863 P.2d 920 (Ariz.Tax 1993), TX 93-00201, PCS, Inc. v. Arizona Dept. of Revenue

Docket Nº:TX 93-00201.
Citation:863 P.2d 920, 176 Ariz. 628
Case Date:November 16, 1993
Court:Tax Court of Arizona

Page 920

863 P.2d 920 (Ariz.Tax 1993)

176 Ariz. 628




No. TX 93-00201.

Tax Court of Arizona.

November 16, 1993

Michael G. Galloway, Phoenix, for plaintiff.

James M. Susa, Phoenix, for defendant.



The Taxpayer, PCS, Inc. (PCS), brought this action against the Arizona Department of Revenue contesting use taxes imposed against it under A.R.S. § 42-1408. The issue presented is whether the processing of blank plastic cards into prescription plan identification cards is "use," "storage,"or "consumption" in Arizona. A.R.S. §§ 42-1401, 1454.

PCS is a manager of prescription drug benefits. It sells a service plan to sponsors who provide prescription drug benefits to employees covered by the plan. Approximately 98% of the plans are "RECAP SM" plans which allow a participating pharmacist to have on-line capabilities with the PCS computers, located at PCS headquarters in Scottsdale, Arizona. By "swiping" the RECAP card, which is magnetically encoded with information, the pharmacist can submit his claim directly to PCS electronically and he may receive information about the sponsor's plan at the same time.

PCS orders blank plastic cards from out-of-state vendors and has them shipped to its headquarters in Scottsdale. PCS accumulates covered employee and plan sponsor information and enters it into its computer in Arizona. The blank cards are then processed and imprinted with the covered employee's name, plan sponsor information and any other pertinent information, including plan sponsor 800 telephone numbers.

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[176 Ariz. 629] Once the cards are processed and imprinted they are shipped to plan sponsors for distribution to their covered employees. About 91% of the processed cards are shipped to out-of-state plan sponsors; the remaining 9% are used by plan sponsors within Arizona. Once the processed cards have been shipped to plan sponsors or covered employees, PCS neither retains ownership of the cards nor receives the cards back.

PCS has processed as many as 27 million blank cards in a year and at any one time it may have up to 8 million blank cards at its Scottsdale facilities.

In 1990, the Department of Revenue ("Department") audited PCS for the period January 1, 1986, through January 31, 1990. The Department made a deficiency assessment which included, among other items, a use tax imposed on all of the blank cards brought into and processed in Arizona, including those shipped and used out-of-state.

PCS challenges the propriety of the use tax on the cards processed here and shipped out of state. 1 It contends the card processing activities do not fall within the scope of the use tax, and, even if the processing falls within the scope of the tax, the Department is estopped from assessing the tax. It also argues the assessment may not be done retroactively.

The Court finds PCS's blank card processing is a "use" and "consumption" in Arizona and PCS is subject to the use tax. The Court also finds the cards...

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