City of Peoria v. BRINK'S HOME SECURITY

• Citation: 229 P.3d 1020
• Decision Date: 29 April 2010
• Docket Number: No. 1 CA-TX 09-0001.,1 CA-TX 09-0001.
• Parties: CITY OF PEORIA, a municipal corporation; and City of Phoenix, a municipal corporation, Plaintiffs/Defendants/Appellees, v. BRINK'S HOME SECURITY, INC., a Delaware corporation, Defendant/Plaintiff/Appellant.
• Court: Arizona Court of Appeals

229 P.3d 1020

CITY OF PEORIA, a municipal corporation; and City of Phoenix, a municipal corporation, Plaintiffs/Defendants/Appellees, v. BRINK'S HOME SECURITY, INC., a Delaware corporation, Defendant/Plaintiff/Appellant.

No. 1 CA-TX 09-0001.

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

April 29, 2010.

COPYRIGHT MATERIAL OMITTED

Stephen M. Kemp, City Attorney, Peoria City Attorney's Office By Cynthia Odom, Assistant City Attorney, Peoria, Attorneys for Plaintiff/Defendant/Appellee Peoria.

Gary Verburg, City Attorney, Phoenix City Attorney's Office By James H. Hays, Assistant City Prosecutor, Phoenix, Attorneys for Plaintiff/Defendant/Appellee Phoenix.

Snell & Wilmer LLP By Barbara J. Dawson, Martha E. Gibbs, Melissa M. Krueger, Phoenix, Attorneys for Defendant/Plaintiff/Appellant.

OPINION

BARKER, Judge.

¶ 1 This is a transaction privilege tax case. Brink's Home Security, Inc. ("Taxpayer") appeals the grant of summary judgment requiring it to pay municipal transaction privilege taxes on the revenue it receives from monitoring security systems installed in Phoenix and Peoria households. Finding no genuine dispute of material fact or legal error, we affirm the judgment.

Facts and Procedural History

1. Taxpayer's Business

¶ 2 Taxpayer is a Delaware corporation in the business of providing alarm monitoring systems. It offers a variety of devices for home installation, including glass break detectors, heat sensors, master control panels, key pads, motion detectors, and water sensors.

¶ 3 Following installation of Taxpayer's home security system, the customer signs a monitoring contract with a three-year minimum term requiring monthly payments. Customers are liable for the monthly monitoring fee even if they never activate the system during the contract term.

¶ 4 Once a disturbance occurs in the monitoring sensors, which may be triggered by water, smoke, fire, or an intruder, a siren sounds and information is transmitted to the master control panel in the Phoenix or Peoria residence. The master control panel holds the information for thirty seconds so that the homeowner can disarm the system by in-home communication if it was accidentally triggered. The only exception is for certain fire and emergency issues.

¶ 5 If the customer does not cancel the alarm, a message travels by a local land line for an unknown distance and then is publicly switched to one of two long-distance carriers, AT & T or Southwestern Bell. The information then proceeds as a WATS call, via circuits Taxpayer leases from these carriers, to Taxpayer's central monitoring station in Texas. Taxpayer requires customers to have a local land line in order to activate the monitoring process. Taxpayer does not separately charge for calls to Texas that are triggered when a sensor is tripped or activated.

¶ 6 The human monitor in Texas then implements Taxpayer's protocols by calling the customer or a designated contact. The monitoring information and process ends in Peoria or Phoenix,¹ either at the customer's request or by a call to the local police department.

2. This Litigation

¶ 7 Peoria and Phoenix customers pay Taxpayer a flat monthly monitoring fee following installation of security systems in their homes. Taxpayer does not pay transaction privilege tax to any jurisdiction based upon gross income earned from security or burglar alarm service charges billed to Phoenix and Peoria customers.

¶ 8 After an account review, the Cities of Peoria and Phoenix assessed transaction privilege taxes against Taxpayer pursuant to Peoria City Code § 12-470(a)(2)(D) and Phoenix City Code § 14-470(a)(2)(D). Peoria assessed taxes of $5,968.29 for the January 1999 to December 2003 audit period; Phoenix assessed $169,912.33 for the December 1998 to October 2004 audit period.

¶ 9 Taxpayer protested Phoenix's and Peoria's assessments. Following a consolidated hearing, the hearing officer resolved the protests in Taxpayer's favor. The hearing officer concluded that Arizona Revised Statutes ("A.R.S.") section 42-6004(A)(2) (2006) precluded taxation of gross income earned from the alarm monitoring system business in Phoenix and Peoria. He then referred Taxpayer to the cities' respective Problem Resolution Officers for resolution of its attorneys' fee claims under Phoenix City Code § 14-578 and Peoria City Code § 12-578. Both officers denied the fee requests.

¶ 10 Peoria and Phoenix appealed on the merits to the Arizona Tax Court,² while Taxpayer appealed the denial of its fee requests.³ The tax court consolidated the complaints, and the parties filed cross-motions for summary judgment.

¶ 11 After oral argument, the tax court granted summary judgment to Peoria and Phoenix and upheld the denial of attorneys' fees to Taxpayer. Taxpayer appealed, challenging both the ruling on the merits and the denial of attorneys' fees at the administrative and tax court levels.

Discussion

1. Taxpayer's Activities Are Subject to Transaction Privilege Tax Under the Phoenix and Peoria City Codes.

¶ 12 This court reviews the tax court's grant of summary judgment de novo. Wilderness World, Inc. v. Ariz. Dep't of Revenue, 182 Ariz. 196, 198, 895 P.2d 108, 110 (1995). We likewise review de novo the tax court's construction of statutes and its findings that combine fact and law. Ariz. Dep't of Revenue v. Ormond Builders, Inc., 216 Ariz. 379, 383, ¶ 15, 166 P.3d 934, 938 (App. 2007).

¶ 13 The issue on appeal is whether Taxpayer's monitoring service is subject to the transaction privilege tax. Arizona law grants cities broad authority to impose transaction privilege taxes. A.R.S. § 9-240(B)(18), (26) (2008); see Centric-Jones Co. v. Town of Marana, 188 Ariz. 464, 467-71, 937 P.2d 654, 657-61 (App.1996). Both Peoria and Phoenix have adopted the Model City Tax Code § 470 provision on transaction privilege taxes. See Peoria City Code § 12-470; Phoenix City Code § 14-470. These sections provide in relevant part:

(a) The tax rate shall be ... upon every person engaging or continuing in the business of providing telecommunication services to consumers within this City.

. . . .

(2) Gross income from the business activity of providing telecommunication services to consumers within this City shall include:

. . . .

(D) Charges for monitoring services relating to a security or burglar alarm system located within the City where such system transmits or receives signals or data over a communications channel.

Peoria City Code § 12-470(a)(2)(D); Phoenix City Code § 14-470(a) (2)(D). The cities' codes further define "telecommunication service" as "any service or activity connected with the transmission or relay of sound, visual image, data, information, images, or material over a communications channel or any combination of communications channels." Peoria City Code § 12-100; Phoenix City Code § 14-100. A "communications channel" is defined as "any line, wire, cable, microwave, radio signal, light beam, telephone, telegraph, or any other electromagnetic means of moving a message." Peoria City Code § 12-100; Phoenix City Code § 14-100.

¶ 14 Taxpayer contends it is exempt from the transaction privilege tax pursuant to A.R.S. § 42-6004(A)(2) because it supplies interstate telecommunications services. Section 42-6004(A)(2) prohibits cities from levying a transaction privilege tax on "interstate telecommunications services, which include that portion of telecommunications services, such as subscriber line service, allocable by federal law to interstate telecommunications service." A.R.S. § 42-6004(A)(2) (Supp.2009). Because our legislature has not provided us with a definition of interstate telecommunications services, we look to the statutory definition of intrastate telecommunication services. If the service qualifies as "intrastate," by definition it could not be "interstate." Our statutes state: "`Intrastate telecommunications services' means transmitting signs, signals, writings, images, sounds, messages, data or other information of any nature by wire, radio waves, light waves or other electromagnetic means if the information transmitted originates and terminates in this state." A.R.S. § 42-5064(E)(4) (Supp.2009) (emphasis added). Thus, if the transmission of information begins and ends in Arizona, it is intrastate, not interstate.

¶ 15 Taxpayer contends the imposition of the transaction privilege tax is inappropriate because each step of the monitoring service is a separate interstate telecommunications transmission. We disagree.

¶ 16 Our courts have had occasion to interpret § 42-6004(A)(2). In People's Choice TV Corp., Inc. v. City of Tucson, 202 Ariz. 401, 46 P.3d 412 (2002), the taxpayer received local and out-of-state programs at its facility outside Tucson and used microwave frequencies to transmit the programs to its customers in Tucson. Id. at 402, ¶ 2, 46 P.3d at 413. Customers, after paying a fee, received the programming through microwave antennae installed by taxpayer. Id. The court of appeals upheld the city's imposition of the transaction privilege tax on taxpayer because it "interpreted § 42-6004(A)(2) as prohibiting only the taxation of interstate `"transmissions"' of information, not the taxation of the `services ancillary to the interstate transmission of signals.'" Id. at 403, ¶ 6, 46 P.3d at 414. The court of appeals found taxpayer was being taxed on the provision of services using telecommunication and accordingly the tax was not on "interstate telecommunications services" as prohibited by § 42-6004(A)(2). Id. In reversing and declining to adopt the court of appeals' interpretation of § 42-6004(A)(2), the Arizona Supreme Court stated "we believe the phrase `interstate telecommunications services' requires a more expansive meaning than the court of appeals gave it when interpreting § 42-6004(A)(2)." Id. Our supreme court held it was not just "transmissions" that needed to be included in the phrase "interstate telecommunications services" but also the...