-: SJC-13489.
Outfront Media LLC,
the Board of Assessors of Boston.
(speaker humming)
(device ringing)
-: Okay, Attorney Fray?
-: Thank you Madam Chief Justice and Your Honors.
May it please the court.
My name is Kelly Fray.
I represent appellate Outfront Media,
and joined by my colleague, Ed Daily.
Your honors, this case turns on the answer to two questions.
The first question is whether or not the service's contract
between Out Front Media and the NBTA
constitutes a lease use for occupancy of NBTA real property.
If it does not, then the court should reverse
the decision of the appellate tax board below,
because the NBTA is enabling statue
requires the existence of a lease/user occupancy
as a condition precedent
before any tax can be imposed against NBTA property.
If and only if that condition precedent is satisfied,
then there's a second question for the court to determine.
And that is whether or not the taxes imposed
against the assigned,
has more than a negotiable impact
on the NBTA's ability to generate commercial
advertising revenue.
If it does, then the courts traverse for that reason.
Because this court found an NBTA verses Sommerville,
that the NBTA's ability to generate commercial
advertising revenue, has statutorily integrated
with the NBTA's essential function.
-: Isn't this clearly a use of a property?
-: That's precisely the problem, Your Honor.
Is that under the board's definition,
anything, any activity at all
that touches upon a NBTA property would be considered use.
The board defined a use to mean any activity
that puts the property into service
to avail oneself of, to employ,
to have the privilege, or benefit of using something,
or to have the legal enjoyment,
of property that consists of its employment,
occupation, exercise, or practice.
That is duly broad construction of the word.
-: But turning to you,
I have the exclusive rights to advertise,
install, operate and maintain the equipment, correct?
-: That's correct.
-: How is that not a use of the equipment?
-: It's not a use, Your Honor, for several reasons.
-: And you get the profits, too, rightfully.
-: I guess that's the big one.
-: A portion of the profits, Your Honor.
The NBTA gets a portion of the profits, as well.
And that is what,
and those profits, not only do they get them,
those profits are statutorily integrated
within the NBTA's essential function.
And the reason why is because-
-: We all know the NBTA is desperate for money.
So, there's no doubt about that.
And but, just back to Justice Gaziano's question,
I don't know,
you're using the signs and getting a percentage
of the profits.
It just seems like,
that meets that statutory definition.
-: Respectfully, Your Honor, it doesn't.
-: How, and better help us.
-: Sure, absolutely Your Honor.
For...
There are several reasons.
First the word used,
look at where the word used appears in the statute.
And it appears,
and so let me take a step back.
It'll take me a while to get there,
but Your Honor, you'll understand
why I'm taking a step back.
And talking about the burden,
and responding to your question.
The appellate tax board got it wrong on the burden.
It applied the incorrect burden.
-: Well, you're seeking an exemption.
You know, you can argue that, take up your time,
whatever, in however way you want.
But I don't know of any case where we have
put the burden on the board to show,
and anyone other than the taxpayer,
to show an exemption applies.
-: Your Honor, we are not seeking an exemption.
-: Well, you are because if this was owned by you,
you would definitely need to pay taxes.
You're saying "We don't fall under the exception
"to the exemption, and so we're due the NBTA's exemption."
-: Your Honor, the parties have stipulated-
-: That this is real estate-
-: The signs themselves are covered by the exemption.
The parties have stipulated the signs-
-: So, if owned by the NBTA, and not used by your client,
they would be covered by the exemption.
-: If...no.
They are covered by the exemption
regardless of whether where,
whether they are conducted with a business for profit.
The question is,
whether they are leased, used and occupied
in connection with (crosstalk drains out dialogue).
-: And therefore are not covered by the exemption.
-: And so, it's the assessor's burden,
and to establish that condition precedence satisfy.
Because that's the only condition.
They can't, they don't have authority of the tax
unless that condition is satisfied.
-: And is this the only tax provision
where there is an exemption in the exceptions?
-: It's not.
But this is the only case where this SU has been presented
other than Ogden.
What the assessors describe as the acceptance-
-: So in, is it Ogden, then?
I mean- Attorney: Ogden.
-: What, who had the burden of proof
when there's an exemption, and exception to the exemption?
-: We don't know, because the appellate tax board
did not set a- -: This is a new issue for us.
Attorney: It is, Your Honor.
-: Okay, great. -: It is, Your Honor.
Every single other, and I wanna be clear about this,
every single other case
that's cited in the appellate passport, decision,
and in the assessor's brief,
the existence of a lease user occupant was presumed,
it was not at issue.
Here, the question that the party,
the primary question that the parties are briefed,
but to the appellate tax board below, and to the court here
is whether or not a lease user occupancy exists.
On that question, it is the assessor's burden-
-: I think you need to,
I know you want to jump to the burden issue.
But, can you, the language is so direct.
If used in connection with a business conducted for profit,
your clients are engaged in a business conducted for profit.
You're using the NBTA's signs
for a business conducted for profit.
I just, you better help me get out of that.
And because use is big, it doesn't get me there.
-: Well, the thing about the effect of what that,
and simple, admittedly simply and appealing determination
of what the word used would mean.
It would mean that a construction worker,
a janitor, a janitor that comes on and cleans the bathroom-
-: No, it doesn't say that.
-: They would, (indistinct) that is a use.
A janitor employees NBTA property.
-: A property is used.
If the property is used in connection
with a business conducted for profit,
that's different from if you have a janitor there, right?
And that's where we get to Ogden,
which, Ogden is your best bet.
Attorney: It is.
-: Because you're really,
the statutory so obviously fits you.
But Ogden, the tax board went a different way.
There I see you may have some traction.
-: Right, right. And importantly Your Honor,
that happened just a few years before the legislature
added the word used to this statute in 2013.
And it's presumed to be aware
of how the appellate tax board decided Ogden.
And Ogden, the appellate tax board found that
a for-profit service provider,
who managed an events facility for taxes
in public university,
was not using the facilities properly
in connection with a business-for-profit.
I mean, what they were doing there,
they were hosting WWF wrestling matches,
they were coordinating David Copperfield magic shows.
-: They got a service fee for that, right?
It was, it's different from this.
You guys are just getting,
you're running a profit, generating profits off of this,
as opposed to just getting paid for operating,
getting a service fee, a little different, right?
-: No, no, Your Honor.
In Ogden there were two different elements to the contract.
One was the for-profit company would host uni...
It would help the university
host university-sponsored events in the facility.
And that's what they got the management fee for.
And then, the separate part of the contract
was that they would host these for-profit events,
like Aerosmith rock and roll show,
is another one mentioned in the decision.
And for those, the for-profit company,
and the university would split the revenues.
And that's the element-
-: But importantly, the for-profit entities upside
on those non-university events, was capped.
Was it not in Ogden?
-: It was capped. -: It was capped.
So here, though,
your client's upside is not capped, right?
It has to pay a percentage of gross revenues to the NBTA,
but beyond that, whatever profits you reap,
are yours to keep, with no cap.
-: No, whatever profits we make are,
flow both to the NBTA and to us.
So there's a minimum guarantee.
So we have to, the revenues have to reach
a certain threshold under the contract.
But once they've reached that threshold, the revenues split.
It goes for infinitely.
We made, the revenues split between the NBTA,
and the for-profit Out Front.
It goes as high, there is no cap.
-: Right yeah.
So unlike Ogden, there's no cap to your profit.
-: And no cap to the NBTA's profit.
-: Regardless. But, none to you.
-: Right, right, yes.
-: And so, maybe that's the difference
between the type of use that is not use in Ogden,
and the type of use, which is a use to you.
And, I'd like to give you the opportunity
to respond to that.
You have no upside cap
to your provision of these services for advertising
on the NBTA signs.
In Ogden, there was a cap to the provider
of the management services.
-: Right, and the contract should be structured that way,
so that Out Front has an incentive to get
every dollar of advertising revenue that it possibly can
to split with the NBTA.
That serves the NBTA's essential function.
It serves writers.
It serve, it increases non-fair revenue.
-: And maybe a consequence of that is that you pay tax.
-: It should-
-: That might be an advantageous business relationship.
I'm not suggesting there's anything nonparous about that.
But under the provisions that we're looking at,
it looks more like a use.
-: Respectfully Your Honor,
I think the more critical distinction
that the assessors are trying to draw between Ogden,
is that Ogden paid a management fee,
and for the private university's use of the facility.
Here the NBTA, let's not forget the fact that
the NBTA has the right to use these signs 25% of the time.
-: That is a paying match, they received a management fee.
Ogden received a management fee, right?
They didn't pay a management fee.
-: I'm sorry, received a management fee
for the portions of the time the facility was being used
for university events. Here-
-: And that's all they got.
-: And, they got a revenue share, as well.
Just like Out Front does.
Out Front just go the same revenue share.
The only difference is it's not capped.
-: So I come at a different way?
So we know what a lease is,
and we know what occupied is, right?
So now, we're dealing with use.
And you say that the ATB got it wrong,
they had this broad dictionary definition of use.
How do you define use?
-: Well, I define it by how the court has defined it
for over a hundred years of property law.
The word use is used in the statute
to define a property right.
And so, why not let the property law to define what a use-
-: I read a bunch of those cases you cite.
They distinguish between a lease and a permit.
They don't define use in this context.
They just say it's not a lease,
it's a permit or a license, right?
All those cases you're citing aren't really,
a very little import.
-: Protectively they are, Your Honor.
Because they are the cases addressing what,
they are the cases addressing how to classify
the right to go onto an owner's property.
-: But they define it, it's not a lease.
It's a permit, or it's a license.
That's all those cases do, right?
Is there any case that, I looked at them.
I read all those old cases you're citing.
-: They don't define,
they define how the right to go onto another property
and maintain a sign should be classified.
-: They say it's not a lease, it's a permit.
It's not a lease, it's a license.
That's what those cases say, right?
-: Right, and in everyone of those cases,
it was either- -: They don't say
it fit the definition of use.
They don't fit the definition of-
-: Oh, oh, oh, oh.
I understand your question.
Yes, you're precisely right.
No, no, there's not one directly on point.
But what they do do,
is they define the property right as a license,
or in the baseball publishing case, an easement.
All of these categories of property interest
that the legislature did not add to the statute.
If the legislature wanted an easement right to be taxed,
they would of said easement rights should be taxed.
If they wanted a license right to be taxed,
they should of said, a license right to be taxed.
So where this is only a license right that Out Front holds,
it shouldn't fall within this,
gets shoehorned into a-
-: Did you ever say what the definition is? No-
-: Yes, it's used to refer to a possessor interest in land,
is the proper, what Massachusetts state law has set,
referred to as the use and occupation of land
for over a century, possessory interest in land.
-: So you're asking us to construe use,
consistent with the way of use and occupancy
has been defined in real estate law.
-: Precisely Your Honor,
and as it appears in the statute,
it's being implemented to describe a property right.
-: Isn't it odd, though, that the statute
doesn't say "Use in occupancy?"
And instead says "Use comma occupation," or whatever it is.
-: No Your Honor, because it says "Lease, use, or occupant.
"Lease, use, or occupied."
So there are three.
-: So, it's disjunctive.
-: Right, there are three, lease, use, or occupancy.
So it-
-: So why it's given, it's framed disjunctively
would we think that the legislature
sought to adopt the use and occupancy language
of real estate law?
-: Precisely because it's intended for the words
used to be applied to any right in property,
such as an easement, or a license.
They would of said that in the statute.
They would not, as I think one of, Emma Che, put it.
The legislature doesn't hide elephant in mouse holes.
So, it didn't intend for the word use
to have this broad meaning
outside of what the word use typically means
when arises in between the words lease and occupy.
Leased, used and occupied.
So, that's why you should.
The court shouldn't focus on the word Or,
it should focus on the words Lease, Use, Occupy.
Not the word Or.
-: That's really stretching.
So, we're not supposed to look at the word Or?
-: No, no, no, I'm sorry.
Should not give the word Or meaning over,
give that height meaning over the words
lease, use and occupy.
-: Oh but Or means, one, two, or three.
Any one of those three things.
That's just what Or means.
I don't understand.
-: Right, Your Honor.
So for instance, if there was a storage facility that,
a for-profit incidy was using, that would be,
that would be possessory interest in land
that's not occupied, it's not leased.
That's why the Or exists,
to cover situations like that.
Judge: Okay.
Any other questions? Thank you so much.
Attorney Umbrano.
-: May it please the court, Anthony Umbrano.
on behalf of the board of assessors of the City of Boston.
The court has questioned my brother extensively
for the respect to use,
and the terms of the contract agreement
between Out Front and the NBTA.
There's one additional point that I would
like to emphasize, is that under that agreement,
the proceeds go to the NBTA after all expenses
are paid by Out Front.
It is a net agreement to the NBTA.
Furthermore,
the agreement specifically says
that in the event that any taxes are levied,
those taxes are the responsibility of Out Front.
-: Can you finish your thought on that first part?
What do you mean these proceeds are net to the NBTA?
I don't-
-: Well, to clarify that point.
Judge: Thank you.
-: The NBTA wanted and received a minimum
annual guarantee payment.
That payment is received by the NBTA
regardless of any expenses.
On top of that, the NBTA gets a share of the gross.
It participates in the gross revenues.
Not after the expenses are paid.
-: Okay.
So what was your first point then? I don't understand.
-: Well the first point is that, it's net to the NBTA
after the expenses are paid by Out Front.
Perhaps I wasn't clear, but that was the point.
The NBTA participates in the high revenue number.
-: What difference does that make?
-: I think the difference that it makes,
is that it was contemplated under this agreement.
Which was then entered into after the amendment
to the statute.
-: That's just, the lawyers,
we don't really care what the NBTA's lawyers,
and the Ogden lawyers,
that's, I'm not sure how important that is.
Help me out here.
Ogden involved use, too, right?
Ogden, and I am troubled by what are the limitations of use?
Because Ogden, let the private company use its prop,
you know, the University of Massachusetts
let the private company use the facilities, right?
So there's some limitations.
I understand how we distinguish Ogden.
But I'm trying to understand how we distinguish Ogden,
on the meaning of the word use.
-: I think in two ways.
First, I'm just gonna go backtrack, just a little bit.
And point out that Ogden was under a different statute.
592B.
The crucial difference in that statute,
is that while it does make taxable certain property
of the Commonwealth, and its municipalities,
and its agencies, that is used for profit.
There is an important exception in there.
That has to deal with properties
that are used for public purpose.
So even if a property under 2B might otherwise be taxable,
if the purpose is for public purpose,
that property remains exempt.
That is not the case under the statute
that we're talking about here today, Section 24.
That public purpose language
was not imported into this statute.
I would point out then perhaps more directly
to your question, Justice Kafter,
Ogden was paid by UMass.
They were paid to manage the property.
All profits and losses, in that case, went to UMass.
Specifically in that scenario,
if there was any tax liability,
the tax liability was paid by UMass.
So I agree it's very much,
very much a question of fact,
it's a very fact-intensive determination
that must be made.
-: And you're saying that UMass
paid the tax liability in Ogden?
-: So if there was any tax liability
under the agreement between UMass and Ogden,
UMass would pay it.
-: I thought 592B
taxed the user.
You're saying there was compensation indemnity
under the contract? -: Yes, so that,
I think indemnity- -: We're interpreting this-
-: Is a proper word. -: We're interpreting
the statute. -: Right, however it might fall
however it might fall if there was anything,
it was UMass's burden, not Ogden's.
So I think that's one of the-
(crosstalk drains out dialogue)
-: The same thing is happening here, though.
If we say that this relatively new provision covers
Out Front, thank you. Out Front,
in some ways it's effecting the NBTA.
-: In some ways it may, or it may not affect the NBTA.
What we have here- -: Well, certainly it would.
Because no rational third party would contract
with the NBTA, if we construe the use,
the way the board is suggesting,
without getting something from the NBTA in return.
Isn't that exactly what your opposing consul's argument is?
-: Well if they put,
I think what Out Front is getting in return,
is the exclusive right to make profits from the signs.
That's what they're getting, and-
-: But the NBTA is also making profits from the signs.
-: That is correct.
And the terms of this agreement-
-: So, it's not exclusive.
It's what's good for us, is good for the NBTA.
-: It's exclusive in the sense that only Out Front
has the right to place advertising on those signs.
That's what I meant be exclusive.
-: And how is that different
from the management services being provided in Ogden?
Only that entity could provide
the management services, right?
-: Yes, that is correct, and the management service-
-: Yes, exclusivity doesn't really make the difference.
What does?
-: Well I think for one thing,
it's very important that Ogden was paid by UMass.
They were paid to render a service.
And that service was taking care of, managing it,
taking care of it on behalf of UMass.
Which ultimately UMass was the-
Judge: Is that really?
-: If for lack of a better legal term,
Judge: I mean- -: That we're in charge.
-: Sorry to interrupt you.
Isn't in some ways, Out Front being paid by the NBTA
in the form of,
if the NBTA ran these signs,
it would take all the money for themselves.
But instead, it's hired Ogden, sorry, Out Front to do it.
And so, Out Front's payment for doing that
is the profits that it reaps.
-: I think that is all correct.
And part of that agreement-
-: So the difference between Ogden and Out Front
can't be payment to the service provider.
Attorney: Well, I think it-
-: Is the difference.
-: Well, for one thing-
-: Isn't the difference the effect of the taxes?
Attorney: I think that's a large-
-: Because in Ogden-
Judge: Well, isn't that what we're here to determine?
-: Right, well in Ogden,
the agreement expressly said, UMass,
if they're taxes, UMass has to pay them, right?
Here, if there are taxes, both side lose out on revenues.
Is that right? Or, am I misstating the facts?
-: Well that's both sides, not the city. But-
-: Well, both sides.
The NBTA and Out Front, if there are taxes,
both will suffer negative consequences of that, right?
-: No, the NBTA will not suffer because
the taxes are so- -: Get less revenue.
Attorney: I'm sorry?
-: They're gonna get less of a cut of revenue, right?
-: Well, I think we would have to-
-: You're basically transferring some money to the city
that would otherwise go to the state.
-: Or, otherwise go to Out Front.
-: That's really the question.
The legislature has the- -: The NBTA's profit
from this agreement is a fixed fee.
Plus, a percentage of gross revenue
from which the taxes would not be deducted.
Attorney: Correct.
-: The problem with the argument that you have
is the next contract that the NBTA enters into.
Which is in the next contractor for services will say
"Hey, look at Out Front.
"We were supposed to not get taxes on our use
"of the real estate.
"And somehow we're being taxed."
The next vendor will say "NBTA, you're in it with us then."
-: I don't know why either the NBTA, or Out Front,
would had gotten into this contract.
And word it the way they did,
in particular with respect to taxes.
Because they did not expect to be taxed.
-: Is that relevant to our construction of that statute,
the expectation of the parties going into the contract?
-: No.
-: So what is relevant?
Tell me what is it that makes Ogden different
from this case?
-: I think it's the factual determination by the NB,
by the appellate tax board,
which obviously decided the Ogden case, as well.
-: Can I ask you two examples, perhaps?
If I'm operating a Dunkin' Donuts in South Station, right?
Under your view, that clearly comes under the exempt.
It's exempt from the exemption, right.
It's exempt for the exemption, right?
That they're taxed, that the Dunkin' Donuts is taxed.
If I'm South Station, the NBTA,
and I hire custodial service to clean the bathrooms
in South Station, are they taxed as well?
The custodial service?
-: I think that would be a very far-
-: Is that a use of the real estate?
-: I think it would be a very far stretch.
And I think one point of the statute
that you haven't mentioned yet.
-: What's the difference between the custodial service
and the Dunkin' Donuts?
-: For one thing the taxes assessed,
and this has not been addressed so far,
as of January 1st, to the user, lessee,
or occupant as of that date.
That suggests to me,
and the contract here with Out Front
goes until, I think, 2034, 2036.
That, I would consider a transient type of a use.
-: But isn't Justice Gaziano's hypothetical useful in saying
Ogden is more like the cleaners.
They're getting a flat fee to provide a service
to clean the facility.
And they're not getting a percentage of the profits
of the facility.
They're like UMass's running the con...
Because they're not getting any money except for a fee.
But here, Out Front is,
they're engaging in a profit-making enterprise.
Where they can make as much money as they possibly can
from those signs.
And it's not a set fee,
they're different from the janitor.
So the thing is informative.
One's more like a janitor, not quite like it, but similar.
-: I think that is all true.
And again, I focus on the exclusive rights.
-: But, I'm looking at your definition of use.
And the fellow tax board decision is very broad.
Where it does, in fact, apply to a custodial service,
for-profit custodial service.
-: I don't think it would go that far.
Because of that fact,
the ATB went to great lengths in its factual findings.
They talked about the exclusivity.
Which, I think was a very important point.
So, I run Acme Custodial Services,
and I got the whole South Station.
What's exclusivity have to do with it?
-: Well, I think it would have to do with the fact that
the exclusive right is to hire other people to do it.
-: I'm hiring all the, I got a fleet of janitors.
-: Well that might be the case.
But again, as of January 1st,
what was going on as of January 1st.
And I think that notion very much implicates a time element,
and element of some permeance.
Someone who walks across a couple of times a year,
would not be found to be a user.
-: But what if I have Acme,
and I have a 10 year contract to clean South Station?
It's permanent?
-: Well again, I think that would be more akin
to Ogden than it would be to Out Front.
-: Could you address before you leave
the burden of proof issue?
-: Yes, very much. Thank you very much for that opportunity.
With respect to the burden of proof,
an answer to Justice Windler's question.
There has been no case ever
where the burden of proving an exemption,
even an exception to an exemption,
has been placed on a municipality.
-: Are there cases going the other way, though?
Or, are we just writing on a blank slate?
-: I think no. I think A and B Fund,
addressed to with respect to property at Mass Port,
I think it was also addressed in the South Station case,
with I think ultimately gave.
-: The burden of proof,
because this is the burden of proof issue
was directly addressed 'cause,
or we get, literally we're gonna get guidance on that.
-: Yes, in the, it was addressed in the,
what was the A and B Fund case.
And in the South Station case,
which was mentioned in the brief.
At least in my opinion.
The city's opinion gave rise to this,
a limit to that statute. -: These are, A and B cases
is an appellate tax board case.
Do we have any appellate cases got, providing guidance?
-: I think both the appeals court decisions
of both A and B Fund, and Beacon South Station Associates.
-: So in Beacon, there wasn't an exception to the exemption,
in the other case that you mentioned A and-
-: Yes A and B Fund, which is a Mass Port case.
-: And was that, was there an exception
to the exemption in that case?
-: Yes.
-: Okay, and we said that the burden,
or the court said the burden is on the taxpayer.
-: Correct. -: Okay.
-: If there are no further questions,
my time is up. Thank you.