Citadel Care Center v. STATE DEPT. OF REV.
| Decision Date | 29 May 2001 |
| Docket Number | No. 1 AC-TX 00-0006.,1 AC-TX 00-0006. |
| Citation | 200 Ariz. 286,25 P.3d 1158 |
| Parties | CITADEL CARE CENTER, a limited partnership; Glendale Care Center, a limited partnership; Las Fuentes Associates, a limited partnership; La Canada Associates, a general partnership; Scottsdale Care Center, a limited partnership; Astor Stave dba Sun Grove Village Care Center, Plaintiffs-Appellants, v. ARIZONA DEPARTMENT OF REVENUE, an agency of the State of Arizona, Defendant-Appellee. |
| Court | Arizona Court of Appeals |
Robbins & Green, P.A. by James O. Ehinger, Wayne A. Smith, Phoenix, Attorneys for Plaintiffs-Appellants.
Janet Napolitano, Attorney General by Michael P. Worley, Assistant Attorney General, Phoenix, Attorneys for Defendant-Appellee.
¶ 1 Appellants ("taxpayers") lease real property to entities that operate licensed nursing care facilities on the premises. Taxpayers contend the tax court erred by entering summary judgment in favor of the Arizona Department of Revenue ("ADOR") on their claims for refunds of state transaction privilege taxes paid between 1989 and 1993 under the commercial lease classification, Ariz.Rev.Stat. Ann. ("A.R.S.") section 42-5069 (1999) (formerly A.R.S. section 42-1310.09). The parties agree that taxpayers are entitled to refunds under a nursing care institution exemption that requires them to distribute refunded moneys to persons who resided in the institutions during the pertinent tax years. A.R.S. § 42-5069(C)(15). Taxpayers argue, however, that they are entitled to unrestricted refunds because their rental income was excluded from taxation under other provisions of the commercial lease classification that do not require a return of moneys to nursing care residents.
¶ 2 To resolve this appeal, we must decide these issues:
1. Whether leasing real property for use as a licensed nursing care facility at which nursing care patients indefinitely reside constitutes business activity within the commercial lease classification defined by A.R.S. section 42-5069, and
2. If so, whether the taxpayers' leasing activities were nevertheless excluded from the commercial lease classification by A.R.S. section 42-5069(C)(10) because the taxpayers "leas[ed] ... dwelling units ... intended to serve as the principal or permanent place of residence for the lessee...."
We hold that the taxpayers' leasing activities during the relevant period fell within the commercial lease classification and were not subject to any exclusion until enactment of the nursing care institution exemption. We therefore affirm.
¶ 3 The taxpayers are one individual and five partnerships that acquired land, constructed nursing homes, and leased the improved properties to corporations, which then operated each property as a licensed nursing care institution. Patients at each institution typically lived there for periods exceeding six months. Many such patients moved personal possessions into the nursing homes, changed their voter registrations to the precinct where the nursing homes were located, received mail at the nursing homes, and maintained no other places of residence. Each taxpayer filed Arizona transaction privilege tax returns between 1989 and 1993 to report and pay commercial leasing taxes on the nursing home operators' lease payments.
¶ 4 In 1993, the legislature amended the commercial lease classification by adding subsection (C)(15) to the predecessor to A.R.S. section 42-5069. 1993 Ariz. Sess. Laws, ch. 212, § 1. The amendment exempted from privilege tax "[l]easing or subleasing real property used by a licensed nursing care institution." Id. This exemption was applied retroactively to 1982, and tax refunds were therefore available. 1994 Ariz. Sess. Laws, ch. 312, §§ 3, 4. But refunds were procurable only if "the taxpayer requesting the refund provide[d] proof satisfactory to the department of revenue that the monies paid as taxes [would] be returned to the persons who were residents of the licensed nursing care institution during the period for which the tax was paid." 1993 Ariz. Sess. Laws, ch. 212, § 3.
¶ 5 In late October 1993, the taxpayers filed refund claims for the relevant period totaling $284,538.73. In compliance with the new exemption, ADOR requested proof that the taxpayers would return refunded monies to the persons who resided in the nursing care institutions during the period for which the taxes were paid. 1993 Ariz. Sess. Laws Ch. 212, § 3. Because the taxpayers declined to provide such proof, ADOR refused their claims.
¶ 6 After exhausting their administrative remedies before the Arizona Board of Tax Appeals, the taxpayers brought this action in the tax court. On cross-motions for summary judgment, the tax court ruled for ADOR. The taxpayers timely appealed, and we have jurisdiction. A.R.S. § 12-2101(B) (1994).
¶ 7 We review de novo the tax court's grant of summary judgment, viewing the evidence in the light most favorable to the taxpayers as the non-prevailing parties. L. Harvey Concrete, Inc. v. Agro Constr. & Supply Co., 189 Ariz. 178, 180, 939 P.2d 811, 813 (App.1997). Likewise, we are not bound by that court's interpretation of A.R.S. section 42-5069. Blum v. State, 171 Ariz. 201, 204, 829 P.2d 1247, 1250 (App.1992).
¶ 8 The taxpayers were obligated to pay taxes on their rental income if they engaged in the "business of leasing" real property. A.R.S. § 42-5069(A). The taxpayers argue that they did not engage in the "business of leasing" because leasing was incidental to their central purpose of acquiring land and developing, constructing, and owning nursing home facilities. In support of their contention, the taxpayers rely solely on State v. Selby, 25 Ariz.App. 500, 544 P.2d 717 (1976), in which we held that a couple's single act of leasing property to a company owned by them for use as an automobile dealership did not constitute the business of leasing property. 25 Ariz.App. at 501,544 P.2d at 718. We first noted that "business" is defined in our tax code, unless the context otherwise requires, as activities undertaken with the object of gain, benefit or advantage, excluding "casual activities or sales." Id. (citing A.R.S. § 42-1301(1) (now A.R.S. § 42-5001(1) (Supp.2000))). We then concluded that the couple's isolated act of leasing constituted a "casual activity" and was therefore excluded from taxation. Id.
¶ 9 But as argued by ADOR, Selby and the "casual activities" exclusion is inapplicable to this case in light of the legislature's 1988 amendment to A.R.S. section 42-5069, which specified who is engaged in the "business of leasing." Section 42-5069(B) now provides:
A person who, as a lessor, leases or rents for a consideration under one or more leases or rental agreements the use or occupancy of real property that is used by the lessee for commercial purposes is deemed to be engaged in business and subject to the tax imposed by article 1 of this chapter [A.R.S. Sections 42-5001 through 42-5039], but this subsection does not include leases or rentals of real property used for residential or agricultural purposes.
(Emphasis added.) Under this provision, therefore, even a single lease of real property used for commercial purposes generates "business" activity subject to taxation. In light of this specific definition, we hold that the general definition of "business" set forth in A.R.S. section 42-5001(1), including the "casual activities" exclusion, does not apply to determine whether a taxpayer is engaged in the "business of leasing." Because the taxpayers leased multiple properties to nursing home operators, they engaged in the "business of leasing" under A.R.S. section 42-5069(A). In light of our conclusion, we do not address the taxpayers' argument that their leasing activities were "casual" under A.R.S. section 42-5001(1).
¶ 10 The taxpayers next argue that because the rented premises were "used for residential purposes" by nursing home patients, the taxpayers' leases to the nursing home operators were excluded from the commercial lease classification by A.R.S. section 42-5069(B). ADOR counters that this exclusion applies only to rentals of property used by the immediate lessee for residential purposes. Because the taxpayers' lessees— nursing home operators—did not "reside" on the property, ADOR contends, the residential exclusion is inapplicable. We rely on principles of statutory interpretation to ascertain the legislature's intent in enacting A.R.S. section 42-5069(B).
¶ 11 We first examine a statute's language and will give words their ordinary meaning unless the context of the provision suggests otherwise. See Calmat of Arizona v. State ex rel. Miller, 176 Ariz. 190, 193, 859 P.2d 1323, 1326 (1993)
; A.R.S. § 1-213 (1995). If the words do not disclose the legislative intent, we scrutinize the statute as a whole and give it a fair and sensible meaning. Luchanski v. Congrove, 193 Ariz. 176, 178, ¶ 9, 971 P.2d 636, 638 (App.1998). Finally, although we interpret tax statutes liberally in favor of taxpayers, we strictly construe any exemptions from taxation. Brink Elec. Constr. Co. v. Arizona Dep't of Revenue, 184 Ariz. 354, 358, 909 P.2d 421, 425 (App.1995).
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