Daily Development for
Tuesday, October 6, 1998

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri

LANDLORD/TENANT; CHARACTERIZATION AS A LEASE OR LICENSE; SHORT TERM ARRANGEMENTS: Contracts permitting nonprofit organizations repetitive, short term, exclusive use of space for evening bingo games constitute "leases," not "licenses," for taxation purposes.

Quantum Corp. v. State of New Mexico Taxation and Revenue Dep't, 956 P.2d 848 (N.M. App. 1998).

Property owner entered into several contracts with nonprofit organizations. Each agreement had a duration of one year, was entitled "bingo lease," and permitted organizations to occupy premises for four or five nights per week for a specified number of hours. The state taxing authority determined that income from the contracts was taxable as income from "licenses," not leases.

The dispute was whether certain personal property (bingo paraphenalia) rented for separate consideration in connection with these contracts was taxable under New Mexico's Gross Receipts Tax. The tax, apparently, may not apply to personal property leased in connection with a real estate lease. In S.S. Kresge Co. v. Bureau of Revenue, 87 N.M. 259, 531 P.2d 1232 (Ct. App. 1975), agreements between a department store owner and several other companies providing for the use of space in the department store for the purpose of retailing certain items, which agreements expressly negatived the intention to create a lease, constituted licenses, and the money from selling which was not deductible from the gross receipts was taxed under this section.

The New Mexico Court of Appeals held that the contracts at issue were leases. A lease exists when a party is granted exclusive control and possession of a definite space for a definite time period. In this case, the property owner had no authority to enter the premises occupied by the nonprofit organizations, and could not revoke the organizations' right to use the premises. Also, the organizations were obligated to pay for the premises whether they used them or not. The fact that possession was granted only for a few hours a week did not mean that the parties' contracts were not leases.

Comment 1: The editor had some difficulty following the nature of the dispute under the present statement of New Mexico law. Under Section 7953(C) of the New Mexico Statutes, "[r]eceipts attributable to the inclusion of furniture or appliances furnished as part of a leased or rented dwelling house, manufactured home or apartment by the landlord or lessor may be deducted from gross receipts." Either this statute has been amended since the period to which the case applies or has been read to apply to commercial rentals

Comment 2: The issue of characterization of usage agreements as leases or licenses comes up in a remarkably varied set of circumstances. The last time this issue arose on DIRT was in the DD of July 9, where the right to keep good for sale on a boardwalk outside of a leased premises was characterized as a license.

Comment 3: The result in the instant case seems correct. Control is vital. But what if the contract provided only for a few hours possession only once? Even given lots of control, a definite space for definite time, the granting of a two hour block of time seems to be less of a lease and more of a license. We still don't have clear lines here.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 16, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Maria Tabor at the ABA. (312) 988 5590 or mtabor@staff.abanet.org

Items reported here and in the ABA publications are for general information purposes only and should not be relied upon in the course of representation or in the forming of decisions in legal matters. The same is true of all commentary provided by contributors to the DIRT list. Accuracy of data and opinions expressed are the sole responsibility of the DIRT editor and are in no sense the publication of the ABA.