Arizona Dept. of Revenue v. Action Marine

• Decision Date: 09 April 2008
• Docket Number: No. CV-07-0288-PR.,CV-07-0288-PR.
• Citation: 181 P.3d 188,218 Ariz. 141
• Parties: The ARIZONA DEPARTMENT OF REVENUE, Plaintiff-Appellee, v. ACTION MARINE, INC., an Arizona corporation; Melvin G. Randall and Martha Randall, husband and wife; M. Daniel Randall and Lisa Randall, husband and wife; John D. Randall and Belinda Randall, husband and wife, Defendants-Appellants.
• Court: Arizona Supreme Court

181 P.3d 188

218 Ariz. 141

The ARIZONA DEPARTMENT OF REVENUE, Plaintiff-Appellee, v. ACTION MARINE, INC., an Arizona corporation; Melvin G. Randall and Martha Randall, husband and wife; M. Daniel Randall and Lisa Randall, husband and wife; John D. Randall and Belinda Randall, husband and wife, Defendants-Appellants.

No. CV-07-0288-PR.

Supreme Court of Arizona, En Banc.

April 9, 2008.

Terry Goddard, Arizona Attorney General, by Anthony S. Vitagliano, Chief Counsel Tax, Bankruptcy & Collections Section, Paula S. Bickett, Chief Counsel, Civil Appeals Section, Phoenix, Attorneys for Arizona Department of Revenue.

Trompeter, Schiffman, Petrovits, Friedman, & Hulse, L.L.P., by Jack B. Schiffman, Phoenix, Attorneys for Action Marine Inc., Melvin G. Randall, Martha Randall, M. Daniel Randall, Lisa Randall, John D. Randall, and Belinda Randall.

OPINION

BERCH, Vice Chief Justice.

¶ 1 We have been asked to decide whether a corporate officer or director may be held personally liable under Arizona Revised Statutes ("A.R.S.") section 42-5028 (2006) for failing to remit to the Arizona Department of Revenue money collected from the corporation's customers to pay transaction privilege taxes. We hold that § 42-5028 provides for such personal liability.

I. FACTS AND PROCEDURAL HISTORY

¶ 2 Melvin, John, and Daniel Randall were shareholders and directors of Action Marine, Inc., an Arizona corporation that sold boats and other marine products. John and Daniel were also officers of Action Marine. In July 2002, Action Marine filed for reorganization under Chapter 11 of the Bankruptcy Code. Five months later, the bankruptcy court converted the case to one for liquidation under Chapter 7 and ordered Action Marine to file post-petition transaction privilege tax ("TPT") returns for June through November 2002.

¶ 3 The returns showed that during that period, Action Marine's gross receipts totaled $812,294.00, resulting in a TPT liability of $51,174.52. In October 2004, the Arizona Department of Revenue ("ADOR") filed a complaint in the tax court seeking to recover unpaid TPTs, penalties, interest, and costs pursuant to A.R.S. § 42-5028. ADOR and the Randalls each moved for summary judgment. The tax court granted ADOR's motion, holding the Randalls personally liable for unpaid TPTs, penalties, interest, and costs.

¶ 4 The court of appeals reversed, reasoning that corporate officers cannot be personally liable because such officers are not listed as "persons" in A.R.S. § 42-5001(8) (2006) and no other statute imposes a duty to remit the corporation's TPTs. Ariz. Dep't of Revenue v. Action Marine, Inc., 215 Ariz. 584, 587, ¶ 16, 161 P.3d 1248, 1251 (App.2007).

¶ 5 We granted ADOR's petition for review because this case presents an issue of statewide importance, see ARCAP 23(c)(3), and ADOR has averred that resolution of this issue may affect many cases, both pending and planned. We have jurisdiction pursuant to Article 6, Section 5(3) of the Arizona Constitution and A.R.S. § 12-120.24 (2003).

II. DISCUSSION

¶ 6 "The transaction privilege tax ... is an excise tax on the privilege or right to engage in an occupation or business in the State of Arizona." Ariz. Dep't of Revenue v. Mountain States Tel. & Tel. Co., 113 Ariz. 467, 468, 556 P.2d 1129, 1130 (1976). The TPT is not a sales tax, Ariz. State Tax Comm'n v. Garrett Corp., 79 Ariz. 389, 391, 291 P.2d 208, 209 (1955), but rather is a tax on the gross receipts of a person or entity engaged in business activities. A.R.S. § 42-5008 (2006).

¶ 7 The liability for TPT falls on the taxpayer, not on the taxpayer's customers. A.R.S. § 42-5024 (2006). Taxpayers may pay the TPT themselves or charge customers a separately itemized amount to cover TPTs. See A.R.S. § 42-5002(A)(1) (2006). If the taxpayer chooses to impose a separate charge, it must remit all money collected to ADOR, even if it collects more than the taxpayer owes for TPTs. Id.; Garrett, 79 Ariz. at 392-93, 291 P.2d at 210.

¶ 8 The TPT is not technically a trust tax because taxpayers are not required to collect TPT from customers or hold the money in a trust account for the state. See Joseph DiGiuseppe, What Every Tax Practitioner Needs to Know About Trust Fund Taxes and Responsible Person Liability in Bankruptcy, 17 Prac. Tax Law. 7, 8 (2002). When, however, the taxpayer elects to separately charge customers a "tax" to cover the TPT, § 42-5002(A)(1) operates to achieve a similar result by requiring that any amounts so charged be fully remitted to the state. These collected "taxes" do not belong to and are not for the use of the taxpayer. See DiGiuseppe, supra, at 10-11 (noting that trust fund taxes are not the property of the retailer and are not dischargeable in bankruptcy); Marvin A. Kirsner, Richard S. Miller & David Neier, Officers' and Directors' Nightmare: Being Held Personally Liable for Debtor Company's Unpaid Taxes, N.Y.L.J., Aug. 27, 2001, at 7 & n. 7 (noting that charges for taxes should be considered the "property of the taxing authority").

A. Liability Under A.R.S. § 42-5028

¶ 9 The question before us is whether corporate officers or directors may be held personally liable if the corporation-taxpayer fails to remit to ADOR the additional amount charged to customers to cover TPT liability. The resolution of the issue turns on A.R.S. § 42-5028, which provides as follows:

A person who fails to remit any additional charge made to cover the [TPT] or truthfully account for and pay over any such amount is, in addition to other penalties provided by law, personally liable for the total amount of the additional charge so made and not accounted for or paid over.

(Emphases added.) The parties dispute the meanings of "person" and "additional charge" as those terms are used in this statute.

¶ 10 We review the interpretation of statutory provisions de novo. State ex rel. Ariz. Dep't of Revenue v. Capitol Castings, Inc., 207 Ariz. 445, 447, ¶ 9, 88 P.3d 159, 161 (2004). Our primary goal is to "discern and give effect to legislative intent." Id. (quoting People's Choice TV Corp. v. City of Tucson, 202 Ariz. 401, 403, ¶ 7, 46 P.3d 412, 414 (2002)). "We `construe the statute as a whole, and consider its context, language, subject matter, historical background, effects and consequences, [and] its spirit and purpose.'" Id. (quoting People's Choice, 202 Ariz. at 403, ¶ 7, 46 P.3d at 414). We construe related statutes together, State ex rel. Larson v. Farley, 106 Ariz. 119, 122, 471 P.2d 731, 734 (1970), and avoid interpretations that render statutory provisions meaningless, unnecessary, or duplicative, see, e.g., Kriz v. Buckeye Petroleum Co., 145 Ariz. 374, 379, 701 P.2d 1182, 1187 (1985).

1. Meaning of "Person" in A.R.S. § 42-5028

¶ 11 The TPT statutory scheme defines both "person" and "taxpayer." Unless the context otherwise requires, the term "person" "includes an individual ... [or] corporation," A.R.S. § 42-5001(8), and "taxpayer" "means any person who is liable for any tax which is imposed by this article," id. § 42-5001(18). ADOR maintains that the legislature intended "person" in § 42-5028 to include corporate officers or directors as well as the taxpayer, while the Randalls assert that "person" means only the taxpayer-entity.

¶ 12 For several reasons, we agree with ADOR. As a textual matter, although the statutory definition of "person" does not explicitly include corporate officers or directors, the definition is certainly broad enough to encompass the individuals who hold such offices. Moreover, had the legislature meant to limit liability under § 42-5028 to the taxpayer-entity, as the Randalls and court of appeals maintain, it likely would not have said "person," but would have used the term "taxpayer," as it did, for example, in A.R.S. § 42-5024, a related TPT statute.¹

¶ 13 Several aspects of the statutory scheme also suggest that, by using the term "person" in § 42-5028, the legislature meant to include persons in addition to the taxpayer. Even before the legislature enacted § 42-5028, other statutes already made TPT the "personal debt of the taxpayer," A.R.S. § 42-5024, and required taxpayers "who impose[d] an added charge to cover the [TPT]" to remit to ADOR all of "the amount so collected," A.R.S. § 42-5002(A)(1).

¶ 14 For at least twenty-five years before § 42-5028 was enacted in 1980, these two statutes, §§ 42-5002(A)(1) and 42-5024, worked in tandem to obligate the taxpayer to pay TPT, interest, and penalties, and to remit to ADOR all amounts collected from customers to cover TPT liability. See 1935 Ariz. Sess. Laws, ch. 77, § 18(b) (Reg.Sess.) (enacting the current substantive version of A.R.S. § 42-5024); 1954 Ariz. Sess. Laws, ch. 136, § 1 (2d Reg.Sess.) (enacting the current substantive version of A.R.S. § 42-5002(A)(1)); 1980 Ariz. Sess. Laws, ch. 220, § 8 (2d Reg.Sess.) (enacting the current version of A.R.S. § 42-5028). Therefore, reading the word "person" in § 42-5028 to mean only "taxpayer" would duplicate liability already imposed on the taxpayer by §§ 42-5002(A)(1) and 42-5024. We generally construe statutes to avoid rendering provisions duplicative. See City of Tucson v. Clear Channel Outdoor, Inc., 209 Ariz. 544, 552, ¶ 31, 105 P.3d 1163, 1171 (2005). Because taxpayers were already liable for TPT, interest, and penalties before 1980, the legislature must have intended to impose some different or additional obligation when it enacted § 42-5028.

¶ 15 The legislature's enactment of A.R.S. § 43-435 (2006) in the same bill in which it enacted § 42-5028 also suggests that the legislature intended "person" to include others in addition to the "taxpayer." 1980 Ariz. Sess. Laws, ch. 220, § 18 (2d Reg.Sess.). Section 43-435 imposes personal liability on persons required to withhold income tax who fail to collect or remit the taxes:

Any person required to collect, truthfully account for and pay over any [withholding] tax imposed by this title who fails to do so is, in addition to other...