City of Phoenix v. State ex rel. Conway

• Decision Date: 12 December 1938
• Docket Number: Civil 4016
• Parties: CITY OF PHOENIX, a Municipal Corporation, Appellant, v. STATE OF ARIZONA ex Rel. JOE CONWAY, Attorney General, Appellee
• Court: Arizona Supreme Court

85 P.2d 56

53 Ariz. 28

CITY OF PHOENIX, a Municipal Corporation, Appellant, v. STATE OF ARIZONA ex Rel. JOE CONWAY, Attorney General, Appellee

Civil No. 4016

Supreme Court of Arizona

December 12, 1938

APPEAL from a judgment of the Superior Court of the County of Maricopa. G. A. Rodgers, Judge. Judgment affirmed.

Mr. I A. Jennings, City Attorney, and Mr. Hess Seaman, Assistant City Attorney, for the Appellant.

Mr. Joe Conway, Attorney General, and Mr. W. E. Polley, Assistant Attorney General, for the Appellee.

OPINION

ROSS, J.

This action involves the right of the state to impose and collect a sales tax on water furnished by the City of Phoenix to its patrons and customers. The action was brought on the relation of the attorney general to settle a controversy between the State Tax Commission, whose duty it is to collect sales taxes, and the city authorities as to whether the latter is subject to the tax, and therefore seeks to secure a declaratory judgment construing "The Excise Revenue Act of 1935" (Chapter 77, as amended by Chapter 2, First Special Session, Laws of 1937). The trial court upheld the state's right to impose and collect the tax, and the city has appealed.

No claim is made that the city is not within the language of the statute designating those who are liable for the tax, but it is insisted that certain provisions of the Constitution make the imposition of the tax on municipalities beyond the power of the legislature. Those provisions are section 34, article 2, and section 5, article 13, and read:

"Section 34. The State of Arizona and each municipal corporation within the State of Arizona shall have the right to engage in industrial pursuits."

"Section 5. Every municipal corporation within this State shall have the right to engage in any business or enterprise which may be engaged in by a person, firm, or corporation by virtue of a franchise from said municipal corporation."

There is nothing in these sections of the Constitution indicating an intention to exempt municipalities that engage in an industrial pursuit, business, or enterprise from paying a tax on their products, or income, or service. It would seem that when municipalities become competitors with private enterprise they should be treated no better than others operating in the same field. The general rule is that municipalities are subject to the same liabilities as private corporations, or individuals, except when they are exercising purely governmental functions. Sumid v. City of Prescott, 27 Ariz. 111, 230 P. 1103; City of Tucson v. Sims, 39 Ariz. 168, 4 P.2d 673.

Chapter 77 and amendment require a taxpayer to obtain a license before commencing business (section 11), and it is objected that such a restriction cannot be made to apply to municipalities. The purpose of requiring this license is that the tax commission may know who are in business and should pay the tax. Giragi v. Moore, 49 Ariz. 74, 64 P.2d 819, 110 A.L.R. 320. The penalty prescribed (in section 11) for a failure to pay the tax (imprisonment) is not essential to its validity. Neither chapter 77 as amended nor the criminal laws of the state provide for the incarceration of the officers of a municipality for failure to pay the license or the tax. State v. Boise City, 57 Idaho 507, 66 P.2d 1016; State v. Board of County Commrs. of Barton County, 142 Kan. 624, 51 P.2d 33. We see no reason for a municipality's civil liability being different from others.

The law does not require the city to pay a tax on water furnished itself in the discharge of its governmental functions, such as affording fire and health protection and sanitation, but only when it is furnishing its patrons water for commercial or domestic use. Section 12, article 9 of the Constitution empowers the legislature "to provide for the levy and collection of license... gross revenue, excise, income... taxes... or other specific taxes" and this applies to municipalities engaged in a business or enterprise the same as to a private person so engaged.

There are many courts holding that sales tax laws are applicable to sales of gasoline by cities and counties and that such municipalities should pay the tax the same as other dealers in that commodity. Some of these cases are: State v. Boise City, supra; Orange State Oil Co. v. Amos, 100 Fla. 884, 130 So. 707; City of Covington v. State Tax Com., 257 Ky. 84, 77 S.W.2d 386; People v. Deep Rock Oil Corp., 343 Ill. 388, 175 N.E. 572; City of Ardmore v. State ex rel. Oklahoma Tax Com., 168 Okl. 316, 32 P.2d 728; State v. Board of County Commrs. of Barton County, supra; People v. City and County of Denver, 84 Colo. 576, 272 P. 629; Crockett v. Salt Lake County, 72 Utah 337, 270 P. 142, 60 A.L.R. 867; City of Portland v. Kozer, 108 Or. 375, 217 P. 833; State v. City of Monroe, 177 La. 983, 149 So. 541; City of Fort Smith v. Watson, 187 Ark. 830, 62 S.W.2d 965; City of Jackson v. State, 156 Miss. 306, 126 So. 2; City of Greenville v. Query, 166 S.C. 281, 164 S.E. 844; affirmed 286 U.S. 472, 52 S.Ct. 631, 76 L.Ed. 1232, 84 A.L.R. 831; State v. Woodbury County, 222 Iowa 488, 269 N.W. 449; State v. Cheyenne County, 127 Neb. 619, 256 N.W. 67; State v. City of Sioux Falls, 60 S.D. 330, 244 N.W. 365; City of Birmingham v. State, 233 Ala. 138, 170 So. 64.

The sales tax is an excise and not a property tax ( White v. Moore, 46 Ariz. 48, 46 P.2d 1077) and its imposition is not prohibited by section 2, article 9, providing: "That there shall be exempt from taxation all Federal, State, county and municipal property." Stults Eagle Drug Co. v. State Tax Com., 48 Ariz....