Wenner and City of Phoenix v. Dayton-Hudson Corporation
Nature of the Case
This was a dispute over the taxability of income.
Facts
Dayton-Hudson Corporation (P) operated a department store within the city limits of Phoenix under the trade name Diamonds. As part of its business, Dayton-Hudson entered into agreements with other retailers to maintain certain departments within its stores. For this space, these special retailers pay Dayton-Hudson a percentage of gross receipts with a minimum monthly payment designated. The agreements are for a definite term and the company may terminate at any time if the retailer is in default.
The City of Phoenix (D) assessed a one percent privilege tax against the revenue generated by Dayton-Hudson’s retailer agreements. The plaintiff paid under protest and disputed the tax but lost the administrative hearing. Dayton-Hudson then sued Phoenix in Superior Court. The trial court granted the plaintiff’s summary judgment motion and Phoenix appealed.
Issue
- Must the intent to license be determined from examination of the entire agreement between the parties?
Holding and Rule of Law
- Yes. The intent to license must be determined from examination of the entire agreement between the parties.
Under these facts, the agreement stated that it was a license. This is persuasive but not dispositive of the issue. The agreement stated that the retailers had no interest in the real property and that no specific space was to be designated for use. The licensee had access to Dayton-Hudson’s store when it is open to the public and that the licensee was to use the company’s trademark and trade name in conducting its business. Dayton-Hudson was to provide the licensee with all utilities. For this right the licensee was to reimburse Dayton-Hudson with a percentage of its sales.
These facts are different from the Paris case. In Paris, the California court was persuaded by other factors rather than simply the nonassignability of the contract. The Paris case relied upon the fact that the terminology used included the terms ‘lease, good tenantable condition, space demised.’ This agreement does not use such terminology. The nonassignment clause used in this contract is a correct statement of the law putting a licensee on notice of his inability to assign the agreement and the breach of contract that would occur from such an assignment.
Disposition
Affirmed – the agreement was not a lease.