BSI Holdings LLC v. Ariz. Dep't of Transp.
| Citation | 498 P.3d 119,50 Arizona Cases Digest 36 |
| Decision Date | 12 August 2021 |
| Docket Number | No. 1 CA-TX 20-0005,1 CA-TX 20-0005 |
| Parties | BSI HOLDINGS LLC, Plaintiff/Appellee, v. ARIZONA DEPARTMENT OF TRANSPORTATION, Defendant/Appellant. |
| Court | Court of Appeals of Arizona |
Ryan Rapp Underwood & Pacheo, PLC, Phoenix, By Christopher T. Rapp, Lesli M. H. Sorensen, Counsel for Plaintiff/Appellee
Arizona Attorney General's Office, Phoenix, By Benjamin H. Updike, Counsel for Defendant/Appellant
¶1 Arizona authorizes the imposition of a state license tax on nonresident aircraft owners equal to one-tenth of one per cent of the fair market value of the aircraft. A.R.S. § 28-8336. An aircraft subject to this tax (1) must not be engaged in any intrastate commercial activity and (2) must be "based in" Arizona "for more than ninety days but less than two hundred ten days in a calendar year." Id.
¶2 At issue in this tax appeal is how to calculate the number of days such an aircraft is based in Arizona, which requires determining the meaning of the terms "based in" and "day" used in A.R.S. § 28-8336. The tax court concluded these terms are ambiguous, construed them in favor of the taxpayer, BSI Holdings, LLC ("BSI"), and granted summary judgment in favor of BSI. The Arizona Department of Transportation ("ADOT") appeals that ruling, arguing the tax court should have applied a "domiciliary analysis" to the definition of the term "based in" and applied a "totality of the circumstances" standard to that domiciliary analysis. To do so here, however, would require us to craft a new weighted-factor test based on non-statutory language and previously unannounced factors, and would thus deprive BSI of the clear notice that should be afforded any taxpayer. Accordingly, we conclude the tax court did not err in declining to adopt a domiciliary analysis in this case and in finding the statutory text irreconcilably ambiguous as applied to BSI. We therefore affirm the tax court's judgment in favor of BSI.
¶3 BSI is an Oregon limited liability company formed to own a Gulfstream dual-engine turbo jet, FAA tail number N608BG ("the aircraft"). BSI purchased the aircraft in 2003 for the personal use of Richard Taylor Burke, Sr., an Arizona resident. BSI listed its address and base of operations as Portland, Oregon, and has since received mail from ADOT at that address.
¶4 BSI registered the aircraft in Arizona and regularly flew in and out of Scottsdale Airport. From 2004 to 2012, BSI maintained a monthly tie-down/hangar agreement at that airport, but the aircraft also traveled outside of Arizona, and BSI had similar agreements in other states during that time. At no point did BSI have any such agreement in Oregon, nor did the aircraft fly to Oregon after BSI purchased it.
¶5 Arizona assesses a variable rate license tax against owners of private aircraft based on residency and the number of days the plane is based in Arizona. ADOT's Aeronautics Division auditors take the position that the nonresident license tax rate under A.R.S. § 28-8336 cannot apply to an owner of an aircraft that is based in Arizona more than 209 days in any given calendar year. Thus, ADOT treats aircraft that are based in Arizona for at least 210 days each calendar year as subjecting the aircraft owner to the license tax rate under A.R.S. § 28-8335(B), which is five times greater than the tax rate applicable under A.R.S. § 28-8336.
¶6 Through 2012, BSI claimed nonresident tax status under A.R.S. § 28-8336. In its annual filings, BSI represented the aircraft was not based in Arizona for more than 209 days each year.
¶7 ADOT first challenged BSI's claimed tax status in 2003. Eventually, the parties entered a settlement agreement wherein BSI paid no license tax for 2003. BSI then paid the nonresident tax rate under § 28-8336 for 2004 and claimed the same rate from 2005 through 2012.
¶8 In 2013, ADOT auditors concluded the BSI aircraft had been in Arizona for more than 210 days each year from 2004 through 2012 and therefore was subject to the full license tax rate prescribed in A.R.S. § 28-8335 during the audit period. Based on data available on Flightwise, a third-party flight tracking website, ADOT calculated the BSI aircraft was in Arizona for at least 217 days each year from 2005 through 2012.2 On that basis, ADOT assessed BSI an additional $161,004 and recorded a lien against the aircraft.
¶9 BSI brought an unsuccessful administrative appeal that focused on the definition of what constituted a "day." The administrative law judge ("ALJ") adopted ADOT's interpretation that a "day" as used in the statute meant any calendar day during which an aircraft spent any time on the ground in Arizona.
¶10 BSI then brought this action in the tax court. The tax court considered the residency/tax rate issue on cross-motions for summary judgment that focused on the correct interpretation of the word "day" in A.R.S. § 28-8336. BSI contended a "day" under § 28-8336 meant a continuous 24-hour period from one midnight to the ensuing midnight. Consistent with its previous argument and the ALJ's decision, ADOT asserted a "day" meant any calendar day during which an aircraft spent any time on the ground in Arizona. The legal question, therefore, turned at that point on what constituted a "day" under § 28-8336.
¶11 After learning that no statute, formal administrative rule, or written ADOT policy existed interpreting the statute or providing definitions for the statutory terminology, the tax court granted summary judgment in favor of BSI. The court reasoned that The tax court found § 28-8336 ambiguous and, as a result, construed it in favor of the taxpayer, BSI.
¶12 On appeal, this court found the statute ambiguous, but adopted ADOT's interpretation, thus effectively ruling in favor of the agency pending resolution on remand of the number of days the aircraft was in Arizona. See BSI Holdings, LLC v. Ariz. Dep't of Transp. ("BSI I "), 242 Ariz. 621, 624-25, ¶¶ 14-20, 399 P.3d 696, 699-700 (App. 2017). The Arizona Supreme Court accepted review, vacated this court's opinion, and remanded the case to the tax court. See BSI II , 244 Ariz. at 18, ¶ 1, 417 P.3d at 783.
¶13 In BSI II , our supreme court rejected both interpretations of the word "day" posited by the parties. Instead, the court found the word "day" ambiguous and dependent on context. Id. at 20, ¶¶ 13-14, 417 P.3d at 785. The court also stated ADOT's interpretation was not owed any deference because the term "day" is not a technical term that requires expertise to construe, and ADOT's position had not "been reduced to written policy, much less a considered and established rule." Id. at 21, ¶ 17, 417 P.3d at 786. The court further stated, however, that "[d]etermining the meaning of the word ‘day’ [ ] cannot dispose of the issue in this case because the statute cannot be meaningfully applied without also knowing what ‘based in’ means." Id. at ¶ 19. The court then noted:
In the tax court, ADOT said it "makes its determination of whether an aircraft is ‘based in this state’ by inspecting the totality of the circumstances, including: day count, the aircraft's use, and tie-down and hangar agreements." But it never explained how it applies those factors. Indeed, BSI disputes that ADOT has used any other criteria other than a day count. Because the matter was decided on summary judgment, the tax court made no factual findings on this issue.
¶14 The supreme court next discussed various definitions of the word "base," while noting that "[t]hose definitions imply more of a domiciliary analysis rather than physical presence alone." Id. at ¶ 22.3 Recognizing that "’base’ may have a technical meaning in this statutory or factual context," the court concluded that it could not determine the word's meaning on the record before the court and therefore could not fully resolve the case without further proceedings. BSI II , 244 Ariz. at 21, ¶ 22, 417 P.3d at 786.
¶15 The supreme court directed the tax court on remand to determine what "based in" this state for a "day" means under § 28-8336 and then to apply such definitions to the facts presented. Id. at 22, ¶ 24, 417 P.3d at 787. The supreme court stated that, in making its determinations, the tax court should "count all days or fractions of a day when the aircraft was based in the state, even if it was not physically present there ." Id. (emphasis added). The court further cautioned, however, that the tax court "should not count days that the aircraft landed momentarily in Arizona when it was not based there ." Id. (emphasis added). The supreme court said that if resolution was impossible and the tax court determined the statute was still ambiguous after it performed the mandated analysis, the court should construe the statute in favor of BSI. Id. at ¶ 25 (citing Harris Corp. v. Ariz. Dep't of Revenue , 233 Ariz. 377, 384, ¶ 23, 312 P.3d 1143, 1150 (App. 2013) ; State ex rel. Ariz. Dep't of Revenue v. Capitol Castings, Inc. , 207 Ariz. 445, 447, ¶¶ 9-10, 88 P.3d 159, 161 (2004) ).
¶16 On remand, ADOT proposed a domiciliary-type analysis as discussed by our supreme court in BSI II . BSI did not offer a contrary interpretation but continued to argue § 28-8336 was ambiguous and therefore did not give it or other taxpayers sufficient required notice. After renewed cross-motions for summary judgment, the tax court declined to adopt ADOT's new domiciliary analysis. In part, the tax court reasoned:
The common dictionary definition of "base," suggests "more of a domiciliary analysis rather than physical...
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