City of Phoenix v. City of Goodyear

• Decision Date: 20 April 1993
• Docket Number: No. TX,TX
• Citation: 174 Ariz. 529,851 P.2d 154
• Parties: CITY OF PHOENIX v. CITY OF GOODYEAR. 91-01623.
• Court: Arizona Tax Court

Page 154

851 P.2d 154

174 Ariz. 529

CITY OF PHOENIX v. CITY OF GOODYEAR.

No. TX 91-01623.

Tax Court of Arizona.

April 20, 1993.

Phoenix City Attorney by Philip M. Haggerty and Roderick G. McDougall, Phoenix, for plaintiff.

Norling, Oeser & Williams by Darrell E. Davis and Ronald L. Keyser, Phoenix, for defendant.

OPINION

SCHAFER, Judge.

This is an action for a tax refund brought by the City of Phoenix to recover transaction privilege taxes, interest, and penalty it paid to the City of Goodyear based upon the income Phoenix derives from renting, leasing, and licensing property it owns at the Goodyear Airport. The tax period in question is July, 1987 through July, 1990. Phoenix protested the tax assessment in the administrative process and lost. Phoenix paid the taxes plus interest and penalty under protest, and filed a Complaint with this Court. Goodyear has filed a Motion for Summary Judgment. This Court grants summary judgment for Goodyear on all issues except the sale of aviation maps at the airport.

Facts

Phoenix and Goodyear are municipal corporations of the State of Arizona. Pursuant to A.R.S. §§ 2-301, 2-302, Phoenix owns and operates the Goodyear Municipal Airport. The airport is located entirely within the city limits of Goodyear. Phoenix receives income from activities at the airport that includes hangar rentals, air carrier fees, aircraft tie-down fees, sales of aviation maps, and commissions from allowing vending machine (candy and soft drink) owners to locate their machines at the airport.

Prior to 1987, Goodyear levied transaction privilege taxes against Phoenix on the income it derived from its activities at the airport only when the activity (rental, leasing, licensing, commissions) was for a purpose other than aviation. In 1987, Goodyear adopted the Model City Tax Code. Among other things, the new code imposed a transaction privilege tax on all business activity based upon gross income from leasing, licensing for use, and renting property. Goodyear Tax Code § 8A-445. § 8A-270 of the code exempted governmental entities from the tax only when those entities rented to, leased to, or licensed another part of the same governmental entity. Goodyear Tax Code Regulation 8A-270.1. Sometime after adoption of the code, Goodyear audited Phoenix's rental activities at the airport and levied transaction privilege taxes of $21,727.56 based upon all income Phoenix derived from its rentals, fees, commissions, and sales at the airport.

Phoenix alleges that: (1) its activities at the airport are governmental activities and are exempt from taxation; (2) the income from the aviation map sales is not taxable because it is not rental income; (3) Goodyear's tax assessment is unconstitutional as applied to Phoenix because Goodyear excludes itself from taxation on the rental, leasing, and licensing activities it conducts at the airport; and (4) the penalty assessed by Goodyear against Phoenix is punitive and Phoenix, a governmental entity, is not accountable for punitive damages.

Discussion

In Arizona, municipal corporations, like Goodyear, are granted authority to tax. Ariz. Const., art. IX, § 2; see also, City of Tempe v. Prudential Ins. Co., 109 Ariz. 429, 510 P.2d 745 (1973) (discussing delegation of taxing authority from the state legislature). Accordingly, Goodyear exercised its taxing authority by imposing a transaction privilege tax pursuant to Goodyear Tax Code § 8A-445.

Phoenix asserts that its activities at the airport are governmental activities and thus are exempt from Goodyear's transaction privilege tax. It is true, as Phoenix points out, that governmental activities are exempt from taxation. Salt River Project Agricultural Improvement and Power Dist. v. City of Phoenix, 129 Ariz. 398, 631 P.2d 553 (App.1981). Phoenix cites City of Phoenix v. Moore, 57 Ariz. 350, 113 P.2d 935 (1941) as direct support for its position here stating that Moore holds that income from admission fees to city swimming pools and golf courses is based upon the governmental activities of providing health, welfare, and recreational activities for the benefit of the city's citizens and, as such, is immune from taxation. But Moore does not go that far.

In Moore, the State Tax Commission attempted to tax Phoenix's income from city swimming pools and golf courses. The court found that the applicable statute allowed the State Tax Commission to levy taxes only on a "business" whose objective was profit and the pools and courses in question were part of the city's park system and not intended as instruments of profit. Moore, 57 Ariz. at 354, 113 P.2d at 939. The court specifically refrained from determining whether the city was engaged in a governmental or proprietary function.

The Goodyear Tax Code recognizes this general principle, that governmental activities are exempt from taxation, but then states that renting, leasing, or licensing to an entity "other than another department or agency of the municipality"...