Peters v. Prescott

NOTICE: NOT FOR OFFICIAL PUBLICATION.
UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT
PRECEDENTIAL AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.
IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE
MICHAEL PETERS,
Plaintiff/Appellant,
v.
CITY OF PRESCOTT,
Defendant/Appellee.
No. 1 CA-TX 15-0004
FILED 3-29-2016
Appeal from the Superior Court of Maricopa County
No. TX2015-000158
The Honorable Christopher T. Whitten, Judge
AFFIRMED
COUNSEL
Michael Peters, Prescott
Plaintiff/Appellant
City of Prescott Legal Department, Prescott
By Jon M. Paladini, Clyde P. Halstead, Matthew P. Podracky
Counsel for Defendant/Appellee
PETERS v. PRESCOTT
Decision of the Court
MEMORANDUM DECISION
Judge Patricia A. Orozco delivered the decision of the Court, in which
Presiding Judge Diane M. Johnsen and Judge Samuel A. Thumma joined.
O R O Z C O, Judge:
¶1 Michael Peters (Peters) appeals from the Arizona tax court’s
order dismissing his complaint against the City of Prescott (City) for lack of
standing. For the following reasons, we affirm.
FACTS AND BACKGROUND
¶2 The City’s Transaction Privilege and Use Tax Code (City
Code) imposes a two percent privilege tax on the gross income of golf
courses. See City Code § 4-1-410 (2015). The City assessed this tax against
the Golf Club at Prescott Lakes, LLC (Club) for membership dues collected
by the Club. The Club, in turn, passed the tax on to its members. Peters is
a member of the Club.
¶3 Peters filed a petition for administrative review challenging
the application of the privilege tax to his membership dues. See id.
§ 4-1-570. The municipal tax hearing officer (MTHO) determined that
Peters did not have standing to contest the tax because he was not a
“taxpayer” as defined by the City Code. Peters appealed the MTHO’s
decision to the Yavapai County Superior Court. See id. § 4-1-575.
¶4 The Yavapai County Superior Court granted a motion by the
City to assign the case to the Arizona tax court. See Arizona Revised
Statutes (A.R.S.) section 12-163.A (West 2016).1 Thereafter, the City filed a
motion for judgment on the pleadings, which the tax court granted,
affirming the MTHO’s decision. This timely appeal followed. We have
1 We cite the current version of applicable statutes and codes when no
revisions material to this decision have since occurred. Although Peters is
correct in pointing out that we should apply the version of the City Code in
effect at the time of assessment, our review of the relevant provisions
reveals no material revisions since then.
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PETERS v. PRESCOTT
Decision of the Court
jurisdiction pursuant to Article 6, Section 9 of the Arizona Constitution and
A.R.S. §§ 12-120.A.1 and -2101.A.1.2
DISCUSSION
¶5 Like many cities and towns in Arizona, the City imposes a tax
on the privilege of doing business within its boundaries. See City Code
§ 4-1-400(a)(1). This privilege tax is not a sales tax, but rather an “excise tax
on the privilege or right to engage in an occupation or business . . . .” Ariz.
Dep’t of Revenue v. Mountain States Tel. & Tel. Co., 113 Ariz. 467, 468 (1976).
The privilege tax is assessed against the gross income of the business itself;
the business may pass the tax on to its customers, but is not required to do
so. See City Code §§ 4-1-400(a)(1), -410(a)(1). Compare Home Depot USA, Inc.
v. Ariz. Dep’t of Revenue, 230 Ariz. 498, 500, ¶ 8 (App. 2012) (noting that a
seller may “pass the cost of the tax on to its customers”), with Tucson Mech.
Contracting, Inc. v. Ariz. Dep’t of Revenue, 175 Ariz. 176, 180 (App. 1992)
(noting taxing authorization creates “no economic compulsion to shift the
tax to the purchaser”). Here, the Club passed the two percent privilege tax
on to its members, including Peters.
I. Case Properly Assigned to Tax Court
¶6 Peters argues the City Code “confers exclusive and sole
jurisdiction in Yavapai County” and that the superior court “committed
reversible and harmful error” by granting the City’s motion to assign the
case to tax court.
¶7 This case began when Peters filed a petition for administrative
review challenging the application of the privilege tax to his membership
dues. Pursuant to City Code § 4-1-575(a), Peters properly sought judicial
review of the MTHO’s decision by filing a complaint in Yavapai County
Superior Court. By statute, however, the Yavapai County Superior Court
was required to assign Peters’ case to the tax court. See A.R.S. § 12-163.A
(stating when an action “involves the imposition, assessment or collection
of a tax . . . the presiding judge of the superior court shall assign the action
2 Because the tax court’s judgment did not contain the necessary
certification pursuant to Rule 54 (c) of the Arizona Rules of Civil Procedure,
this court stayed the appeal to allow Peters to apply to the tax court for a
signed order with the necessary certification. Thereafter, the tax court
issued a signed order with Rule 54(c) certification and the appeal was
reinstated.
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PETERS v. PRESCOTT
Decision of the Court
to the tax court”). Peters’ complaint challenged the City’s imposition of a
privilege tax. Accordingly, the tax court had jurisdiction over Peters’
claims, thus, there was no error in assigning the case to that court.
II. Peters Lacks Standing
¶8 In reviewing the entry of judgment on the pleadings, “we
accept the factual allegations of the complaint as true” and review the tax
court’s conclusions of law de novo. See Mobile Cmty. Council for Progress,
Inc. v. Brock, 211 Ariz. 196, 198, ¶ 5 (App. 2005) (citation omitted). Standing
is a question of law that we review de novo. See Karbal v. Arizona Dep’t of
Revenue, 215 Ariz. 114, 116, ¶ 6 (App. 2007).
¶9 The City Code authorizes “a taxpayer” to contest an
assessment by filing a petition for administrative review with the tax
collector. See City Code § 4-1-570(b). The City Code defines “taxpayer” as
“any person liable for any tax under” the chapter of the City Code imposing
privilege and excise taxes. See id. § 4-1-100. The City argues that Peters
does not have standing to challenge the privilege tax because the Club is
the taxpayer, not Peters. We agree.
¶10 A litigant “seeking relief in the Arizona courts must first
establish standing to sue.” Bennett v. Napolitano, 206 Ariz. 520, 525, ¶ 19,
(2003). “If there is no standing, courts generally decline jurisdiction.”
Karbal, 215 Ariz. at 116, ¶ 7 (citation omitted).
¶11 In Arizona, a customer lacks standing to challenge a tax
passed on to him by a business. In Karbal, a customer challenged the
validity of a hotel tax and a car rental surcharge that were assessed against
the businesses and passed on to the customers. 3 See id. at 115, ¶¶ 2-4. This
court affirmed the dismissal of the customer’s claims, concluding that the
customer was not the “actual taxpayer” and, therefore, lacked standing. Id.
at 117, ¶ 11.
Because Arizona imposes taxes on the business activity of
renting cars and hotel rooms, Karbal is not liable for the
3 Peters attempts to distinguish the Karbal case by arguing that the case
involved a “surcharge” rather than a tax. In Karbal, however, this court
determined that the car rental surcharge (A.R.S. § 5-839) and the hotel tax
(A.R.S. § 5-840) were both “akin to transaction privilege taxes.” Karbal, 215
Ariz. at 116, ¶ 9.
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PETERS v. PRESCOTT
Decision of the Court
payment of these taxes to the State. The taxpayers are the
hotels and rental car businesses filing the returns and
remitting the taxes. “The legal incidence of the transaction
privilege tax is on the seller,” even though the cost may be
passed on to customers like Karbal. See J.C. Penney Co. v. Ariz.
Dep’t of Revenue, 125 Ariz. 469, 472 (App. 1980).
Karbal, 215 Ariz. at 116-17, ¶ 11. Accord Ariz. State Tax Comm’n v. Garrett
Corp., 79 Ariz. 389, 395 (1955) (“Regardless of where the burden rests, the
decisive test under the class of taxing Acts now under consideration is
where does the legal incidence of the tax fall.”); Home Depot, 230 Ariz. at
500, ¶ 8 (noting that “[t]he legal incidence of the tax is on the seller, though
the seller may pass the cost of the tax on to its customers”).
¶12 The legal incidence of the City’s two percent privilege tax falls
on the Club, not Peters. Peters is not the taxpayer as defined by the City
Code and, therefore, he lacks standing to challenge the tax. Because Peters
lacks standing under the City Code and Karbal, we decline to address the
other issues raised on appeal. See Freeport McMoran Corp. v. Langley Eden
Farms, LLC, 228 Ariz. 474, 478, ¶ 15 (App. 2011) (declining to decide
unnecessary issues or issue advisory opinions).
CONCLUSION
¶13 The decision of the tax court concluding that Peters lacks
standing to challenge the assessment of the tax is affirmed.
:ama
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