Durbano Properties v. Tax Commission

2023 UT 6IN THE
SUPREME COURT OF THE STATE OF UTAH
DURBANO PROPERTIES, LC,
Petitioner,
v.
UTAH STATE TAX COMMISSION,
Respondent.
No. 20210594
Heard October 5, 2022
Filed May 4, 2023
On Petition for Review of Agency Decision
Attorneys:
Douglas M. Durbano, Richard A. Bednar, Layton, for petitioners
Sean D. Reyes, Att‟y Gen., Sarah Goldberg, Asst. Solic. Gen.,
Salt Lake City, for respondents
JUSTICE HAGEN authored the opinion of the Court, in which
CHIEF JUSTICE DURRANT, ASSOCIATE CHIEF JUSTICE PEARCE,
JUSTICE PETERSEN, and JUSTICE POHLMAN joined.
JUSTICE HAGEN, opinion of the Court:
INTRODUCTION
¶1 The Utah Constitution allows the legislature to enact a
property tax exemption of “up to 45% of the fair market value of
residential property, as defined by statute.” UTAH CONST. art. XIII,
§ 3(2)(a)(iv). The legislature chose to enact such an exemption but
limited the definition of “residential property” to “any property
used for residential purposes as a primary residence.” UTAH CODE
§ 59-2-102(34)(a).
¶2 For several years, Durbano Properties, LC received that
exemption for a rental property it owned in Washington County. But
in 2018, the County denied the exemption because it determined that
the property was not being used as a primary residence. When the
exemption was denied again the following year, Durbano Properties
challenged the decision before the Utah State Tax Commission,
arguing that the property qualified under the statute. The Tax
DURBANO PROPERTIES v. TAX COMMISSION
Opinion of the Court
Commission agreed with the County‟s determination that the
property did not qualify because it was not being used as a primary
residence.
¶3 Durbano Properties also argued that the legislature‟s
definition of “residential property” violated the very constitutional
provision that empowers the legislature to enact a residential
property tax exemption. But the Tax Commission expressly declined
to reach that constitutional argument.
¶4 In this petition, Durbano Properties raises the same
constitutional argument, but it does not explain how limiting the
residential exemption to property used as a primary residence
violates the permissive authority granted to the legislature. If the
legislature chooses to grant a property tax exemption for residential
property, our constitution expressly provides that the term
“residential property” bears whatever meaning the legislature has
assigned to it “by statute.” See UTAH CONST. art. XIII, § 3(2)(a)(iv).
Because Durbano Properties has not persuaded us that the
legislature‟s definition exceeds that authority, we decline to disturb
the Tax Commission‟s decision.
BACKGROUND
¶5 Durbano Properties, LC owns property in a residential
community in Washington County, Utah. For the 2010 through 2017
tax years, Durbano Properties received a residential tax exemption as
provided by the Property Tax Act. See UTAH CODE § 59-2-103(3).
Under the Act, property owners are allowed an exemption equal to
45% of the fair market value of “property used for residential
purposes as a primary residence.” See id. §§ 59-2-103(3), -102(34)(a).
¶6 In 2017, the Washington County Board of Equalization
notified Durbano Properties that the property would no longer
qualify for the residential tax exemption because it was not being
used as a “primary residence.” The County subsequently denied
Durbano Properties‟ application for the exemption for the 2018 and
2019 tax years.
¶7 Durbano Properties challenged the County‟s denial of its 2019
residential tax exemption application. After a formal hearing, the
Utah State Tax Commission determined that Durbano Properties
had failed to show that the property was used as a primary residence
during the relevant period. Accordingly, it concluded that the
County correctly denied Durbano Properties‟ requested exemption.
As part of that challenge, Durbano Properties argued that the
legislature‟s definition of residential property violated the Utah
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2023 UT 6Opinion of the Court
Constitution, but the Tax Commission expressly declined to address
that argument, noting that it lacked jurisdiction to determine the
constitutionality of legislative enactments.
¶8 In its petition before this court, Durbano Properties does not
challenge the Tax Commission‟s determination that the property was
not used as a “primary residence” for purposes of Utah Code section
59-2-102(34)(a). Instead, it argues only that the legislature has
unconstitutionally limited the residential tax exemption to property
used “as a primary residence.”
ISSUE AND STANDARD OF REVIEW
¶9 Durbano Properties argues that the legislature‟s residential
property tax exemption violates article XIII, section 3 of the Utah
Constitution because the statutory definition of “residential
property” exceeds the scope of the legislature‟s constitutional
authority. Because “it is not for the tax commission to determine
questions of legality or constitutionality of legislative enactments,”
State Tax Comm’n v. Wright, 596 P.2d 634, 636 (Utah 1979) (cleaned
up), we have no agency decision to review and therefore address the
constitutionality of the statute for the first time as a question of law.
See Waite v. Utah Labor Comm’n, 2017 UT 86, ¶ 5, 416 P.3d 635.
ANALYSIS
¶10 It is “well settled that the power of taxation is a legislative
function, and unless restrained by the Constitution the exercise of
this power is vested in the Legislature and its power over the subject
is plenary and supreme.” Garrett Freight Lines, Inc. v. State Tax
Comm’n, 135 P.2d 523, 530 (Utah 1943) (cleaned up). One such
restraint on the legislature‟s power of taxation is the constitutional
directive that all persons shall pay “a tax in proportion to the fair
market value of . . . all tangible property in the State that is not
exempt.” UTAH CONST. art. XIII, § 2(1). This property tax “shall be:
(a) assessed at a uniform and equal rate in proportion to its fair
market value, to be ascertained as provided by law; and (b) taxed at
a uniform and equal rate.” Id.
¶11 But section 3 of article XIII sets forth several exceptions to
that general rule. Some of the exceptions are mandatory, while
others are permissive. See generally id. § 3. For instance, section 3
necessarily exempts “property owned by the State,” “property
owned by a nonprofit entity used exclusively for religious,
charitable, or educational purposes,” and “places of burial not held
or used for private or corporate benefit.” See id. § 3(1). Because these
exemptions are grounded in the Utah Constitution, “[t]he legislature
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DURBANO PROPERTIES v. TAX COMMISSION
Opinion of the Court
cannot narrow or otherwise alter” them. See Salt Lake Cnty. ex rel. Bd.
of Equalization of Salt Lake Cnty. v. Tax Comm’n of Utah ex rel. Utah
Transit Auth., 780 P.2d 1231, 1233 (Utah 1989).
¶12 Other exemptions are permissible at the legislature‟s
discretion. Relevant here, section 3 provides that “[t]he Legislature
may by statute exempt . . . up to 45% of the fair market value of
residential property, as defined by statute.” UTAH CONST. art. XIII,
§ 3(2)(a)(iv).
¶13 Our legislature chose to enact such a residential property
exemption. Under Utah Code section 59-2-103(3), “the fair market
value of residential property located within the state is allowed a
residential exemption equal to a 45% reduction in the value of the
property,” subject to other statutory provisions. And, as
contemplated by the constitution, the legislature defined “residential
property” by statute. For purposes of the exemption, “residential
property” is defined as “any property used for residential purposes
as a primary residence.” Id. § 59-2-102(34)(a).
¶14 Durbano Properties challenges the “primary residence”
requirement of that statutory definition. It argues that limiting the
“residential property” exemption in this way violates section 3 of
article XIII of the Utah Constitution because it excludes property that
is being used for residential purposes when it is not also used as a
primary residence. Because the legislature has exempted some but
not all property used for residential purposes, Durbano Properties
contends that the legislature‟s definition “is constitutionally flawed.”
¶15 “When we interpret constitutional provisions, our starting
point is the textual language itself.” Univ. of Utah v. Shurtleff, 2006 UT
51, ¶ 19, 144 P.3d 1109 (cleaned up). There is a “heavy burden placed
on a party challenging the constitutionality of a statute.” Dennis v.
Summit Cnty., 933 P.2d 387, 389 (Utah 1997). “When such a challenge
is made, the statute is presumed valid, and we resolve any
reasonable doubts in favor of constitutionality.” Id. (cleaned up).
¶16 On its face, the relevant constitutional provision is
permissive, not mandatory. Section 3 provides, “The Legislature may
by statute exempt . . . up to 45% of the fair market value of
residential property, as defined by statute.” UTAH CONST. art. XIII,
§ 3(2)(a)(iv) (emphasis added). Under this provision, residential
property owners have no constitutional entitlement to a tax
exemption. Instead, the Utah Constitution merely permits the
legislature to enact such an exemption if it chooses to do so. If the
legislature is constitutionally permitted to withhold a tax exemption
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2023 UT 6Opinion of the Court
for all residential property, limiting that exemption to certain types
of residential property is well within the legislature‟s prerogative, so
long as those limits do not run afoul of other constitutionally
protected rights.
¶17 The sole constitutional provision on which Durbano
Properties relies places only two restraints on the legislature‟s
discretionary authority to enact a residential property tax exemption:
the exemption must relate to “residential property, as defined by
statute,” and the exemption cannot exceed “45% of the fair market
value” of the property. See id. Thus, the plain language of this
provision permits the legislature to limit the type of “residential
property” that qualifies for the exemption, to enact an exemption of
less than 45%, or to offer no residential property tax exemption at all.
¶18 Here, the legislature exercised its discretion to enact a 45%
property tax exemption, but it limited the definition of “residential
property” to property used as a “primary residence.” UTAH CODE
§ 59-2-102(34)(a). Durbano Properties argues that this definition is
“arbitrary and nonsensical” because “it excludes property used for
„residential purposes.‟” In other words, because the legislature has
exempted some but not all property used for residential purposes,
Durbano Properties contends that the legislature‟s definition “is
constitutionally flawed.”
¶19 But that argument presupposes that the constitution‟s use of
the term “residential property” necessarily refers to all property
used for residential purposes and that this independent meaning
constrains the legislature‟s ability to define the term by statute. Such
a reading would be contrary to the constitution‟s text. The relevant
provision expressly provides that the term “residential property”
carries only the meaning given to it “by statute.” UTAH CONST. art.
XIII, § 3(2)(a)(iv).
¶20 This court has previously addressed the legislature‟s
constitutional authority to statutorily define “residential property”
for purposes of the property tax exemption. In Dennis, out-of-state
plaintiffs argued that limiting the definition of “residential property”
to “any property used for residential purposes as a primary
residence” violated article III, Second of the Utah Constitution,
which “requires equal taxation of the „lands‟ of both residents and
nonresidents of the state of Utah.” 933 P.2d at 389. The plaintiffs
argued that the statutory definition discriminated on the basis of
residency because, as nonresidents of Utah with primary residences
in other states, “they cannot have primary residences in Utah and
thus can never qualify for the property tax exemption.” Id.
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DURBANO PROPERTIES v. TAX COMMISSION
Opinion of the Court
¶21 This court rejected that argument because “qualification for
the exemption is the use to which the property is put, not the
residency of the owner.” Id. A Utah resident “who owns residential
property in Utah but does not use that property as a primary
residence is taxed in the same manner as a nonresident who likewise
owns residential property that he does not use as a primary
residence.” Id. Therefore, this court concluded that the statutory
definition of residential property does not violate article III, Second
because “[s]imilarly situated residents and nonresidents are treated
the same for property tax purposes.” Id. at 391.
¶22 In reaching that conclusion, this court specifically addressed
the taxing authority‟s argument “that the legislature was acting
within the authority granted it by . . . the Utah Constitution when it
defined the term „residential property‟ as property used as a
„primary residence.‟” Id. at 388.1 This court agreed that the
legislature had the constitutional authority to enact a residential
property tax exemption that was limited in that manner: “[T]he Utah
Constitution gives the legislature the authority to exempt „residential
property as defined by law‟ partially from taxation. The legislature
was within that authority when it defined „residential property‟ as
that property used as a primary residence.” Id. at 391.
¶23 Durbano Properties has not challenged the Dennis decision,
other than to suggest that the court‟s “comments” that the legislature
acted within its discretion in defining residential property were
“dicta” and “not appropriate grounds” for resolving this case. But
Durbano Properties has given us no reason to reconsider our
_____________________________________________________________
1 Since Dennis was decided, the constitutional provision granting
the legislature authority to enact a residential property tax
exemption has been moved from article XIII, section 2 to article XIII,
section 3, but the language remains largely the same. Compare UTAH
CONST. art. XIII, § 2(8) (1997) (“The Legislature may provide by law
for the exemption from taxation: of not to exceed 45% of the fair
market value of residential property as defined by law . . . .”
(emphasis added)) with id. § 3(2)(a) (“The Legislature may by statute
exempt the following from property tax . . . up to 45% of the fair
market value of residential property, as defined by statute.” (emphasis
added)). Further, the relevant statutes have been amended and
renumbered, but the definition of “residential property” remains
substantively the same. Compare UTAH CODE § 59-2-102(22) (1996)
with UTAH CODE § 59-2-102(34)(a).
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2023 UT 6Opinion of the Court
conclusion that the legislature acted within its constitutional
authority in defining residential property as property “used for
residential purposes as a primary residence.” See UTAH CODE § 59-2-
102(34)(a). Because Durbano Properties has identified no
constitutional provision that would prohibit the legislature from
enacting a property tax exemption that applies only to residential
properties used as primary residences, we reject its constitutional
challenge.
CONCLUSION
¶24 Durbano Properties has not provided any legal basis to
invalidate the legislature‟s definition of “residential property” as
authorized by article XIII, section 3 of the Utah Constitution. We
therefore decline Durbano Properties‟ request to “strike as
unconstitutional the enforcement of the statutory definition of
residential property to only include property used for „residential
purposes as a primary residence.‟” Because Durbano Properties has
not otherwise challenged the finding that the subject property did
not qualify for the residential property tax exemption, we do not
disturb the Tax Commission‟s decision.
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