PUBLISHED COURT OF APPEALS TAX CASES

 

Summaries, citations and the text of recent published Arizona Court of Appeals tax cases are below.

 

Freelance Interpreting Services v. State of Arizona, 1 CA-TX 05-0005, ____ Ariz. ____, ____ P.3d ____ (Ct. App. 2006)

Stearns v. Ariz. Dep't of Rev., 1 CA-TX 04-0006, ____ Ariz. ____, ____ P.3d ____ (Ct. App. 2006)

Ariz. Dep't of Rev. v. Salt River Project, et al, 1 CA-TX 04-0016, ____ Ariz. ____, ____ P.3d ____ (Ct. App. 2006)

DaimlerChrysler v. Ariz. Dep't of Rev., 1 CA-TX 04-0012, ____ Ariz. ____, ____ P.3d ____ (Ct. App. 2005)

Qwest Dex., Inc. v. Ariz. Dep't of Rev., 1 CA-TX 03-0017, ____ Ariz. ____, ____ P.3d ____ (Ct. App. 2005)  

Griffith Energy, LLC v. Ariz. Dep't of Rev., 1 CA-TX 04-0007, ____ Ariz. ____, ____ P.3d ____ (Ct. App. 2005)

SFPP v. Ariz. Dep't of Rev., 1 CA-TX 03-0015, ____ Ariz. ____, ____ P.3d ____ (Ct. App. 2005)

4501 Northpoint, LP v. Maricopa County, 1 CA-TX 02-00272, ____ Ariz. ____, ____ P.3d ____ (Ct. App. 2005)

Baker v. Ariz. Dep't of Rev., 1 CA-TX 03-0006, ____ Ariz. ____, ____ P.3d ____ (Ct. App. 2005)

Lyons v. State Board of Equalization, 1 CA-TX 04-0004, ____ Ariz. ____, ____ P.3d ____ (Ct. App. 2005)

Walgreen Arizona Drug Co. v. Ariz. Dep't of Rev., 1 CA-TX 03-0009, ____ Ariz. ____, ____ P.3d ____ (Ct. App. 2004)

Pinal Vista Properties v. Turnbull, 1 CA-TX 03-0008, ____ Ariz. ____, ____ P.3d ____ (Ct. App. 2004)

Nordstrom v. Maricopa County, 1 CA-TX 02-0021, ____ Ariz. ____, ____ P.3d ____ (Ct. App. 2004)

Kocher v. Department of Revenue, 1 CA-TX 03-0002, ____ Ariz. ____, ____ P.3d ____ (Ct. App. 2003)

University Physicians v. Pima County, 1 CA-TX 02-0006, ____ Ariz. ____, ____ P.3d ____ (Ct. App. 2003)

Citizens Telecommunications v. Ariz. Dep't of Rev., 1 CA-TX 02-0017, ____ Ariz. ____, ____ P.3d ____ (Ct. App. 2003)

Luther Construction Co. v. Ariz. Dep't of Rev., 1 CA-TX 02-0018, ____ Ariz. ____, ____ P.3d ____ (Ct. App. 2003)

Interlott Technologies v. Ariz. Dep't of Rev., 1 CA-TX 02-0020, ____ Ariz. ____, ____ P.3d ____ (Ct. App. 2003)

State of Arizona v. Capitol Castings, 1 CA-TX 01-0007 (Consol.), ____ Ariz. ____, ____ P.3d ____ (Ct. App. 2003)

Ariz. Dep't of Rev. v. William L. Raby and Norma S. Raby, 1 CA-TX 01-0004, ____ Ariz. ____, ____ P.3d ____ (Ct. App. 2003)

Arizona Joint Venture v. Ariz. Dep't of Rev., 1 CA-TX 02-0010, ____ Ariz. ____, ____ P.3d ____ (Ct. App. 2002)

U-Stor Bell v. Maricopa County, 1 CA-TX 01-0013, ____ Ariz. ____, ____ P.3d ____ (Ct. App. 2002)

Maricopa County v. Kinko's, Inc., 1 CA-TX 01-0010, ____ Ariz. ____, ____ P.3d ____ (Ct. App. 2002)

Energy Squared, Inc. v. Ariz. Dep't of Rev., 1 CA-TX 02-0004, ____ Ariz. ____, ____ P.3d ____ (Ct. App. 2002)  

Navajo County v. Property Tax Oversight Commission, 1 CA-TX 01-0016, ____ Ariz. ____, ____ P.3d ____ (Ct. App. 2002) 

Southern Pacific Transportation v. State of Arizona, et al, 1 CA-TX 00-0024, ____ Ariz. ____, ____ P.3d ____ (Ct. App. 2002)

Ariz. Dep't of Rev. v. Blue Line Distributing, 1 CA-TX 01-0011 , ____ Ariz. ____, ____ P.3d ____ (Ct. App. 2002) 

Ariz. Dep't of Rev. v. Arizona Outdoor Advertisers, 1 CA-TX 99-0012, ____ Ariz. ____, ____ P.3d ____ (Ct. App. 2002) 

Hurley Trucking Co., Inc. v. Ariz. Dep't of Trans., 1 CA-TX 99-0020, ____ Ariz. ____, ____ P.3d ____   (Ct. App. 2002)

University Medical Center Corp. v. Ariz. Dep’t of Rev., 1 CA-TX 01-0005, ____ Ariz. ____, ____ P.3d ____   (Ct. App. 2001)

University Medical Center Corporation (“UMCC”) appealed from a judgment in favor of the Assessor determining that six parcels of land that UMCC owned outside the University of Arizona campus did not qualify for exemption from taxation.  The Assessor had denied exempt status for any of UMCC’s off-campus properties and assessed delinquent property taxes against each of the six for some or all of the years 1997 through 1999 based on the argument that A.R.S. § 15-1637(D) was intended to exempt only the University Hospital.  The Court held for UMCC, finding that the Tax Court was mistaken in concluding that the Uniformity Clause required it to exclude off-campus properties purchased by UMCC from the exemption accorded by A.R.S. § 15-1637(D).  The Court reasoned that because it is undisputed that those properties were not used or held for profit during the tax years at issue, the Tax Court erred in determining that they did not qualify for tax exemption.

Kerr, et al. v. Killian,  1 CA TX 000023, ____ Ariz. ____, ____ P.3d ____ (Ct. App. 2001)

The plaintiffs, who were federal employees, argued that Arizona’s income tax structure of taxing federal employees’ retirement contributions, but not state employees’ contributions, violated 4 U.S.C. § 111, which prohibits a state from taxing a federal employee in a discriminatory manner.  The Court noted that the discrepancy arose due to the fact that Arizona permits governmental employers to make mandatory retirement contributions on behalf of their employees, while federal employees made their mandatory contributions themselves.  The Court held that because this scheme gave a tax advantage not just to state employees but to all employees whose employers made their employees’ contribution, Arizona’s taxing scheme did not single-out state employees for more advantageous treatment and thus did not violate federal law.

Krausz, et al.  v. Maricopa County, 199 Ariz. 314, 18 P.3d 108 (Ct. App. 2001)

The plaintiffs, who were federal employees, argued that Arizona’s income tax structure of taxing federal employees’ retirement contributions, but not state employees’ contributions, violated 4 U.S.C. § 111, which prohibits a state from taxing a federal employee in a discriminatory manner.  The Court noted that the discrepancy arose due to the fact that Arizona permits governmental employers to make mandatory retirement contributions on behalf of their employees, while federal employees made their mandatory contributions themselves.  The Court held that because this scheme gave a tax advantage not just to state employees but to all employees whose employers made their employees’ contribution, Arizona’s taxing scheme did not single-out state employees for more advantageous treatment and thus did not violate federal law.

London Bridge Resort v. Mohave County, 1 CA-TX 00-0013, ____ Ariz. ____, ____ P.3d ____ (Ct. App. 2001)

London Bridge Resort, Inc. (“LBRI”) argued that the County exceeded its taxing authority by imposing a direct tax on time-share intervals without legislative authorization.  Specifically, LBRI asserted that the County exceeded its statutory authority in valuing time-share condominium units by considering estimated market values of time-share interval interests associated with the units.  The Court found for the County, stating that the Assessor’s methodology complied with the requirements of A.R.S. § 33-1204(B) by taxing and assessing each unit, based upon the property’s “current usage” and the characteristics of each unit that are relevant to value in the marketplace – namely, the unit’s status as a studio, one-bedroom or two-bedroom unit.

Rangel v. Ariz. Dep't of Rev., 1 CA-TX 00-0014, ____ Ariz. ____, ____ P.3d ____ (Ct. App. 2001)

Arizona residents are allowed an income tax credit under A.R.S. § 43-1071(A) for net income taxes imposed by another state or country. Net income taxes have been held by the Arizona Courts to be taxes that allow deductions, exclusions and other adjustments in calculating the tax base. The Tax Court held that the Mexican tax provisions were essentially a gross income tax system and denied the taxpayers any credits for Mexican taxes paid.  However, the Court of Appeals reversed, finding that the Department had mistakenly focused on the labels employed by the Mexican tax provisions and because those labels are different from those employed by Arizona’s tax provisions, concluded  that the Mexican tax is gross income tax.  The Court went on to hold that looking past the labels it was clear that the Mexican tax is a net income tax because it affords individualized deductions from pre-tax income when arriving at the final taxable income amount.

Citadel et al. v. Ariz. Dep't of Rev., 200 Ariz. 286, 25 P.3d 1158 (Ct. App. 2001)

The taxpayers leased real property to entities that operated licensed nursing care facilities.  The Department denied the taxpayers refund claims for taxes paid between 1989 and 1993 under the commercial lease classification of A.R.S. § 42-5069.  Both sides agreed that the taxpayers were entitled to refunds under the nursing care institution exemption at A.R.S. § 42-5069.C.15.  However, that provision required the taxpayers to distribute the refund proceeds to the persons who resided in the nursing homes during the relevant tax years.  The taxpayers, however, contended that they were entitled to unrestricted refunds under the three following commercial lease exemptions theories:  (1) they were not engaged in the business of leasing because leasing was incidental to their central purpose of acquiring land, developing, constructing and owning nursing home facilities; (2) they were outside of the leasing classification because it did not apply to property used for residential purposes; and (3) their lease of dwelling units intended to serve as a principal or permanent place of residence for the lessee if leased for more than 30 days.  In finding for the Department, the Court rejected all three theories.

Ariz. Dep't of Rev. v. Canyoneers et al., 200 Ariz. 139, 23 P.3d 684 (Ct. App. 2001)

The taxpayers were companies that provided guided rafting trips on the Colorado River.  During the refund periods from 1992 through 1996, the taxpayers charged the appropriate transaction privilege tax under the amusement classification on income from rafting trips.  In 1993, the Court of Appeals held that the business of providing rafting trips was not within the amusement classification and not subject to tax.  The taxpayers subsequently filed refund claims for taxes that they had paid, but refused to comply with the Department’s condition that to receive the refunds, the taxpayers needed to provide assurance that all amounts refunded would be returned to the customers who had actually paid the taxes.  The Department for years had interpreted A.R.S. § 42-5002.A.1 as meaning when a person charges an amount to its customer as tax, that becomes the amount actually due, and must be remitted to the Department and is not refundable, unless the taxpayer agrees to reimburse its customers for the taxes they paid, based upon Ariz. State Tax Comm’n v. Garrett.  The Court of Appeals found for the taxpayer and concluded that the Department had misread Garrett and the only amounts required to be remitted to the Department, and not unconditionally refundable to a taxpayer, were those amounts above what was legally due.

People's Choice TV v. City of Tucson, 199 Ariz. 570, 20 P.3d 1151 (Ct. App. 2001)

The taxpayer was engaged in the business of providing pay television services to its Tucson customers.  It purchased television programs created by various organizations and received local television broadcast signals.  The satellite and local broadcast signals were converted at the taxpayer’s facilities into a format that were broadcast to its customers.  The Tax Court held that the taxpayer was not subject to Tucson tax pursuant to A.R.S. § 42-6004.A.2, which prohibits cities from imposing any tax on the income of a telecommunication service company.  The Court of Appeals reversed the Tax Court, holding that the term “telecommunication services” in A.R.S. § 42-6004.A.2 had to be analyzed under the definition of the identical term in A.R.S. § 42-5064, the transaction privilege tax telecommunications classification.  Explicit within that definition was the concept that such services include the transmissions of signals, images, sounds, etc. and items that were not transmissions, such as the sales of internet access services or the sales of burglar alarm monitoring services, were not transmissions and did not fall under that classification.  The Court concluded that the taxpayer’s income constituted fees charged for access to or subscription to a telecommunication system, directly taxable under the Tucson code.  Because such charges did not constitute transmissions of telecommunication services, they did not fall under the prohibition of taxation, thereof under A.R.S. § 42-6004.A.2.

Havasu Springs Resort Co. v. La Paz County, 1 CA-TX 00-0012, ____ Ariz. ____, ____ P.3d ____ (Ct. App. 2001)

Havasu Springs Resort Company (“Havasu”) appealed from a summary judgment sustaining the taxation of buildings on federal land occupied and used by Havasu in its business.  The issue before the Court was whether Havasu was the owner of improvements it constructed on land leased from the U.S. Bureau of Land Management (“BLM”) or whether its interest was merely possessory.  The Court held for Havasu, finding that the lease, when viewed as a whole, was not consistent with the Tax Court’s conclusion that Havasu owned the recreational sites and motel expansion it had constructed on BLM land.  The Court stated that both the general rule that a lessee does not own improvements and the terms of the lease inexorably lead to the conclusion that Havasu had only a possessory interest in the improvements.

Conference Resort Specialists v. Ariz. Dep't of Econ. Sec., 199 Ariz. 314, 18 P.3d 108 (Ct. App. 2001)

In 1991, the owner of the Scottsdale Conference Center and Resort Hotel and International Conference Resorts (“ICR”), a hotel management company, hired the taxpayer to provide and manage all hotel employees.  The taxpayer was assigned the standard, highest unemployment tax rate of 2.7%, instead of ICR’s lower rate of 0.66%.  The taxpayer argued that under language in the applicable statute, A.R.S. § 23, 733, the taxpayer had succeeded to the business and thus was entitled to the predecessor’s, ICR, unemployment tax insurance rate.  The Court held for the Department, finding that the taxpayer had not succeeded to the business because it did not have an ownership interest, and also concluded that the hotel employees were not an organization, trade or business as defined in the statute.

Walden Books Co. v. Ariz. Dep't of Rev., 198 Ariz. 584, 12 P.3d 809 (Ct. App. 2000)

Waldenbooks maintained a Preferred Reader Program which it, for an annual fee, provided its members with numerous goods and services and discounts on book purchases.  Waldenbooks argued that its income from the Preferred Reader Program constituted the sale of intangible property rights which were not subject to tax under the retail classification.  It also argued that the Preferred Reader Program was exempt as services rendered in addition to selling intangible personal property at retail.  As to the first issue, the Court found that the Preferred Reader Program was an integral part of the main business activity of retail sales and was not clearly identifiable from the remainder of its retail sales activities.  As to the services issue, the Court concluded that the Preferred Reader Program was designed to develop customer loyalty and increase sales by providing incentives to buy books at Waldenbooks’ stores.  It concluded that such incentives cannot be characterized as separate and apart from the sale of its books; they were not “in addition to selling the books.”

U. S. West Communications, Inc. v. City of Tucson, 198 Ariz. 515, 11 P.3d 1054 (Ct. App. 2000)

In 1997, Tucson imposed a 1.5% tax on the gross income of providing telecommunication services by using city rights-of-way in addition to the 2% tax on the gross income of public utilities.  US West was subject to all of these taxes and brought an action to enjoin and declare unlawful the imposition of the 1.5% right-of-way tax.  The Tax Court ruled that the 1.5% tax was invalid as a prohibited “tax, rent, fee or charge [on] a telecommunications corporation for the use of a public highway to provide telecommunications services.”  A.R.S. § 9-582(A) (Supp. 1999) (emphasis added).  The Court held further that the 1.5% tax did not constitute a “transaction privilege tax authorized by law on the business of providing telecommunications services” exempt from the general prohibition as provided in A.R.S. § 9-582(A)(1).  The Court of Appeals reversed the Tax Court’s decision.  The Court rejected US West’s argument that the 1.5% was not a transaction privilege tax since it was not triggered by engaging in a particular taxable business within Tucson but rather by the use of public rights-of-way, and US West’s argument that 1.5% tax was not a true transaction privilege tax and was beyond the City’s power to adopt it.

Circle K Stores, Inc., et al. v. Apache County, et al., 191 Ariz. 269, 17 P.3d, 114 (Ct. App. 2001)  

This case dealt with the $50,000 exemption for personal property.  The taxpayers are the owners of businesses with multiple locations.  They concluded that the term “taxpayer”, used in Article 9, Section 2(6) of the Arizona Constitution and A.R.S. § 42-280, referred to the business location or assessment account rather than the owner of the property who pays the taxes.  The taxpayers argued that they were entitled to the $50,000 exemption per location rather than one $50,000 exemption per owner.  The Court looked to the ordinary meaning of the term “taxpayer” and concluded that it refers to the person or entity that owns or controls the property.  The Court then concluded that the definition of “taxpayer,” for purposes of Article 9, Section 2(6), also applied to A.R.S. § 42-280, otherwise the statute would exceed the authority granted by Article 9, Section 2(6) and render it unconstitutional.  Therefore, each taxpayer was only entitled to a single, state-wide exemption of $50,000.

Ariz. Dep't of Rev. v. Care Computer Systems, Inc., 197 Ariz. 414, 4 P.3d 469 (Ct. App. 2000)

Care Computer Systems, Inc. (“Care”) was a Washington-based seller of computer hardware and software to nursing homes throughout the United States.  Care also had a salesman assigned to Arizona and provided training for its software, with its training personnel spending approximately 21 days per year in Arizona.  Care defended against the Department’s assessment of privilege tax on its sales and leases by claiming that it did not have sufficient nexus with Arizona for the Department to impose the state’s tax jurisdiction over it.  The Court of Appeals disagreed.  It held that while the volume of Care’s Arizona activity was not large, the function of its Arizona activity was significantly associated with establishing and maintaining a market in Arizona for its sales.  It held that Care’s activity in Arizona equaled or exceeded the activity of the taxpayer, Dunbar Furniture, in the earlier nexus case of Ariz. Dep’t of Rev. v. O’Connor Cavanaugh.

Park Central Mall, LLC v. Maricopa County, et al., 1 CA-TX 98-0020, ____ Ariz. ____, ____ P.3d ____ (Ct. App. 2000)

Park Central Mall (the “Mall”) appealed the validity of the County’s effort to correct an assessment error for tax year 1997 by Notice of Error.  Certain remodeling to the Mall was completed in August 1995.  However, the Assessor overlooked the improvement and issued a Notice of Valuation.  By March 31, 1997 the Assessor’s Office personnel recognized the omission and sent a Notice of Error and Proposed Correction for tax year 1997 pursuant to A.R.S. §§ 42-16251 through 42-16257 to correct the valuation of the building from $500 to $8.99 million.  The Court reversed the summary judgment entered in favor of the County.  The Court stated that the Assessor, by employing the assessment correction procedures set forth in A.R.S. § 42-16252, obliged itself to the limitations schedule.  Pursuant to that schedule, the notice was premature and thus invalid.

Bahr v. State and Intel, 1 CA-CV 97-0580, ____ Ariz. ____, ____ P.3d ____ (Ct. App. 1998)

City of Phoenix v. Paper Distributors of Arizona, Inc., 1 CA-TX 94-0020, ____ Ariz. ____, ____ P.3d ____ (Ct. App. 1996)

 

© 1996 Michael G. Galloway

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