863 P.2d 915 (Ariz.Tax 1993), TX 92-00322, Flowing Wells Irr. Dist. v. City of Tucson

Docket Nº:TX 92-00322.
Citation:863 P.2d 915, 176 Ariz. 623
Party Name:FLOWING WELLS IRRIGATION DISTRICT, v. CITY OF TUCSON.
Case Date:November 12, 1993
Court:Tax Court of Arizona
 
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Page 915

863 P.2d 915 (Ariz.Tax 1993)

176 Ariz. 623

FLOWING WELLS IRRIGATION DISTRICT,

v.

CITY OF TUCSON.

No. TX 92-00322.

Tax Court of Arizona.

November 12, 1993

James A. Jutry, Phoenix, for plaintiff.

Page 916

[176 Ariz. 624] Tucson City Atty. by Elizabeth Sotelo, Tucson, for defendant.

OPINION

SCHAFER, Judge.

The issue in this case is whether a city may assess a transaction privilege tax on an irrigation district's income from its sale of water to residential customers.

The Flowing Wells Irrigation District ("District") filed this action for a refund of transaction privilege taxes it paid to the City of Tucson ("City") upon income from water it sold to its residential customers within the City. 1 The tax period in question is December 1, 1987, through November 30, 1991. The District protested the tax assessment at the administrative level and lost. It then paid the assessment under protest, filed an appeal to this Court, then filed a Motion for Summary Judgment, arguing that, as a municipal corporation, it is immune from the City's tax.

FACTS

The District is a municipal corporation of the State of Arizona. A.R.S. § 48-2901. In addition to supplying irrigation service to customers within its boundaries, the District sells water to customers in the City of Tucson who also are within the District's boundaries. The City audited the District's transaction privilege taxes for the period December 1, 1987, through November 30, 1991, and, pursuant to Section 19-480 of the Tucson Code, assessed additional transaction privilege taxes for water supplied to the City customers. Section 19-480(a)(1) taxes those who furnish utility services, including water, to consumers living in the City.

The District argues as a municipal corporation its sale of water is a governmental activity and is exempt from taxation. The City argues the sale of water to City residential customers is only incidental to the irrigation district's primary purpose of irrigating arid land. Thus, the City concludes, sale of water for domestic use is a proprietary function, not a governmental function, of the District and as such is taxable.

The Court agrees with the City; the District's sales to City customers are not part of its governmental purpose and it is not entitled to a refund.

ANALYSIS

Governmental activities are exempt from taxation. City of Phoenix v....

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