Flowing Wells Irr. Dist. v. City of Tucson

Decision Date12 November 1993
Docket NumberNo. TX,TX
PartiesFLOWING WELLS IRRIGATION DISTRICT, v. CITY OF TUCSON. 92-00322.
CourtArizona Tax Court
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. City of Goodyear, 174 Ariz. 529, 851 P.2d 154 (Tax 1993); Salt River Project Agricultural Improvement and Power Dist. v. City of Phoenix, 129 Ariz. 398, 631 P.2d 553 (App.1981). Proprietary activities of a government, however, are taxable. A governmental function is generally recognized as one undertaken because of a duty imposed on the entity for the welfare or protection of its citizens or a function that is fundamentally inherent in or encompassed within the basic nature of government. Copper Country Mobile Home v. City of Globe, 131 Ariz. 329, 333, 641 P.2d 243, 247 (App.1982); Book-Cellar, Inc. v. City of Phoenix, 150 Ariz. 42, 44, 721 P.2d 1169, 1171 (App.1986). A proprietary function is "more a commercial activity which directly competes with other commercial activities...." Book-Cellar, Inc. v. City of Phoenix, supra, 150 Ariz. at 44, 721 P.2d at 1171.

Irrigation districts are political subdivisions of the state; they are municipal corporations "of a peculiar type." City of Mesa v. Salt River Project Agr. Imp. & P. Dist., 92 Ariz. 91, 103, 373 P.2d 722, 734 (1962); Arizona Constitution, art. XIII, § 7; A.R.S. § 48-2901. The District "is essentially a business corporation with attributes of sovereignty which are only incidental, conferred for the purposes of better enabling it to function and accomplish the business and economic purposes for which it was organized." City of Mesa, supra, 92 Ariz. at 103-4, 373 P.2d at 734-5.

The City cites Santa Cruz Irrigation District v. City of Tucson, 108 Ariz 152, 153, 494 P.2d 24, 25 (1972) (which relies upon the City of Mesa case to buttress its holding) to support its position that selling water to City homeowners is only incidental (thus proprietary and taxable) to an irrigation district's primary function of providing water for irrigation. There is no question that both cases hold that selling water or electricity is incidental to an irrigation district's primary purpose of irrigating arid lands. Branding the sale "incidental," however, does not answer the question whether the sale may be taxed. And the District's argument that Section 48-2981 answers that question fares no better. That statute simply amends an irrigation district's charter to allow it to deliver water to cities for...

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4 cases
  • State v. Sussex
    • United States
    • Arizona Court of Appeals
    • March 18, 2014
    ...those lands in trust for the specific purpose of applying the land to state school use. See Flowing Wells Irr. Dist. v. City of Tucson, 176 Ariz. 623, 624, 863 P.2d 915, 916 (Ariz. Tax Ct. 1993) ("A governmental function is generally recognized as one undertaken because of a duty imposed on......
  • Cotto v. Board of Education, No. CV 01-045489S (Conn. Super. 6/30/2006)
    • United States
    • Connecticut Superior Court
    • June 30, 2006
    ...individuals or for profit, benefit or the advantage of the governmental unit conducting it." See for example Flowing Wells Inc. Dist. v. City of Tucson, 863 P.2d 915, 916 (Ariz.TaxCt. 1993). A question under this test is the finding of a proprietary function "where the government charges fe......
  • Montgomery Ward & Co., Inc. v. Superior Court In and For County of Maricopa
    • United States
    • Arizona Court of Appeals
    • November 23, 1993
    ... ... as the case that was cited down in Tucson. [Jones v. Buchanan, 146 Ariz.Adv.Rep. 52.] And ... ...
  • Pinetop Lakes Ass'n v. Ponderosa Domestic Water Improvement Dist.
    • United States
    • Arizona Court of Appeals
    • May 27, 2010
    ...boundaries than its residents because it operated the watersystem in its proprietary capacity); Flowing Wells Irrigation District v. Tucson, 176 Ariz. 623, 628, 863 P.2d 915, 917 (Tax 1993) (concluding thatan irrigation district "supplying water to urbanites" was exercising a proprietary fu......

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