CITIZENS TELECOMMUNICATIONS CO. v. ARIZONA DOR

• Decision Date: 26 August 2003
• Docket Number: No. 1 CA-TX 02-0017.,1 CA-TX 02-0017.
• Parties: CITIZENS TELECOMMUNICATIONS COMPANY OF THE WHITE MOUNTAINS, an Arizona corporation; Citizens Navajo Communications Company, an Arizona corporation; Arizona Telephone Company, Inc., an Arizona corporation; Southwestern Telephone Company, Inc., an Arizona corporation; Valley Telephone Cooperative, Inc., an Arizona corporation; Copper Valley Telephone, Inc., a Nevada corporation; and U.S. West Communications, Inc., nka Qwest, a Colorado corporation, Plaintiffs-Appellees, v. ARIZONA DEPARTMENT OF REVENUE, an Agency of the State of Arizona; Apache, Cochise, Coconino, Gila, Graham, Greenlee, La Paz, Maricopa, Mohave, Navajo, Pima, Pinal, Santa Cruz, Yavapai, and Yuma Counties, Political Subdivisions of the State of Arizona, Defendants-Appellants. Citizens Telecommunications Company of the White Mountains, an Arizona corporation; Citizens Navajo Communications Company, an Arizona corporation; Arizona Telephone Company, Inc., an Arizona corporation; Southwestern Telephone Company, Inc., an Arizona corporation; Valley Telephone Cooperative, Inc., an Arizona corporation; and Copper Valley Telephone, Inc., a Nevada corporation, Plaintiffs-Appellants, v. Arizona Department of Revenue, an Agency of the State of Arizona; Apache, Cochise, Coconino, Gila, Graham, Greenlee, La Paz, Maricopa, Mohave, Navajo, Pima, Pinal, Santa Cruz, Yavapai, and Yuma Counties, Political Subdivisions of the State of Arizona, Defendants-Appellees.
• Court: Arizona Court of Appeals

75 P.3d 123

206 Ariz. 33

CITIZENS TELECOMMUNICATIONS COMPANY OF THE WHITE MOUNTAINS, an Arizona corporation; Citizens Navajo Communications Company, an Arizona corporation; Arizona Telephone Company, Inc., an Arizona corporation; Southwestern Telephone Company, Inc., an Arizona corporation; Valley Telephone Cooperative, Inc., an Arizona corporation; Copper Valley Telephone, Inc., a Nevada corporation; and U.S. West Communications, Inc., nka Qwest, a Colorado corporation, Plaintiffs-Appellees, v. ARIZONA DEPARTMENT OF REVENUE, an Agency of the State of Arizona; Apache, Cochise, Coconino, Gila, Graham, Greenlee, La Paz, Maricopa, Mohave, Navajo, Pima, Pinal, Santa Cruz, Yavapai, and Yuma Counties, Political Subdivisions of the State of Arizona, Defendants-Appellants.

Citizens Telecommunications Company of the White Mountains, an Arizona corporation; Citizens Navajo Communications Company, an Arizona corporation; Arizona Telephone Company, Inc., an Arizona corporation; Southwestern Telephone Company, Inc., an Arizona corporation; Valley Telephone Cooperative, Inc., an Arizona corporation; and Copper Valley Telephone, Inc., a Nevada corporation, Plaintiffs-Appellants, v. Arizona Department of Revenue, an Agency of the State of Arizona; Apache, Cochise, Coconino, Gila, Graham, Greenlee, La Paz, Maricopa, Mohave, Navajo, Pima, Pinal, Santa Cruz, Yavapai, and Yuma Counties, Political Subdivisions of the State of Arizona, Defendants-Appellees.

No. -0017.

Court of Appeals of Arizona, Division 1, Department T.

August 26, 2003.

Fennemore Craig, P.C. by Paul J. Mooney, Kendis K. Muscheid, Paul Moore, Phoenix, Attorneys for Plaintiffs-Appellees, Plaintiffs-Appellants.

Sanders & Parks, P.C. by Robert J. Bruno, Jay C. Jacobson and Terry Goddard, Attorney General by Frank Boucek, Assistant Attorney General, Phoenix, Attorneys for Defendants-Appellants, Defendants-Appellees.

OPINION

WEISBERG, Judge.

¶ 1 The Arizona Department of Revenue ("ADOR" or the "Department") and fifteen Arizona counties (the "Counties") appeal from the tax court's judgment that ADOR violated the Uniformity Clause and the Equal Protection Clause of the Arizona Constitution in applying Arizona Revised Statutes ("A.R.S.") sections 42-793 and 42-793.01 (1997) to Qwest Corporation ("Qwest") during the 1997, 1998, and 1999 tax years. Meanwhile, six incumbent local exchange carriers (collectively or individually the "ILECs" or "Taxpayers")¹ appeal the tax court's determination that insufficient evidence exists to support their constitutional claims. We affirm the tax court's judgment in part, reverse it in part, and remand for proceedings consistent with this opinion.

BACKGROUND

¶ 2 Qwest, formerly known as U.S. West Communications, Inc., was part of AT & T's Bell system before AT & T was ordered to divest its local telephone business. Qwest now functions as a Regional Bell Operating Company and a local exchange carrier, providing telecommunications services in Arizona and other states.

¶ 3 The break-up resulted in the creation of Local Access and Transport Areas ("LATAs"). Qwest provides intraLATA long-distance service, which means service originating and terminating within the same LATA. InterLATA service consists of long-distance service between LATAs in Arizona and from one state to another. AT & T, MCI, and Sprint provide interLATA service as well as intraLATA long-distance service to Arizona customers by purchasing access to Qwest's lines and other telecommunications equipment and property. Qwest provides no interLATA service.

¶ 4 ADOR annually values the taxable property of telecommunications companies in Arizona. It allocates these valuations among the states' fifteen counties, which then levy and collect property taxes. ADOR assesses the valuations for these companies based upon their class 2 Arizona property (real and personal property) and their class 3 Arizona property (commercial property) as required by A.R.S. §§ 42-793 and -793.01.

¶ 5 Beginning in 1994, Citizens Utilities Company brought four successful lawsuits challenging ADOR's interpretation of the relevant statutes. Qwest obtained a summary judgment in tax court on the same grounds. At that time, Qwest did not move for summary judgment on its discrimination claim.²

¶ 6 On appeal, this court reversed the summary judgment in favor of Qwest and denied the alternative discrimination claim because it had "fail[ed] to present specific evidence to show unconstitutionality. The record contains mere generalizations about similarities between the purpose and use of U.S. West's intraLATA property and the purpose and use of other long-distance carriers' inter-LATA property." U.S. West Communications, Inc. v. Ariz. Dep't of Revenue, 193 Ariz. 319, 324, ¶ 21, 972 P.2d 652, 657 (App.1998).

¶ 7 During the pendency of that appeal, Qwest and the ILECs filed complaints or answers to ADOR's complaints challenging the methods used to value their class 3 telecommunications property for tax years 1997, 1998, and/or 1999.³ Following consolidation of the claims, the parties filed cross-motions for summary judgment. ADOR also filed a Motion to Enforce Settlement and Stipulations Concerning Valuations. The tax court denied all the motions, and we declined to accept jurisdiction of ADOR's special action petition asking for enforcement of the settlement.

¶ 8 Following discovery, the parties launched another round of summary judgment motions. In their motions, Qwest and the ILECs argued that A.R.S. §§ 42-793 and 42-793.01 were unconstitutional as applied to them because their class 3 properties were taxed using a different and prejudicial valuation method when compared to other similarly-situated taxpayers owning class 3 telecommunications property. As to Qwest, ADOR and the Counties responded that the rationale of the U.S. West decision defeated Qwest's motion. As to the ILECs, ADOR and the Counties responded that §§ 42-793 and 42-793.01 were constitutional as applied to the ILECs because major differences existed between the ILECs and the other taxpayers: (1) the major services they provided were different, (2) most of the property and equipment they owned were different, and (3) they were regulated differently.

¶ 9 With respect to Qwest, the tax court found that "A.R.S. §§ 42-793 and 42-793.01 providing for the disparate tax treatment of Class 3 property is discriminatory as applied to [Qwest] for the tax years 1997, 1998, and 1999." The court reasoned that Qwest was a "direct competitor[ ] with other telecommunications companies, as defined by statute, that [Qwest was] using the same equipment type(s) or more notably equipment that was functionally equivalent in light of the rapidly changing technology at the time, and that [Qwest was] providing identical services to the same customer base in the same geographic region in Arizona." In its final judgment, the tax court rendered Qwest's valuation for the tax years 1997 and 1998 moot, determined that the full cash values of Qwest's class 3 property were in accordance with the parties' prior stipulation and ADOR's appraisal, ordered a refund for the amount of taxes paid in excess of the recalculated amount of taxes due, and awarded Qwest its taxable costs and attorney fees. With respect to the ILECs, the tax court held that "there is insufficient evidence presented by [the ILECs] to support their contention that A.R.S. §§ 42-793 and 42-793.01 were discriminatory as applied to them during the 1997, 1998, and 1999 tax years."

¶ 10 ADOR and the Counties appealed from the judgment in favor of Qwest. The ILECs appealed from the portion of the ruling unfavorable to them.

DISCUSSION

I. The Tax Court Had Jurisdiction to Hear Taxpayers' Discrimination Claims.

A. Taxpayers Have Paid All Levied Taxes.

¶ 11 As a preliminary matter, ADOR and the Counties assert that Copper Valley, Valley Telephone, and Qwest lack standing to assert their counterclaims because, although they timely paid the first installment of taxes actually levied, they did not pay the allegedly illegal taxes that they seek to avoid in their discrimination counterclaims. ADOR and the Counties further point out that it is now too late for these Taxpayers to re-file their claims.

¶ 12 Arizona law requires that a taxpayer pay the tax owed prior to bringing an illegal collection claim. A.R.S. § 42-11005(A) (1999). The purpose of this requirement is to assure the government's continued fiscal soundness. See Pima County v. Cyprus-Pima Mining Co., 119 Ariz. 111, 114, 579 P.2d 1081, 1084 (1978).

¶ 13 Here, however, ADOR has not yet assessed and the Counties have not yet levied⁴ those taxes that are premised upon the disputed discrimination claims. Accordingly, Taxpayers paid all levied taxes for the years in issue by the time they filed their claims, but not those taxes not yet assessed or levied. Arizona law does not require that a taxpayer pay taxes that have yet to be assessed or levied prior to bringing an illegal collection claim. See A.R.S. § 42-11005(A). Moreover, a contrary approach would vitiate judicial economy by forcing taxpayers to litigate payment claims, and then refile and litigate discrimination claims arising out of the same transaction. See id. We therefore reject the argument that Taxpayers' claims are time-barred.

B. The Failure to Join One County Does Not Defeat Jurisdiction as to the Counties Before the Court.

¶ 14 ADOR and the Counties alternatively argue that four of the consolidated cases (or portions thereof) must be dismissed because of the failure to name one or more counties as parties. Three of such cases involve counterclaims by Copper Valley, Valley Telephone and Qwest for the 1997-98 appeals. The fourth is the Citizens White Mountains appeal for the 1999 tax year.

¶ 15 As to the first three such cases, pursuant to A.R.S. § 42-16208(A)(3) (1999), ADOR is required only to name a taxpayer when it files an appeal, but there is no requirement that ADOR name the...