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Possessory Interest Tax

Public entities, including the state, counties, cities, towns, and other municipal corporations and public libraries, are generally exempt from taxation. Property owned by public entities is also tax‑exempt.[1] However, when a person or entity has a private, contractual interest in public property, also known as a “possessory interest,” that interest may be subject to state taxation.[2] Examples of a taxable possessory interest might be food and beverage concessionaires at Denver International Airport or the Denver Broncos’ leasehold interest in Empower Field at Mile High. For context, in 2022, the City and County of Denver assessed $52.7 million in possessory interest tax.[3]

If a possessory interest is taxable, the possessory interest holder is responsible for paying the tax.[4] Local government should assess the taxable possessory interest, and the possessory interest holder may receive multiple assessments from separate units of local government if the property in which the holder has a possessory interest is subject to multiple taxing jurisdictions.[5]

Article X of the Colorado Constitution requires uniform taxation of all real and personal property unless exempt.[6] The general rule barring tax exemptions, unless authorized by the Colorado Constitution, is limited only by the Supremacy Clause of the United States Constitution, which exempts from state taxation all property owned by the United States government.[7] Possessory interests are neither exempt under Colo. Const. Art. X nor prohibited by the Supremacy Clause.[8] Accordingly, in Colorado, taxation of possessory interests is constitutionally required when “the possessory interest in tax‑exempt property [exhibits] significant incidents of private ownership that distinguish it from the underlying tax‑exempt ownership,” or in other words when (1) the possessory interest is distinct from the government’s ownership interest; and (2) the taxation of the private interest does not effectively constitute a tax on the government’s ownership interest (Cantina Grill v. Denver Cty. Bd. of Equalization, 344 P.3d 870, 877 (Colo. 2015), acc.).

In Bd. of Cty. Comm’rs v. Vail Associates, Inc., 19 P.3d 1263, 1279 (Colo. 2001) (“Vail Associates”), the Colorado Supreme Court adopted a three‑pronged test to determine whether “significant incidents of private ownership” exist and, therefore, a possessory interest is taxable. The Vail Associates test asks: (1) whether the possessory interest provides a revenue‑generating capability independent of the public owner; (2) whether the possessory interest owner is able to exclude others from making the same use of the interest; and (3) whether the possessory interest is of sufficient duration to realize a private benefit (Bd. of Cty. Comm’rs v. Vail Associates, Inc., 19 P.3d 1263, 1279 (Colo. 2001), acc., Cantina Grill v. Bd. of Equalization, 344 P.3d 870, 874 (Colo. 2015), 2015 CO 15 ¶ 49). The three prongs from the Vail Associates test may be colloquially reduced to “independence,” “exclusivity,” and “duration.” Duration is not frequently challenged in court because duration is generally stipulated.

Independence. The independence prong is not strictly focused on the interest holder’s source of revenue; rather, the independence inquiry is a totality of the circumstances test that asks whether the interest holder’s revenue‑generating capability is truly independent from the government. Cantina Grill, 344 P.3d at 883, 2015 CO 15 ¶ 49. Considerations include, without limitation: (1) whether the government pays a fee to the interest holder for its operation of the property in question; (2) whether the government controls the prices the interest holder can charge or restricts the profits the interest holder can generate; (3) whether the interest holder provides the supplies, equipment, and improvements necessary for the operation of the property; (4) whether the interest holder is responsible for the expense of maintaining and repairing the property; and (5) whether the interest holder has sufficient control and supervision of its operation (Id). Although a seemingly high standard, the independence prong has been criticized for requiring mere recitation of any evidence that a factor exists.[9] In Cantina Grill, for example, food and beverage concessionaires argued, as pertinent, that their possessory interests in airport concession spaces were neither sufficiently independent to be taxable.[10] The Colorado Supreme Court concluded, however, through application of the Vail Associates test, that the concessionaires’ possessory interests were taxable despite meager independence where the government retained control over “virtually every aspect” of the interest holder’s business, including “what products they can sell, what their menus must include, what they can charge for their products, what hours they must operate, whom they may hire, and what improvements they may make.”[11]

Exclusivity. To be taxable under Article X of the Colorado Constitution, the possessory interest must be sufficiently exclusive to qualify as a “real property” interest as defined under Colorado’s tax and revenue statutes, § 39‑1‑102(14), C.R.S. The exclusivity inquiry turns on “the ability of the possessory interest owner to exclude others from making the same use of the interest," (Vail Associates, 19 P.3d at 1279). Neither absolute control nor absolute exclusivity is required, and “concurrent uses of property are not necessarily inconsistent with exclusivity," (Cantina Grill, 344 P.3d at 880, 2015 CO 15 at ¶ 34). In Cantina Grill, the concessionaires also argued that their property interests were not sufficiently exclusive to be taxable because the concessionaires shared the right to operate restaurants and sell food and beverages in other locations in the airport. The Colorado Supreme Court concluded that the concessionaires’ interests were sufficiently exclusive because each concessionaire could exclude others from the same use of the particular area it occupied.[12] In other words, the City and County of Denver could not grant another concessionaire the right to occupy, improve, or use an existing concessionaire’s location without the existing concessionaire’s consent.[13]

If you have questions about possessory interest tax or other legal issues, please contact your Sherman & Howard attorney.


[1] Colo. Const. Art. X, § 4.

[2] Bd. of Cty. Comm’rs v. Vail Assocs., Inc., 19 P.3d 1263, 1279 (Colo. 2001).

[3] City & County of Denver, Abstract of Assessment and Summary of Levies, (2022)

[4] Vail Assocs., 19 P.3d at 1279 (“When the fee holder is tax-exempt, however, the unit assessment rule operates to tax the private ownership interest in the land and improvements together in the absence of a fee owner who pays the full taxes and may distribute the burden thereof to others holding subsidiary interests”).

[5] Colo. State Land Bd., Possessory income tax, (last visited Feb. 6, 2024).

[6] Colo. Const. Art. X § 3(1)(a) (“Each property tax levy shall be uniform upon all real and personal property not exempt from taxation under this article . . . ”), Colo. Const. Art. X § 6 (“All laws exempting from taxation property other than that specified in this article shall be void”); acc., Mesa Verde Co. v. Montezuma Cty. Bd. of Equalization (Mesa Verde III), 898 P.2d 1, 7 (Colo.1995)

[7] Mesa Verde III, 898 P.2d at 7.

[8] Id.

[9] Cantina Grill v. Bd. of Equalization, 344 P.3d 870, 889-90 (Colo. 2015), 2015 CO 15 ¶ 82 (Eid, J., dissenting).

[10] Id. at ¶ 13.

[11] Id. at ¶¶ 50-55; 84, 86 (Eid, J., dissenting).

[12] Id. at ¶ 39.

[13] Id. at ¶ 37.


real estate, tax