Rio Rico Properties, Inc. v. Santa Cruz County

Decision Date22 May 1992
Docket NumberNos. TX,s. TX
Citation172 Ariz. 80,834 P.2d 166
PartiesRIO RICO PROPERTIES, INC. v. SANTA CRUZ COUNTY; Arizona Department of Revenue, et al. Marion D. WIDGER, et al. v. ARIZONA DEPARTMENT OF REVENUE; Pinal County, et al. 90-00339, TX 90-00080.
CourtArizona Tax Court

Nearhood & Associates, P.C. by James R. Nearhood, Phoenix, for plaintiffs-appellants Rio Rico.

Atty. Gen. by Janice M. Marquez and Michael F. Kempner, Phoenix, for defendant-appellee Arizona Dept. of Revenue.

Santa Cruz County Atty. by Holly Hawn Barton, Nogales, for defendant-appellee Santa Cruz County.

Pima County Atty. by Peter E. Pearman, Tucson, for Pima County.

Helm & Kyle, Ltd. by John D. Helm, Phoenix, for defendant counties.

Donald P. Roelke, Phoenix, for plaintiffs-appellants Widger.

Pinal County Atty. by Gordon S. Bueler, Florence, for defendant-appellee Pinal County.

OPINION

MORONEY, Judge.

Trial to the Court in Rio Rico Properties, Inc., v. Santa Cruz County concluded on September 18, 1991. As originally filed, the Taxpayer's cause of action was set forth in three counts, Count I seeking special action relief. Four additional cases were consolidated into Rio Rico so that, as trial approached, seven separate claims were to be resolved. Except for Count I of the captioned case, the history and resolution of all claims in the consolidated case were set forth in the Court's Minute Order of May 4, 1992. The Count I special action is the only cause that concerns us here.

Trial to the Court in Widger v. Arizona Dep't of Revenue concluded on November 7, 1991. Like Count I of Rio Rico, Widger is a claim for special action relief.

On October 4, 1990, the Court of Appeals announced its decision in Hayden Partners Ltd. Partnership v. Maricopa County, 166 Ariz. 121, 800 P.2d 987 (App.1990). This decision affects a very large number of property tax appeals which the Court has consolidated in A-M Community Developers v. Maricopa County, Tax Court No. TX 89-00107 (Consol.). This consolidated case will be referred to hereafter as the Hayden Partners cases.

The issue discussed and decided by the Court in this Opinion is an issue of some significance in the Hayden Partners cases. For that reason, lead counsel on both sides of the consolidated Hayden Partners cases sought to intervene in the two cases now before the bench. The Court denied intervention, but, after the Widger trial was done, the Court permitted counsel for both Taxpayers and government in the Hayden Partners cases to brief and argue their respective views on how the Court should decide the common issue.

In both Rio Rico and Widger, the Taxpayers' claims are based on A.R.S. § 11-506. A.R.S. § 11-506 provides for a refund for erroneous assessments after payment of the tax. The statute provides that the refund process begins with a claim filed with the appropriate county treasurer.

After suit was commenced in both Rio Rico and Widger, the Arizona Legislature amended A.R.S. § 11-506. In the amending act, the legislature provided that the act was retroactive to tax years beginning on or after January 1, 1986. Laws 1991, Ch. 182, eff. June 3, 1991, as amended by Laws 1991, Ch. 303, eff. June 28, 1991. The amendment narrows the scope of the refund authorized by the earlier statute.

In Rio Rico, the Santa Cruz County Assessor based the Rio Rico assessment on information obtained from entities which owned the property before the Taxpayer Plaintiff. The information was incorrect.

In Widger, the Taxpayers purchased farmland, subdivided it, and filed a plat map with the County Assessor. The land continued to be farmed, however, as the Taxpayers did not sell any lots. Subsequent to the filing of the plat map, the property was assessed as vacant land.

The Court holds that the provisions in the amending act which make the amendment to A.R.S. § 11-506 retroactive as to the claims of Rio Rico and Widger are a violation of the due process clauses of both the Arizona and Federal Constitutions. The Court further holds that "erroneous assessment" in A.R.S. § 11-506 before the statute was amended encompassed only assessments that were wrong because of an undisputed mistake of fact. Not within the ambit of the relief provided by the statute are assessments that were wrong because of a misinterpretation of law, or because of deliberate misapplication of policy by an agent of a taxing authority. In Rio Rico, the Court finds for the Government for the tax year 1987 and for the Taxpayer for tax years 1988 and 1989. In Widger, the Court finds for the Government.

Factual Setting in Rio Rico

The taxes at issue in Rio Rico are personal property taxes paid on secured personal property of the Rio Rico Resort in Santa Cruz County. The tax years at issue are 1987, 1988, and 1989. In preparing to assess a tax on personal property, an assessor may demand from a taxpayer a list of property owned or controlled by the taxpayer. A.R.S. § 42-222. This demand is communicated to commercial businesses, such as the Taxpayer here, on Department of Revenue Form 520. Once the demand is made, the taxpayer is obligated to complete the form and return it to the assessor.

The Form 520 is designed so that the information on it is cumulative. When each year's Form 520 is sent to the taxpayer from the assessor, the property reported in the previous year is already listed. Only current year changes are added by the taxpayer. The Form 520 does not list individual items of property. Property is separated into categories defined by the Department of Revenue. Categories are listed by each year in which property in that category was acquired. The total acquisition cost of each category for each year is also noted on the Form 520. Valuation is determined by applying a depreciation formula to each annual acquisition cost. Such depreciation-modified costs are added in each category. The resulting category costs are totalled to obtain the valuation. When a new owner acquires the property, the cumulative record should be deleted, and the new owner's acquisition cost should replace it.

The Taxpayer acquired the resort in May 1987. By that time, the 1987 Form 520 had already been sent to the previous owner. The 1987 Form 520 was not returned to the Assessor. The Taxpayer was billed for its personal property tax on the secured roll based on a valuation of the property listed on the form when it was sent to the previous owner. The valuation was $496,589. The Taxpayer paid the tax billed.

Suzanne Jackson testified at trial that she was the Deputy Assessor who had the responsibility for assessing personal property at the Rio Rico Resort. When she did not receive a completed 1987 Form 520 from the property owner, she created one, using information supplied earlier to the Assessor on Forms 520 by owners of the resort previous to the Taxpayer. These previous owners had misunderstood the form, and on earlier filed Form 520's, had duplicated cumulative categories. New owners did not always delete previous owners' costs. When Ms. Jackson prepared the substitute 1987 Form, based on the records she had before her, she incorrectly included a large amount of property which should have earlier been deleted. She did not note any potential discrepancy and made no inquiry of the Taxpayer.

Each year, during the relevant tax years, the Department of Revenue prepared Forms 520 for Santa Cruz County. Before a form was sent to a taxpayer, the Department placed on the form the cumulative listing of all property which previous Forms 520 indicated were in the hands of the taxpayer at the beginning of the previous year. It was the taxpayer's obligation to enter on the form changes made during the previous year and return the form to the assessor. When the Rio Rico 1987 Form 520 came from the Department, it did not show all of the property which Ms. Jackson later deduced was in use at the resort. When she reconstructed what she believed the 1987 Form 520 should have shown, it was too late to add the property she found to the secured roll, so Ms. Jackson placed it on the unsecured tax roll. The Assessor billed the tax on the newly discovered property to the Taxpayer as a tax on escaped property. The Taxpayer denied liability for this tax and refused to pay it, suggesting that Santa Cruz County collect from the previous owner. The record is silent as to how this particular tax bill was ultimately resolved. Rio Rico Properties did not pay it, however.

On the Taxpayer's Form 520 for 1988, the Department of Revenue added the 1987 property which Ms. Jackson had placed on the unsecured roll. As a result, on the secured tax roll the personal property valuation determined by the Santa Cruz Assessor for 1988 was $1,213,090, and for 1989 was $1,126,155.

Whether as a resort, or as a provider of overnight accommodations for road weary travelers, the Rio Rico Resort has not been much of an economic success. The motel was constructed in the 1960's and has passed through a succession of owners, often as a result of bankruptcy or foreclosure. In 1978, a business entity identified in the evidence as Rio Rico Hotel acquired the resort out of bankruptcy proceedings. In 1982, Rio Rico Hotel sold the property to U.S. Hotel Properties for $3,600,000. In May 1987, Rio Rico Hotel reacquired the property after a judicial foreclosure of a second deed of trust, paying at the sheriff's sale $2,243,698. The day after it purchased the resort at the sheriff's sale, Rio Rico Hotel sold it to the Taxpayer for $2,151,962. These transactions and these prices were known to the Santa Cruz County Assessor.

When the Taxpayer received the Forms 520 for 1988 and 1989, and again when it received its tax statement for each of those years, it should have noted that the Department's value as listed on the Form 520 and the Assessor's valuation on the tax bills were markedly disproportionate to the value of the personal property on hand. The Assessor also should have noted the very high...

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