Daily Development for Thursday, February 12, 2004 
by: Patrick A. Randolph, Jr. 
Elmer F. Pierson Professor of Law 
UMKC School of Law 
Of Counsel: Blackwell Sanders Peper Martin 
Kansas City, Missouri 
dirt@umkc.edu 
LANDLORD;TENANT; CHARACTERIZATION; USE AND 
OCCUPANCY TAXES: Users of self-storage facility, even though 
their rights are denominated "leases" by the parties, do not have 
sufficient control over the property so that the rights constitute interests 
in real estate for purposes of a local tax.on the "use or occupancy of real 
estate." Consequently, landlords must pay the tax, as they are in the 
business of providing services, not leasing property.. 
Northeast Oxford Enterprises LP v. City of Philadelphia Tax Review 
Board, 834 A.2d 650 (Pa. Cmwlth. 2003). 
Appellant owners of a self-storage facility (the "Owners") appealed the 
lower court's application to them of a Philadelphia school district's use 
and occupancy tax (the "U & O tax"). 
To raise revenue in its school districts, under the Pennsylvania Tax 
Anything Act, 53 P.S. 15971, the City of Philadelphia imposed the U & 
O tax "on the use or occupancy of real estate . . . . for the purpose of 
carrying on any business, trade, occupation, profession, vocation, or any 
other commercial or industrial activity . . . . on the user or occupier of 
real estate." Phila. Code 19-1806(2). 
In that section, the words "use" and "occupancy" are defined as 
"interchangeable words that mean actual and physical possession and use 
of real estate as opposed to constructive or legal possession. One who is 
'occupying' real estate is physically present in or on the property, either 
personally or by his agent, or has placed therein personal property 
belonging to him." Tax Reg. 101(b). 
The Owners argued that they were not subject to the U & O tax because 
the Owners were landlords and their lessees were the "users and 
occupiers" of the rented storage space, and thus that their lessees were 
subject to the U & O tax. The court disagreed. 
In a case of first impression, the court found that the Owners' argument 
failed to give the U & O tax its proper context. The court cited the 
Pennsylvania sales tax regime which treated self-storage transactions not 
as conveyances of interests in real state, but as sales of services 
comparable to leasing safe-deposit boxes and lockers in airports. Also, 
the court commented generally on the character of leasing self-storage 
space, noting that the customer may not occupy the space and has no 
genuine interest in the structure itself, and, upon default, the customer 
has none of the procedural protections granted tenants under landlord- 
tenant law. Thus the court found that the lessees' rights were so limited 
that they do not take on most of the usual indicia of an interest in real 
property. 
Finally, the court stated that the U & O tax would conflict with its 
enabling act, the Tax Anything Act, if it were imposed upon the lessees 
of the Owners' space because the rental was already subject to state sales 
tax and, under the enabling statute, the U & O tax could not impose any 
tax on a transaction "which is now or may hereafter become subject to a 
State tax." Therefore, the Owners' interpretation would render the U & 
O tax invalid thus the Owners were the proper subjects of the U & O 
tax. 
Comment 1: Although this case might be distinguished from other 
situation in which the outcome might not relate to tax liability, there 
certainly is some danger in the court's approach. Consider, for instance 
many circumstances involving massive cold storage facilities or 
underground caves. It may be that the tenants have marginally greater 
control than in these little storage lockers, but the basic relationship is 
similar. These huge and valuable contracts are treated as leases, and a 
variety of important legal issues, including financing issues and 
perfection issues, may turn on the distinction of whether they are leases 
or not. This case presents some dangers with respect to those situations. 
Comment 2: Ironically, the taxpayer was moved to seek a refund in this 
case because a competitor had sought and obtained a ruling from the 
state's franchise tax business that the use and occupancy tax did not 
apply to the owner of a self storage business. The taxpayer here claimed 
that the Constitutional requirement of tax equality would be violated if it 
was made subject to the tax (which it had paid for a number of years) 
while its competitor was not. The court ruled that the competitor's 
settlement with the tax board did not apply prospectively and was 
subject, as to future years, to its own rulings. 
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