Department of Revenue v. Moki Mac River Expeditions, Inc.

Decision Date24 January 1989
Docket NumberNo. 1,CA-CIV,1
Citation160 Ariz. 369,773 P.2d 474
PartiesDEPARTMENT OF REVENUE, Plaintiff-Appellant, v. MOKI MAC RIVER EXPEDITIONS, INC., Defendant-Appellee. 9878.
CourtArizona Court of Appeals


This appeal involves an attempt by the Arizona Department of Revenue to impose a transaction privilege tax on Moki Mac River Expeditions, Inc. The Department appeals from a summary judgment ruling holding the tax invalid.

1. Facts and Procedural History

Moki Mac is a Utah corporation with an office and principal place of business in Salt Lake City, Utah. Moki Mac is engaged in the business of providing river rafting adventures in various western states. Among the various trips is one on the Colorado River through Grand Canyon National Park in Arizona.

Moki Mac's customers make reservations through the Salt Lake City office. All payments are received in Salt Lake City. No reservations are made nor money accepted in Arizona. Moki Mac maintains no offices, agents or solicitors in Arizona. Moki Mac is neither registered with the Arizona Corporation Commission as a foreign corporation doing business in Arizona nor as a passenger carrier, and no contention is made that such registration is required.

Moki Mac's primary contact with Arizona is its delivery of the services contracted for in Utah. All but a very small portion of these services are delivered within the confines of parks and recreational areas belonging to the federal government. Moki Mac greets its customers at Lee's Ferry, located in the Glen Canyon National Recreational Area, and transports them down the Colorado River through Grand Canyon National Park to Diamond Creek, Arizona. Moki Mac pays fees to the National Park Service (NPS) for use of park areas. During all times that its employees and customers are in the park areas, they receive the services provided by the NPS to users of the parks. Although most of these services may be provided exclusively by the NPS, certain law enforcement activities, including search and rescue operations and civil and criminal investigations within Grand Canyon National Park, are also provided by Coconino County, a political subdivision of Arizona, through the county sheriff's office, pursuant to a Cooperative Agreement for Concurrent Criminal Jurisdiction at Grand Canyon National Park entered into between the County and the NPS.

The rafts and other equipment used by Moki Mac are leased from a Utah lessor. Moki Mac pays Utah workers' compensation payments and withholds Utah personal income taxes from employees' wages. Moki Mac does not pay sales, use or privilege taxes to Utah in connection with its river rafting trips.

Moki Mac does lease property within Arizona located outside of the national parks. This property consists of two acres at Badger Creek (a portion of which is used for parking vehicles), a storage building, a storage shed, a permanent dwelling, and a temporary dwelling. Moki Mac's owners and employees live in the dwellings between trips, and leave personal property there for up to 6 months. The storage facilities are used to store river trip supplies. Moki Mac also uses its leased facilities in Arizona as a staging area for its river trips. Its employees pack food, load rafts and clean up after trips on Arizona property.

Moki Mac refers its customers to persons or companies who are able to transport them across Arizona highways to and from the rafting trip location and who, in some instances, shuttle their cars across Arizona highways. Finally, Moki Mac purchases some perishable supplies in Arizona for the trips, and advertises in Arizona by mailing information to Arizona residents.

The Department of Revenue is the agency that makes transaction privilege tax assessments and collections pursuant to A.R.S. §§ 42-1301, et seq. In 1983, the Department audited Moki Mac's books and records for the years 1980-82 and issued a deficiency assessment for transaction privilege taxes due because of the Department's belief that Moki Mac's activities within Arizona were taxable as a "business charging admission fees for ... amusement" pursuant to § 42-1309(A)(1). The deficiency assessment was based only on taxes calculated on the Colorado River trips in Arizona and not on any trips conducted in other states. 1

Moki Mac protested the assessment in full. Although the Department's hearing officer proposed that the protest be granted, the director upheld the assessment. Moki Mac appealed to the Board of Tax Appeals which abated the transaction privilege tax after concluding that Moki Mac does not have sufficient business contacts with Arizona for imposition of the transaction privilege tax.

The Department then appealed to the superior court. After cross-motions for summary judgment, the trial court granted summary judgment for Moki Mac and held the imposition of the tax invalid, concluding as a matter of law that "the activity engaged in by [Moki Mac] within the state of Arizona does not constitute engaging or continuing in business within this State."

2. Issues and Standard of Review

On appeal we must decide whether the trial court erred in concluding that Moki Mac's activity within the state does not constitute engaging in or continuing in business in this state. No material issue of fact appears in the record. The trial court's ruling was a conclusion of law, which does not bind an appellate court. Tax Comm'n v. Howard P. Foley Co., 13 Ariz.App. 85, 87, 474 P.2d 444, 446 (1970). This court is free to substitute its analysis of the record for that of the lower court. Tax Comm'n v. First Bank Bldg. Corp., 5 Ariz.App. 594, 596, 429 P.2d 481, 483 (1967).

If we agree with the trial court that Moki Mac was not engaged in or continuing in business in Arizona within the provisions of the transaction privilege tax statutes, then our inquiry is at an end and the trial court's ruling will be upheld. If we conclude to the contrary, we must then address the additional issues whether the Department's taxation of Moki Mac's activities violates the Commerce Clause of the United States Constitution, and whether such taxation is preempted by federal regulations. Cf. Arizona Corp. Comm'n v. Media Products, Inc., --- Ariz. ---, ---, 763 P.2d 527, 531 (App.1988); Peabody Coal Co. v. State, 158 Ariz. 190, 761 P.2d 1094 (App.1988).

A. Was Moki Mac Engaging in Business in Arizona so as to Subject It to Liability for Transaction Privilege Taxes?

The Arizona legislature has imposed a privilege tax upon persons engaging in certain businesses in the state. The privilege taxes are measured by the gross proceeds of sales or gross income arising from such business activities and are used, among other things, to liquidate the outstanding obligations of state and county governments and aid in defraying the necessary and ordinary expenses of these governments. A.R.S. § 42-1306. "Business" is defined by the legislature to include "all activities or acts, personal or corporate, engaged in or caused to be engaged in with the object of gain, benefit or advantage, either directly or indirectly, but not casual activities or sales." A.R.S. § 42-1301(1). Not only must the entity to be taxed be engaged in "business" within the state, but it also must be engaged in one of the specific types of business activities described in the statutes. The specific statutory provision under which the Department assessed taxes against Moki Mac is A.R.S. § 42-1309(A)(1), which imposes a transaction privilege tax upon the following:

A. [E]very person engaging or continuing in this state in the following business classifications:

1. Operating or conducting theaters, movies, operas, shows of any type or nature, exhibitions, concerts, carnivals, circuses, amusement parks, menageries, fairs, races, contests, games, billiard and pool parlors, bowling alleys, public dances, dance halls, boxing and wrestling matches and any business charging admission fees for exhibition, amusement or instruction, other than projects of bona fide religious or educational institutions


In arguing that the trial court's ruling invalidating the tax should be upheld, Moki Mac contends not only that it was not engaged in a specific business covered by the statutes, but that its activities within the state could not be considered to be a "business" within the meaning of the transaction privilege tax statutes.

We first consider Moki Mac's contention that its business operations do not fall under § 42-1309(A)(1). Moki Mac claims that the Department is attempting to tax it for operating an amusement place and that the facts fail to show that the river trips may be so classified.

The Department points out that the statute allows taxation not only for "[o]perating or conducting ... amusement parks" but also for "[o]perating or conducting ... any business charging admission fees for ... amusement." The Department does not contend that Moki Mac operates a place of amusement, but rather, contends that it operates a business that charges admission for amusement.

We agree with the Department that the statute applies to Moki Mac's river trips. That the river trips are an "amusement" and the cost of the trip is an "admission fee" for such amusement within the meaning of the statute cannot reasonably be disputed.

We next consider Moki Mac's argument that even if it is operating a business listed in § 42-1309(A)(1), it is not "engaged in business" within the state because none of the activities surrounding its taking reservations for rafting trips and receiving money for the reservations take place in Arizona. Moki Mac would have us hold that its providing rafting trips within Arizona cannot be considered to be its "bu...

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