County Board of Equalization of Wasatch County v. Utah State Tax Commission

This opinion is subject to revision before final publication in the Pacific Reporter.

IN THE SUPREME COURT OF THE STATE OF UTAH

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Original Proceeding in this Court

Attorneys: Dan H. Matthews, Derek Pullan, Heber City, for

Wasatch County Board of Equalization

Jan Graham, Att'y Gen., John C. McCarrey, Asst.

Att'y Gen., Salt Lake City, for Tax Commission

Rex E. Madsen, Reed L. Martineau, Salt Lake City,

for Strawberry Water Users Association

DURHAM, Justice:

The Wasatch County Board of Equalization (Wasatch County or the County) sought to impose a

tax on the Strawberry Water Users Association (the Water Users Association) pursuant to the

"rollback" provisions of the Farmland Assessment Act. The Water Users Association appealed

the County's assessment to the Utah State Tax Commission (the Tax Commission), which

granted its petition for summary judgment and ordered the County to withdraw the assessment.

Wasatch County petitioned this court for review of the Tax Commission's order, which we

affirm.

Until 1989, the Water Users Association held the land use rights to federal property surrounding

Strawberry Reservoir. Pursuant to a contract with the United States government, the Water

Users Association used the land for grazing and other purposes. Although it was not the owner

of the land, the Association paid a "privilege tax" to Wasatch County in connection with its use

of the federal land. The privilege tax is a tax "imposed on the possession or other beneficial use

enjoyed by any person of any real or personal property which [like the federal land involved in

this litigation] . . . is exempt from taxation." Utah Code Ann. 59-4-101(1)(a). The amount of

the privilege tax "is the same amount that the ad valorem property tax would be if the possessor

or user were the owner of the property." Id. 59-4-101(2).

In 1972, the Water Users Association applied for and was granted a farmland or "greenbelt"

assessment on the value of the property under the Farmland Assessment Act, Utah Code Ann.

59-2-501 to -515 (1992).⁽¹⁾ That chapter permits certain

property used for agriculture, including "[l]and which is subject to the privilege tax," id. 59-2-503(2), to be assessed for general tax purposes based on "the value which the land has for

agricultural use," rather than on the land's fair market value. Id. 59-2-503(1). This agricultural

use valuation results in a substantial tax savings to the landowner or, as in this case, the land

user. However, the act also provides that "[i]f land which . . . has been in agricultural use . . . is

applied to a use other than agricultural, . . . it is subject to an additional tax referred to as the

'rollback tax.'" Id. 59-2-506(1). The rollback tax amounts to "the difference between the tax

paid while the land was valued under [the Farmland Assessment Act], and that which would have

been paid had the property not been valued under this part." Id. 59-2-506(4).

In 1989, the Water Users Association was forced by the passage of a federal statute to relinquish

its land use rights to the United States government, which paid the Association fifteen million

dollars to be released from the contract. The Wasatch County assessor took the position that

agricultural use ceased after 1989 and sought to impose the rollback tax on the Association for

the previous five years. The Water Users Association appealed to the County, which affirmed

the tax. The Association then appealed to the state Tax Commission, which held as a matter of

law that "the rollback tax could not apply to the privilege tax because by definition the

underlying property is owned by a tax exempt organization [i.e., the United States government]."

During discovery before the Tax Commission, the Water Users Association withheld certain

documents from Wasatch County, claiming that the materials were protected from discovery

under the work product doctrine and the attorney-client privilege. The County filed a motion to

compel discovery of the withheld material, which the Tax Commission denied.

The County now seeks review of the decision of the Tax Commission on both issues, arguing

(1) that the rollback tax may be imposed on all land that ceases to be used for agricultural

purposes, including tax-exempt land whose use is subject to the privilege tax, and (2) that there

was inadequate evidence to support the Association's claims of attorney-client and work product

privileges for materials withheld from discovery. Because we conclude that the rollback tax does

not apply to the use or possession of land taxed under the privilege tax, we need not reach the

discovery question.

The controversy in this case stems from an apparent inconsistency in the tax laws. Section 59-4-101(1) (1992) of the Utah Code describes the application of the privilege tax:

[A] tax is imposed on the possession or other beneficial use enjoyed by any person of any real or

personal property which for any reason is exempt from taxation, if that property is used in

connection with a business conducted for profit.

(Emphasis added.) By the plain language of this statute, the tax is imposed not on the land

(which by definition is tax exempt), but on the possession or use of the land. Payers of the

privilege tax who have been using the land for agricultural purposes and then cease to use it for

those purposes apparently escape imposition of the rollback tax under section -506 of the

Farmland Assessment Act because it is imposed on "land which is or has been in agricultural

use." Id. 59-2-506(1) (emphasis added). However, section 59-2-503(2) of the same Act, in

applying the greenbelt assessment to the privilege tax, seems to describe the privilege tax as a tax

on land: "Land which . . . is subject to the privilege tax imposed by 59-4-101 . . . is eligible for

assessment based on its agricultural value." This section implies that the privilege tax is imposed

on land, not merely on its use or possession, and that the rollback tax, which applies to all "land

. . . valued, assessed, and taxed" under the Farmland Assessment Act, id. 59-2-506(1), may

therefore be imposed on lands for which a privilege tax has been paid.

The County proposes that the inconsistency in these statutes should be reconciled by reading the

word "land," as used in the Farmland Assessment Act, to mean both land in its usual sense and

also the "use of land." In support of its interpretation, the County argues that because the

privilege tax is assessed in the same amount and collected in the same way as a tax on land, the

legislature's intent must have been to treat both taxes the same for all purposes. The County also

argues that it is inconsistent and unfair to impose the rollback tax on landowners but not on land

users. Finally, the County characterizes the agricultural assessment as a tax exemption and

argues that courts must construe tax exemption statutes strictly against the party claiming

exemption and that all ambiguities are construed in favor of taxation. See Morton Int'l, Inc. v.

Auditing Div., 814 P.2d 581, 591 (Utah 1991); accord Parson Asphalt Prods., Inc. v. Utah State

Tax Comm'n, 617 P.2d 397, 398 (Utah 1980).

The Association argues that the two statutes may be reconciled by reading the words "subject to"

in section 59-2-503 to mean "affected by," thus rendering the meaning of that statute something

equivalent to "[l]and which . . . is 'affected by' the privilege tax imposed by section 59-4-101 . . .

is eligible for assessment based on its agricultural value." This phrasing would more accurately

describe the relationship between the privilege tax and the tax-exempt lands whose use is being

taxed. Furthermore, "affected by" is one acceptable meaning of "subject to," which is defined as

"[l]iable, subordinate, subservient, inferior, obedient to; governed or affected by, provided that,

provided, answerable for." Black's Law Dictionary 1425 (6th ed. 1990) (emphasis added). But

the usual understanding of what it means to be subject to a tax is not that the subject person is

merely governed or affected by the tax, but that he or she is liable for it and ultimately has to pay

it. And as the County points out, taking the words "subject to" to mean merely "affected by"

does not give those words a meaning that can be applied consistently throughout the statute.

While neither the County's nor the Water Users Association's reading is completely satisfactory,

we nevertheless find the Association's approach more persuasive and consistent with the

statute's language and purpose.

In attempting to give effect to the intent of the legislature, a court must "look first to the plain

language of the statute." Johnson v. Redevelopment Agency, 913 P.2d 723, 727 (Utah 1995).

The plain language of section 59-2-506, the section that actually imposes the rollback tax,

indicates that the land, not the land user, is subject to the tax. In construing a statute, a court

must assume that "'each term in the statute was used advisedly; thus the statutory words are read

literally, unless such a reading is unreasonably confused or inoperable.'" Carlie v. Morgan, 922

P.2d 1, 4 (Utah 1996) (quoting Savage Indus., Inc. v. Utah State Tax Comm'n, 811 P.2d 664, 670

(Utah 1991)). We therefore assume that the legislature used the word "land" advisedly and that

if the legislature had wanted to apply the rollback tax to land users paying a privilege tax, it

would have indicated as much by stating that "land and land use . . . are subject to an additional

tax referred to as the 'rollback tax.'" Furthermore, a literal reading of section 59-2-503, upon

which the County places so much weight, would be "unreasonably confused or inoperable"

because it would require a finding that "[l]and . . . is subject to the privilege tax," when the

privilege tax by definition applies to the use of lands that are otherwise exempt from taxation.

Policy considerations also support the interpretation urged by the Association and the Tax

Commission. As noted above, neither party's conception of this tax scheme is without

difficulty. The County points out that a distinction between landowners and land users is

arbitrary and unfair because, if the rollback tax applies only to landowners, a long-term user or

possessor could change the use before the end of the lease or contract and thus benefit from a

more profitable nonagricultural use while avoiding the rollback tax. This construction would

place a land user or possessor in a more advantageous position than an owner and would

contravene the stated purpose of the privilege tax, which is to "close any gaps in the tax laws,"

Great Salt Lake Minerals & Chems. Corp. v. State Tax Comm'n, 573 P.2d 337, 339 (Utah 1977).

However, in this case the County's position would tax the Water Users Association as a result of

decisions made by the federal government after the Association relinquished its rights in the

property. It may be true, as the County points out, that a long-term user or possessor of land

could benefit from taking the land out of agricultural use without incurring the rollback tax, but

this potential loophole presents a lesser evil than the imposition of a tax burden on a former user

or possessor of property for use decisions made by the property owner after the use period

terminates. This consideration has particular force in this case, where the passage of a federal

statute forced the Association to relinquish its use rights.

Finally, the County's argument that we must construe the Farmland Assessment Act narrowly

and in favor of taxation is inapposite. The rule applies only in construing a tax exemption, and

while the County argues that the Farmland Assessment Act is a tax exemption because it

provides for "preferential tax treatment," we are persuaded that the Farmland Assessment Act, in

particular that portion of the act imposing the rollback tax, is not an exemption but a tax

imposition statute. This is evident from the language of section 59-2-506 wherein the legislature

calls the rollback tax "an additional tax." It is an established rule in the construction of tax

statutes that if any doubt exists as to the meaning of the statute, "our practice is to construe

taxation statutes liberally in favor of the taxpayer, leaving it to the legislature to clarify an intent

to be more restrictive if such intent exists." Salt Lake County v. State Tax Comm'n, 779 P.2d

1131, 1132 (Utah 1989). We therefore resolve the ambiguities in the present tax statute in favor

of the taxpayer. The order of the Tax Commission is affirmed.

Chief Justice Zimmerman, Associate Chief Justice Stewart, Justice Howe, and Justice Russon

concur in Justice Durham's opinion.

Opinion Endnotes:

1. This section was amended in 1992. The amendments, which became effective on January 1,

1993, do not affect the present action.