Justia Tax Law Opinion Summaries

Mesquite Power, LLC owns the Mesquite Power Plant, which operates under a Power Purchase Agreement (PPA) guaranteeing specific electrical capacity to buyers in exchange for fixed payments. For the 2019 tax year, the Arizona Department of Revenue (ADOR) valued the plant at $196,870,000 using a cost-based approach as mandated by A.R.S. § 42-14156. Mesquite challenged this valuation in tax court, arguing that it exceeded the market value of the property, which they claimed was $105,000,000 based on the income approach, excluding income from the PPA.The Arizona Tax Court ruled partially in favor of Mesquite, determining that the PPA was a non-taxable, intangible asset and should not be included in the property valuation. However, the court allowed for the possibility that cash flows from the PPA could be considered in the valuation. At trial, Mesquite's expert valued the property at $105,000,000 using the income approach without the PPA, while ADOR's expert valued it at $432,000,000, including the PPA income. The tax court sided with Mesquite, setting the value at $105,000,000. ADOR appealed.The Arizona Court of Appeals reversed the tax court's decision, holding that the PPA must be considered in the property valuation as it enhances the value of the plant. The court emphasized that any competent appraisal must reflect the property's current usage, which includes the PPA.The Arizona Supreme Court reviewed the case and concluded that income from the PPA may be considered under the income approach if it is relevant to the property's income derivable as a power plant. The court also clarified that A.R.S. § 42-11054(C)(1) does not mandate the consideration of the PPA under the "current usage" requirement. The Supreme Court reversed the tax court's judgment and remanded the case for further proceedings, allowing both parties to offer new valuations consistent with this opinion. The Court of Appeals' opinion was vacated. View "MESQUITE v. ADOR" on Justia Law

The case involves a dispute between Pima County and the State of Arizona regarding the reimbursement of desegregation expenses. Following amendments to Arizona Revised Statutes (A.R.S.) § 15-910 in 2018, the State ceased reimbursing Pima County for desegregation expenses that exceeded the Arizona Constitution’s 1% limit on residential property taxes. The key issue was whether these expenses, previously classified as "primary property taxes," should still be reimbursed by the State under the new statutory framework.The Arizona Tax Court initially ruled in favor of Pima County, holding that the State must reimburse the desegregation expenses as additional state aid for education. The court found the State's interpretation of the amended statute unworkable and inconsistent with the constitutional mandate. The State appealed this decision.The Arizona Court of Appeals reversed the Tax Court's decision, concluding that the legislature had the authority to amend the statutory scheme and reclassify the desegregation expenses as secondary property taxes. The court reasoned that the new classification did not violate the Arizona Constitution, as the legislature's amendments were within its purview to alter statutory tax classifications.The Arizona Supreme Court reviewed the case and affirmed the Court of Appeals' decision. The Court held that the 2018 amendments to A.R.S. § 15-910 effectively reclassified desegregation expenses as secondary property taxes, which are not subject to reimbursement under A.R.S. § 15-972(E). The Court concluded that the State is not required to reimburse Pima County for these expenses, as the new classification aligns with the legislative intent and does not violate the constitutional 1% limit on residential property taxes. The case was remanded to the Tax Court for the entry of judgment in favor of the State. View "PIMA COUNTY v. STATE OF ARIZONA" on Justia Law

The case revolves around the issue of whether reimbursements paid to a hotel for a loyalty program member’s complimentary stay constitute gross income for purposes of Arizona’s transaction privilege tax (TPT). The hotel in question, Dove Mountain, participates in the Marriott Rewards Program. As part of the program, Dove Mountain and other participating hotels fund the program's marketing efforts by paying a percentage of room revenues and providing rooms for complimentary stays to program members. When a member redeems points for a complimentary stay at Dove Mountain, Marriott Rewards issues a reimbursement payment to the hotel.The Arizona Department of Revenue (ADOR) denied Dove Mountain's request for a refund of TPT paid on certain reimbursements between 2012 and 2016. Dove Mountain appealed ADOR’s decision to the tax court, arguing that the reimbursements were part of a rewards program not subject to TPT. The tax court concluded that Dove Mountain was not eligible for a refund and entered judgment for ADOR. The court of appeals affirmed the tax court's decision, holding that the reimbursements fell within the statutory definitions of gross receipts and gross income and were subject to TPT.The Supreme Court of the State of Arizona affirmed the lower courts' decisions. The court held that the reimbursements paid by Marriott Rewards to Dove Mountain constitute gross income for TPT purposes. The court distinguished the case from a previous case, Consumers Market, which Dove Mountain argued was materially indistinguishable. The court found that the nature and operation of the Rewards Program undermined Dove Mountain’s effort to characterize its Points-earning transactions, subsequent redemptions, and Reimbursements as analogous to the “whole transaction” at issue in Consumers Market. The court concluded that Dove Mountain's various characterizations of Reimbursements as “post-tax” reserves, returns of capital, or bank deposits were not supported by the facts or the law. View "DOVE MOUNTAIN v ADOR" on Justia Law

The Supreme Court held that the Arizona Department of Revenue (ADOR) is not required to assess the money collected from a taxpayer-business's customers to cover transaction privilege taxes against the responsible person pursuant to Ariz. Rev. Stat. 42-1104(A) before filing a collection lawsuit.ADOR brought suit against Peter Tunkey and his wife (together, Tunkey) to recover unpaid transaction privilege taxes (TPTs) pursuant to Ariz. Rev. Stat. 42-5028, which imposes liability on a "person" for failing to remit to ADOR any "additional charge" made to cover the tax. The tax court granted Summary judgment for ADOR and entered judgment against Tunkey for $26,000 in unpaid TPTs. Tunkey appealed, arguing that the tax court erred in ruling that ADOR was not required to timely assess the $26,000 amount against him personally before filing suit. The Supreme Court affirmed, holding that section 42-1104(A) did not require ADOR to notify Tunkey of "additional taxes due" because the unpaid TPT charges did not constitute an "additional tax due" triggering section 42-1104(A)'s notice requirement. View "State v. Tunkey" on Justia Law

The Supreme Court held that the exemption from the referendum power for law "for the support and maintenance of the departments of the state government and state institutions," see Ariz. Const. art. 4, pt. 1, 1(3), apples to tax measures and that a revenue measure is exempt from referendum provided that it is for the support and maintenance of existing departments of the state government and state institutions.SB 1828 was signed by the Governor as a tax bill for the 2022 fiscal year and imposes a "flat" tax of 2.5 percent on taxable revenues but becomes effective only if the state General Fund revenues reach specific targets. Invest in Arizona (IIA) sought to prevent implementation of the flat tax by referring SB 1828 to the ballot in the November 2022 general election. Appellants filed a motion for preliminary injunction seeking to enjoin the Secretary of State from accepting or certifying any petition filed in support of a referendum of SB 1828, including IIA's petition. The trial court ruled that SB 1828 is referable and denied the preliminary injunction request. The Supreme Court reversed, holding that the exemption from the referendum power for laws "for the support and maintenance of the departments of the state government and state institutions" applies to tax measures. View "Arizona Free Enterprise Club v. Hobbs" on Justia Law

The Supreme Court held that delivery of a pre-litigation notice to each of the three addresses referred to in Ariz. Rev. Stat. 42-18202(A)(1)(a)-(c) is sufficient to satisfy the statute's pre-litigation-notice requirement, even if the lienholder has reason to believe that the property owner never received the notice.HNT Holdings, LLC owned three continuous parcels of real property on which property tax payments became became delinquent. Lienholders each purchased a tax lien on one of the parcels and later sought to foreclose on the respective properties. After the statutorily-mandated time, Lienholders filed complaints to foreclose on their tax liens and attempted to serve the complaints on the HNT statutory agent. Three separate trial proceedings resulted in default judgments against HNT. HNT then successfully moved to set the judgments aside. The Supreme Court remanded the case, holding (1) Lienholders' efforts to provide notice to HNT complied with the second method of notice under section 42-18202; and (2) Lienholders were not required to take any other action to provide notice of their intent to foreclose. View "4QTKids, LLC v. HNT Holdings, LLC" on Justia Law

The Supreme Court held that the Indian Reorganization Act did not expressly preempt Mohave County's ad valorem property tax on a power plant owned by non-Indian lessees of land purportedly acquired by the federal government under the Act and held in trust for the benefit of an Indian tribe.Plaintiff initiated these consolidated lawsuits seeking a refund of payments for property taxes imposed from 2010 to 2018 to the extent they were based on valuations of the power plant at issue, arguing that section 5 of the Act, 25 U.S.C. 5108, expressly preempts states from imposing property taxes on any real property improvements located on land held in trust by the federal government for the benefit of Indian tribes or individuals. The tax court granted summary judgment for the County, but the court of appeals reversed. The Supreme Court vacated the judgment in part, holding that section 5 of the Act expressly preempts taxing permanent improvements constructed on tribal lands acquired under that section when those improvements are owned by non-Indians. View "South Point Energy Center LLC v. Arizona Department of Revenue" on Justia Law

The Supreme Court affirmed in part and reversed in part the judgment of the tax court dismissing Counts I through III of the Attorney General's complaint and granting summary judgment on Count IV, holding that the tax court erred in part.At issue was the scope of three statutes the Attorney General (AG) invoked to challenge an agreement between the Arizona Board of Regents (ABOR) and a private company for the company to construct and operate a hotel and conference center on property owned by ABOR. The Supreme Court held (1) to initiate an action under Ariz. Rev. Stat. 42-1004(E) there must be an applicable tax law to enforce; (2) the AG may bring a quo warranto action pursuant to Ariz. Rev. Stat. 12-2041 to challenge the unlawful usurpation or exercise of a public franchise; and (3) the AG's public-monies claim was subject to the five-year statute of limitations set forth in Ariz. Rev. Stat. 35-212(E). View "State v. Arizona Board of Regents" on Justia Law

The Supreme Court held that the Pinal County Regional Transportation Authority (RTA) and the Penal County Board of Supervisors (Board) acted unlawfully when they adopted a two-tiered retail transaction privilege tax (TPT) on tangible personal property as part of a transportation excise tax.At issue was (1) Pinal County's adoption of Proposition 416, a regional transportation plan, and Proposition 417, a transportation excise tax; and (2) a two-tiered TPT structure whereby the first $10,000 of any single item was taxed at one rate and any amount in excess was taxed at a rate of zero percent adopted as part of a transportation excise tax in Pinal County. The Supreme Court held (1) Pinal County complied with state law in adopting the transportation excise tax; but (2) the County's two-tiered retail transaction privilege tax was invalid. View "Vangilder v. Arizona Department of Revenue" on Justia Law

The Supreme Court held that the direct funding provision of Proposition 208 did not fall within the constitutional definition of grants in Ariz. Const. art. IX, 21 (the Education Expenditure Clause) and was therefore unconstitutional to the extent it mandated expanding tax revenues in violation of the Education Expenditure Clause.Proposition 208 was a citizens' initiative passed in 2020 imposing an income tax purchase on high-income Arizona taxpayers to provide direct funding to schools. Petitioners brought this action challenging the constitutionality of the tax and the initiative's characterization of the direct funding as "grants" exempt from the Education Expenditure Clause and seeking to enjoin the collection of that tax pending the resolution of their challenge. The Supreme Court held (1) because Ariz. Rev. Stat. 15-1285 incorrectly characterizes the allocated monies in order to exempt Proposition 208 from the Education Expenditure Clause, it is facially unconstitutional; (2) the remaining non-revenue related provisions of Proposition 208 are not severable; (3) this Court declines to enjoin the imposition of the tax pending further proceedings; and (4) Proposition 208 does not violate the Tax Enactment Clause of the Arizona Constitution, and therefore, the bicameralism, presentment, and supermajority requirements found therein are inapplicable. View "Fann v. State" on Justia Law