Korean Air Lines Co., Ltd. v. County of Los Angeles

Korean Air Lines Co., Ltd. v. County of Los Angeles

The Second Appellate District reversed a judgment. The court held that a lessee at a municipally-owned airline terminal had sufficient autonomous authority and control over its use of an area jointly used by other lessees and the public for that use to qualify as independent under R&T. Code 107(a), and under the facts of the case, thus had a taxable possessory interest in the area.

Korean Air Lines Co., Ltd. (KAL), was party to a written lease with the Cify of Los Angeles, the owner of Los Angeles International Airporl (LAX), for space in the Tom Bradley International Terminal. KAL's lease consisted of leased premises exclusive to KAL for ticket counter and office areas. joint-use space consisting of the deparlure lounge, baggage service and claim, and other areas also used by other airlines. and the federal inspection service area (FIS area) including customs. immigration-inspection and other areas.

For the three property tax years 1999-2001, KAL paid tax on its taxable possessory interest in its leased space as determined and assessed by the County of Los Angeles.

In 2004, KAL claimed a refund for property taxes pursuant to R&T. Code 5097  for the three subject tax years, asserting it had no taxable possessory interest in the FIS area. The county failed to act on the claims.

KAL sued for a refund. After bench trial, the trial entered  judgment for KAL, finding its interest in the FIS area was not statutorily independent, since the federal agencies held sole authority and control. The county appealed.

The court of appeal reversed, holding that KAL had sufficient autonomous authority and control over its use of the FIS area for its use to qualify as independent under 107(a).

The courl pointed out that a taxable possessory interest under 107(a)  required that KAL's possession had to be independent, durable, and exclusive. KAL never contested that its use of the FIS area met the latter two criteria.

Moreover, determination of whether KAL's possession was independent ultimately hinged upon whether KAL was the agent of the public owner, the city.

That is, the independence element had to be interpreted in accord with its purpose, which was limited to addressing whether KAL held rights in the property in its own capacity, or merely as an agent of its government landlord.

Here, the lease terms supported the conclusion that KAL's use was independent, in that they did not include stringent financial and operational controls recognized as indicating that a use might be a mere agency.

However, the lease did expressly require KA comply with applicable federal, state, and local law
regard to security at the airport.

Nonetheless, those provisions did not support the conclusion that when KAL used the FIS area for deplaning its passengers and crew, it was acting as the agent of the federal government or the city.

KAL's use of the FIS area was for the purpose of commerciai profit, not governmentai purposes, an integral factor in the use's independence. Despite the city's control, KAL retained sufficient control to obtain profit from its use. The matters over which the FIS agencies had control also related to the health and safefy of the public, and KAL conceded its receipt of private benefit from access of its passengers and employees to the FIS area. KAL's three leased spaces operated as a unit in its commercial enterprise at LAX. providing a defined location for its services to passengers. their baggage, and their other needs.

Since the spaces operated as a unit in KAL's enterprise, it followed that its use of the FIS space was independent, just as was its use of the other spaces. Additionally, in exercising its authority and control with respect to the FIS area, KAL was required to operate within applicable federal law, and whether its operational and management decisions would be fully carried out was subject to the ultimate control of the federal agencies.

That was consistent with measuring independence by the amount of routine control and supervision enjoyed by KAL. albeit that the government necessarily retained ultimate control.

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