Corp., 246 P.3d 948, 951 (Colo. 2011). Whether the

  BAA’s decision comports with the statutory scheme is a legal

  question that we review de novo. Lobato v. Indus. Claim Appeals

  Office, 105 P.3d 220, 223-24 (Colo. 2005).

¶ 16   Judicial deference to an agency’s interpretation of a statute “is

  appropriate when the statute before the court is subject to different

  reasonable interpretations and the issue comes within the

  administrative agency’s special expertise.” Huddleston v. Grand

  Cty. Bd. of Equalization, 913 P.2d 15, 17 (Colo. 1996). Even so, we

                                    5
  are not bound by an agency decision that misapplies or

  misconstrues the law. El Paso Cty. Bd. of Equalization v. Craddock,

  850 P.2d 702, 704-05 (Colo. 1993).

                             B.    Discussion

                1.    Property Taxation of Improvements

¶ 17   Rare Air contends that it does not have a taxable interest in

  the hangar facility. We disagree.

¶ 18   “The Colorado Constitution directs that all real and personal

  property, as defined by the legislature, must be taxed unless it is

  exempted in accordance with law.” Bd. of Cty. Comm’rs v. Vail

  Assocs., Inc., 19 P.3d 1263, 1275 (Colo. 2001) (relying on Colo.

  Const. art. X, § 3(1)(a)). As a result, no affirmative tax provision

  needs to be enacted for real and personal property to be taxed. But

  exemptions from taxation must be expressly enacted into law. See

  § 39-1-102(16), C.R.S. 2018 (defining “[t]axable property” as “all

  property, real and personal, not expressly exempted from taxation

  by law”). “Real property” is defined to specifically include

  “[i]mprovements.” § 39-1-102(14)(c).

¶ 19   Improvements are statutorily defined as “all structures,

  buildings, fixtures, fences, and water rights erected upon or affixed

                                      6
  to land, whether or not title to such land has been acquired.” § 39-

  1-102(6.3). Accordingly, buildings and structures are

  improvements subject to taxation as real property unless exempted.

¶ 20   Rare Air constructed the hangar facility at its own expense.

  The Ground Lease vests in Rare Air significant benefits of

  ownership in the hangar facility, including exclusive use of the

  facility, the right to all depreciation and tax advantages, retention of

  all profits generated, and the rights to encumber the improvements

  and assign or transfer them with proper authorization. Rare Air

  also bears the burdens of ownership, including duties to maintain

  the facility at its own expense, pay any assessed taxes pursuant to

  the terms of the Ground Lease, and insure the facility at its own

  expense. There is no evidence in the record that any other person

  or entity possessed those benefits or burdens of ownership in the

  hangar facility in tax year 2015.

¶ 21   Importantly, Rare Air holds title to the hangar facility. This

  fact alone is often determinative in identifying who should be taxed

  as the property owner. Hinsdale Cty. Bd. of Equalization v. HDH

  P’ship, 2019 CO 22, ¶¶ 26-38 (identifying some of the narrow

  circumstances that justify looking beyond record title to determine

                                      7
  who is the “owner” for tax purposes). And while title to that facility

  may vest in DJC upon the expiration of the Ground Lease, there is

  no evidence in the record that any other person or entity held title

  to the hangar facility in tax year 2015. (The Ground Lease is not

  set to expire until 2036, at the earliest.)

¶ 22   Even if Rare Air did not hold title to the hangar facility,

  though, tax assessments on improvements are properly made even

  against mere lessees when the lessee is, for all practical purposes,

  the owner of the improvements. In this regard we are persuaded by

  the analysis in Southard v. Board of Equalization, 996 P.2d 208

  (Colo. App. 1999). There, a taxpayer leased airport land for a term

  of twenty-eight years and constructed a terminal and aircraft

  hangars pursuant to the lease but did not hold title to the

  improvements. Nonetheless, a division of this court affirmed the

  property tax assessment against the lessee, as the owner of the

  improvements, because the lessee’s rights, including exclusive use,

  the right to encumber, and the retention of all income generated,

  constituted the substantial equivalent of complete ownership for

  property tax purposes. Id. at 210-11.



                                      8
¶ 23        The BAA correctly determined that Rare Air possesses a

  taxable ownership interest in the hangar facility. And the owner of

  such an interest is properly assessed taxes on that interest, absent

  a lawful exemption. See HDH P’ship, ¶ 36 (noting the approach of

  “imputing tax liability to all interests in real property, unless

  lawfully exempted”); see also § 39-1-111(1), C.R.S. 2018 (all taxable

  property located in each county on the assessment date is subject

  to taxation); City & Cty. of Denver v. Bd. of Assessment Appeals, 848

  P.2d 355, 360 (Colo. 1993) (“‘[O]wner’ of property is responsible for

  property taxes regardless of how various property rights may have

  been pledged or exchanged.”). Thus, we conclude that Rare Air was

  properly assessed for its ownership interest in the hangar facility,

  which is an improvement constituting a taxable interest in real

  property.

       2.     Section 39-1-103(17) and Taxation of Possessory Interests

¶ 24        Rare Air further contends that section 39-1-103(17), C.R.S.

  2018, is the sole authority for assessing taxes on possessory

  interests and that the assessment on Rare Air is not within the

  statutory grant of authorization for taxation of possessory interests.

  As set forth above, we view Rare Air’s ownership interest in the

                                        9
  hangar facility to be that of direct ownership of improvements

  taxable as real property. However, assuming, without deciding,

  that Rare Air’s interest in the hangar facility should be assessed as

  a possessory interest, we still reject Rare Air’s contention that any

  such assessment is barred by statute.

¶ 25   A possessory interest is “[t]he present right to control property,

  including the right to exclude others, by a person who is not

  necessarily the owner.” Black’s Law Dictionary 1353 (10th ed.

  2014). A possessory interest in public property is a “private

  property interest in government-owned property or the right to the

  occupancy and use of any benefit in government-owned property

  that has been granted under lease, permit, license, concession,

  contract, or other agreement.” 3 Div. of Prop. Taxation, Dep’t of

  Local Affairs, Assessors Reference Library 7.69 (rev. Apr. 2019). A

  possessory interest in tax-exempt property is taxable if it “exhibit[s]

  significant incidents of private ownership that distinguish it from

  the underlying tax-exempt ownership.” Vail Assocs., 19 P.3d at

  1279.

¶ 26   Contrary to Rare Air’s contention, section 39-1-103(17) does

  not provide the authority for taxation of possessory interests nor

                                    10
  does it dictate whether an interest is taxable or not. No special

  authorization by the legislature is required to tax possessory

  interests because they are, in and of themselves, real property

  interests subject to taxation unless exempted. See § 39-1-102(16)

  (defining “[t]axable property” as “all property, real and personal, not

  expressly exempted from taxation by law”); Vail Assocs., 19 P.3d at

  1275; see also § 39-1-107(4), C.R.S. 2018 (property tax on

  possessory interest assessed and collected in the same manner as

  property taxes assessed to owners of real or personal property).

¶ 27   Furthermore, section 39-1-103(17), by its very terms,

  addresses the valuation of taxable possessory interests. The title of

  section 39-1-103 is “Actual value determined – when.” And the

  statute provides, in pertinent part, that “[t]he general assembly

  declares that the valuation of possessory interests in exempt

  properties is uncertain and highly speculative and that the following

  specific standards for the appropriate consideration of the cost

  approach, the market approach, and the income approach . . . must

  be . . . applied in the valuation of possessory interests . . . .” § 39-

  1-103(17)(a).



                                     11
¶ 28   Accordingly, we conclude that even if Rare Air’s interest in the

  hangar should have been assessed as a possessory interest, such

  an assessment would not be prohibited by section 39-1-103(17).

                       3.    Unit Assessment Rule

¶ 29   Rare Air contends that the unit assessment rule applies and

  that application of the rule requires any assessment on the hangar

  facility to be made to DJC. We conclude, as did the BAA, that the

  unit assessment rule does not apply.

¶ 30   The unit assessment rule is established by section 39-1-106,

  C.R.S. 2018, which provides, as pertinent here, “it shall make no

  difference that the use, possession, or ownership of any taxable

  property is qualified, limited, not the subject of alienation, or the

  subject of levy or distraint separately from the particular tax

  derivable therefrom.” City & Cty. of Denver, 848 P.2d at 359. The

  unit assessment rule “requires that all estates in a unit of real

  property be assessed together, and the real estate as an entirety be

  assessed to the owner of the fee ‘free of the ownerships of lesser

  estates such as leasehold interests.’” Id. at 358 (citation omitted).

¶ 31   The rule “typically operates to tax land and improvements

  together, without the additional separate taxation of lesser interests

                                     12
  therein, such as leaseholds, because taxation of the whole is

  presumed to include taxation of the derivative parts.” Vail Assocs.,

  19 P.3d at 1278. Where, as here, the landowner is tax exempt, the

  rule operates to assess one tax on the various subordinate private

  possessory interests, such as leasehold interests. Id. at 1279.

  However, the unit assessment rule has no application when

  separate and distinct interests in the property exist or have been

  created. Vill. at Treehouse, Inc. v Prop. Tax Adm’r, 2014 COA 6,

  ¶¶ 32-33.

¶ 32   Rare Air states that the unit assessment rule prohibits

  “multiple assessments on multiple taxpayers holding different

  interests in a single property.” Be that as it may, as the BAA found,

  the particular tax assessment contested here covers a single

  property interest: Rare Air’s ownership of the hangar facility. And

  the record contains no evidence that DJC, or any other taxpayer,

  had an ownership interest in the hangar facility in 2015.

¶ 33   The BAA concluded that DJC “did not construct and does not

  own the improvements located on the subleased land” and therefore

  “has no ownership interest in the improvements.” As a result, the



                                   13
  BAA correctly found that the tax on the hangar facility must be

  assessed to Rare Air.

¶ 34   Rare Air, in contrast to DJC, possesses significant incidents of

  ownership in the hangar facility, including the exclusive use of the

  hangar, the right to all depreciation and tax advantages, the

  retention of all profits generated, the right to encumber the

  improvements, and the right to assign or transfer the improvements

  with proper authorization. But most importantly, Rare Air holds

  actual title to the facility. It makes no difference that DJC might

  acquire the hangar if Rare Air defaults on the lease. Given the high

  value of the hangar in comparison with the leasehold, it is highly

  speculative that Rare Air would allow such a default to occur.

¶ 35   In the absence of multiple taxpayers with interests in a single

  property — the hangar facility — the unit assessment rule has no

  application.

                            III.   Conclusion

¶ 36   We conclude that Rare Air was properly assessed for its

  ownership interest in the hangar, which constitutes a taxable

  interest in real property. The BAA’s order is affirmed.

       JUDGE PAWAR and JUDGE MÁRQUEZ concur.

                                    14
