CNL Hotels and Resorts, Inc. v. Maricopa County

• Decision Date: 28 December 2010
• Docket Number: No. 1 CA-TX 09-0003.,1 CA-TX 09-0003.
• Citation: 226 Ariz. 155,244 P.3d 592
• Parties: CNL HOTELS AND RESORTS, INC., a Maryland corporation; and Marriott Desert Ridge Resort, LLC, a Delaware limited liability company, Plaintiffs/Appellants, v. MARICOPA COUNTY, a political subdivision of the State of Arizona, Defendant/Appellee.
• Court: Arizona Court of Appeals

244 P.3d 592

226 Ariz. 155

CNL HOTELS AND RESORTS, INC., a Maryland corporation; and Marriott Desert Ridge Resort, LLC, a Delaware limited liability company, Plaintiffs/Appellants,

v.MARICOPA COUNTY, a political subdivision of the State of Arizona, Defendant/Appellee.

No. 1 CA-TX 09-0003.

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

Dec. 28, 2010.

Gallagher & Kennedy, P.A. By Mark A. Fuller, Brian W. LaCorte, James G. Busby, Jr., Phoenix, Attorneys for Plaintiffs/Appellants.

Helm & Kyle, Ltd. By Roberta S. Livesay, Raushanah Daniels, Tempe, Attorneys for Defendant/Appellee.

OPINION

DOWNIE, Judge.

¶ 1 This is a property tax challenge to the classification of property located on State-owned land. The Arizona Tax Court granted summary judgment to defendant/appellee Maricopa County (the "County"), concluding it had properly classified plaintiffs'/appellants' ("Taxpayers") property as class one. We reverse and hold that the property should be classified as class nine because the necessary governmental reversionary interest exists.

FACTS AND PROCEDURAL HISTORY

¶ 2 CNL Hotels and Resorts, Inc. holds and owns Desert Ridge Resort, L.L.C. ("Desert Ridge"). Desert Ridge has a contractual relationship with Marriott International, Inc., whereby Desert Ridge operates the JW Marriott at Desert Ridge Resort and Spa and two affiliated golf courses (the "Improvements"). The resort, located in northeast Phoenix, includes 950 guest rooms, approximately 200,000 square feet of convention and meeting space, four acres of swimming pools, tennis facilities, and a 32,000 square foot spa. The Improvements lie within the 5700-acre Desert Ridge master-planned community on land (the "Property") held in trust by the Arizona State Land Department ("SLD") for the benefit of Arizona schools.

¶ 3 Taxpayers succeeded in interest to two 99-year ground leases between Northeast Phoenix Partners and the State of Arizona—one for the resort and convention facilities and the other for the golf courses (the "Leases"). In relevant respects, the Leases are identical. The Lease terms expire July 6, 2092.

¶ 4 For the 2006 tax year, the County set the following cash values for the Improvements: $136,146,821 for the hotel/convention facilities and $2,659,172 for the golf courses. The County taxed Taxpayers based on a class one classification. See Ariz.Rev.Stat. ("A.R.S.") § 42-12001 (2006). The County used the same classification for the 2003 to 2005 tax years.

¶ 5 Taxpayers filed a complaint in the tax court in January 2007. They argued, inter alia, that the Improvements qualified for the more favorable class nine status. They sought declaratory relief and a tax refund. A later-filed action, raising the same issue for tax years 2003 to 2005, was consolidated with this case.

¶ 6 The County moved for summary judgment, arguing that, as a matter of law, theImprovements were properly classified. The tax court granted the County's motion and entered judgment on October 6, 2009. This timely appeal followed.

DISCUSSION

I. Standard of Review

¶ 7 We review the 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). Interpretation of statutes raises questions of law, and we owe no deference to the tax court's interpretation. Turf Paradise, Inc. v. Maricopa County, 179 Ariz. 337, 340, 878 P.2d 1375, 1378 (App.1994).

¶ 8 Courts liberally construe statutes imposing taxes in favor of taxpayers and against the government. Ariz. Dep't. of Revenue v. Salt River Project Agric. Improvement & Power Dist., 212 Ariz. 35, 38, ¶ 14, 126 P.3d 1063, 1066 (App.2006); see also City of Phoenix v. Borden Co., 84 Ariz. 250, 252-53, 326 P.2d 841, 843 (1958) (statutes establishing property tax liability—in contrast to those creating an exemption—are "most strongly construed against the government and in favor of the taxpayer...."); SFPP, L.P. v. Ariz. Dep't of Revenue, 210 Ariz. 151, 153, ¶ 8, 108 P.3d 930, 932 (App.2005). The classification of property establishes tax liability. Contrary to the County's claim, we are not dealing here with tax exemptions or deductions, which are construed strictly against taxpayers. See Ariz. Dep't of Revenue v. Raby, 204 Ariz. 509, 511, ¶ 16, 65 P.3d 458, 460 (App.2003).

II. Classification

¶ 9 Arizona's tax code establishes a property tax classification scheme with assessment ratios ranging from one percent (class nine) to twenty-five percent (class one). A.R.S. §§ 42-12001 to -12010 (2006). Section 42-12009 addresses class nine. It states, in relevant part:

A. For purposes of taxation, class nine is established consisting of:

1. Improvements that are located on federal, state, county or municipal property and owned by the lessee of the property if:

(a) The improvements become the property of the federal, state, county or municipal owner of the property on termination of the leasehold interest in the property.

(b) Both the improvements and the property are used primarily for athletic, recreational, entertainment, artistic, cultural or convention activities.

¶ 10 The parties agree that Taxpayers own the Improvements and that the Improvements are located on state land. The County contends, though, that because Taxpayers have the ability to remove or destroy the Improvements during the Lease term, there is no guarantee the Improvements will revert to the State, and Taxpayers thus cannot satisfy the requirements of A.R.S. § 42-12009(A)(1)(a).

¶ 11 As the County has acknowledged, its interpretation creates a conundrum: while a taxpayer must own the improvements located on government land to qualify for class nine status, the key attributes of ownership—including the power to remove, alter, or destroy the Improvements—supposedly defeat the required reversionary interest. See, e.g., Cutter Aviation, Inc. v. Ariz. Dep't of Revenue, 191 Ariz. 485, 490-91, 958 P.2d 1, 6-7 (App.1997) (construing "ownership," which is undefined in Title 42, as "necessarily includ[ing] the right to control and dispose of the asset"). The County's expert conceded that this interpretation renders class nine a "vacant class."

¶ 12 In construing a statute, our goal is "to fulfill the intent of the legislature that wrote it." Zamora v. Reinstein, 185 Ariz. 272, 275, 915 P.2d 1227, 1230 (1996) (quoting State v. Williams, 175 Ariz. 98, 100, 854 P.2d 131, 133 (1993)). We consider the statute's context, its language, historical background and subject matter, its effects and consequences, and its purpose and spirit. Hayes v. Cont'l Ins. Co., 178 Ariz. 264, 268, 872 P.2d 668, 672 (1994). Courts "apply practical, common sense constructions rather than hypertechnical ones that would tend to frustrate legislative intent."State v. Seyrafi, 201 Ariz. 147, 150, ¶ 11, 32 P.3d 430, 433 (App.2001). Additionally, in interpreting statutes, we strive to avoid an absurd result, which is defined as one "so irrational, unnatural, or inconvenient that it cannot be supposed to have been within the intention of persons with ordinary intelligence and discretion." State v. Estrada, 201 Ariz. 247, 251, ¶ 17, 34 P.3d 356, 360 (2001) (quoting Perini Land & Dev. Co. v. Pima County, 170 Ariz. 380, 383, 825 P.2d 1, 4 (1992)); see also State Farm Auto. Ins. Co. v. Dressler, 153 Ariz. 527, 531, 738 P.2d 1134, 1138 (App.1987) ("Statutes are not to be interpreted woodenly and without regard for their aim.").

¶ 13 The County's interpretation of A.R.S. § 42-12009 leads to an absurd result. Class nine would be rendered meaningless because no taxpayer could establish both the requisite ownership interest and the necessary governmental reversionary interest. The County's interpretation is also inconsistent with legislative history, which reflects an intent to encourage certain types of private development on public land, including convention-related facilities.

¶ 14 In 1994, the legislature added class thirteen to the property tax classification scheme, which gave preferential treatment to certain private development of public land if the government maintained a reversionary interest in the improvements. The statute was reenacted, see 1997 Arizona Session Laws, ch. 150, § 172 (1st Reg.Sess.), and ultimately became class nine, renumbered as A.R.S. § 42-12009. See 1999 Ariz. Sess. Laws, ch. 344, §§ 11, 19 (1st Reg.Sess.). Some of the statutory changes affecting the taxation of property on government land were triggered by judicial rulings, including a 1993 Arizona Tax Court determination that the earlier practice of exempting certain possessory interests was unconstitutional. 1996 Ariz. Sess. Laws ch. 349, §§ 1(B)-(C), 5 (2d Reg. Sess.); Final Revised Fact Sheet for S.B. 1116, 42d Leg., 2d Reg. Sess. (May 7, 1996) (tracing the chronology); see also Cutter Aviation, 191 Ariz. at 487-88, 958 P.2d at 3-4. The legislature acted "[i]n an attempt to keep with past legislative decisions to provide tax relief for owners of certain possessory interests." Final Revised Fact Sheet, S.B. 1116 at 1.

¶ 15 Against this backdrop, the County's contention that Taxpayers merit class one treatment—the highest possible level of taxation, rather than class nine—the lowest property tax bracket—is untenable. Such a result not only violates legislative intent, but leads to the absurd result that no taxpayer can qualify for class nine status. "In interpreting statutes, courts are under a duty to give statutes operation and effect and should avoid a construction that leaves the statute meaningless or of no effect." St. Joseph's Hosp. & Med. Ctr. v. Maricopa County, 130 Ariz. 239, 248, 635 P.2d 527, 536 (App.1981); see also Kriz v. Buckeye Petroleum Co., 145 Ariz. 374, 379, 701 P.2d 1182, 1187 (1985) (adopting the only interpretation that would give meaning to two different statutory provisions).

¶ 16 No Arizona cases are on point. Neither Calpine Construction Finance Co. v. Arizona Department of Revenue, 221 Ariz. 244, 211 P.3d 1228 (App.2009), relied on by the tax court, nor ...