Inspiration Consol. Copper Co. v. Arizona Dept. of Revenue, 1

CourtCourt of Appeals of Arizona
Citation709 P.2d 573,147 Ariz. 216
Docket NumberCA-CIV,No. 1,1
PartiesINSPIRATION CONSOLIDATED COPPER COMPANY, Plaintiff-Appellee, v. The ARIZONA DEPARTMENT OF REVENUE; and Gila County, Defendants-Appellants. 6603.
Decision Date19 September 1985
Lewis & Roca by John P. Frank, Douglas L. Irish and Patrick Derdenger, Phoenix, for plaintiff-appellee

HAIRE, Presiding Judge.

This is an appeal by the Arizona Department of Revenue (Department) and Gila County from a superior court judgment which held that Inspiration Consolidated Copper Company (Inspiration), was entitled to a tax refund because the valuation established by the Department for Inspiration's producing copper mine near Miami, Arizona was excessive. The Department's valuation, which was affirmed by the State Board of Tax Appeals, set the 1980 full cash value for the mine at $49,000,000. After a three and one-half week trial, the superior court found that the Department's valuation was excessive, found the actual full cash value to be $28,874,000 and accordingly entered judgment in the taxpayer's favor ordering a refund of excess taxes paid under protest.


Because the resolution of many of the specific issues raised on appeal depends upon the scope of the superior court's review, we will first address the standards which govern the superior court when it sits on an appeal from a valuation of property by the appropriate valuation authority.

The Department contends that the superior court's authority is very narrow, essentially limited to the "abuse of discretion" standard normally applied to the review of administrative agency decisions pursuant to Arizona's Administrative Review Act, A.R.S. § 12-901, et seq. It argues that relief cannot be granted unless the superior court first finds that the Department's appraisal is fraudulent, illegal, arbitrary or capricious or constitutes "a pure fiction." Inspiration, referring to the governing statutes, replies that the superior court's authority on appeal extends far beyond a mere "abuse of discretion" review, and that, unlike some jurisdictions, under Arizona law the superior court has extremely broad authority when it sits on an appeal from the valuation of property for ad valorem tax purposes.

The statutory provisions relating to the superior court's authority on a valuation appeal are relatively straight-forward and clear. A.R.S. § 42-146 provides that any taxpayer dissatisfied with a tax valuation as reviewed by the State Board of Tax Appeals may appeal to the superior court in the manner provided by A.R.S. § 42-151. A.R.S. § 42-151 provides for the commencement of the action by the filing of a notice of appeal in the superior court. The notice of appeal must contain a statement of the reasons why the valuation is excessive. Additionally, all taxes assessed against the property must be paid under protest prior to the date the tax becomes delinquent. Under A.R.S. § 42-152(B), on appeal both parties may present evidence of any matters that relate to the full cash value of the property as of the date of its assessment. The appeal is not heard on the record presented before either the Department or the Board of Tax Appeals, but rather on the evidence presented by the parties. Therefore, the appeal is a trial de novo in the true sense. See Navajo County v. Four Corners Pipe Line Co., 107 Ariz. 296, 486 P.2d 778 (1971).

The statute also provides that the valuation as approved by the appropriate state or county authority "shall be presumed to be correct and lawful." As to the relief which the taxpayer can obtain in the superior court, A.R.S. § 42-152(C) provides that if, after hearing the evidence the superior court finds that the valuation is excessive, the court shall then find the full cash value of the property and order a refund of excess taxes paid.

The cases which have directly addressed the nature of the statutory presumption have consistently held that it is simply one of fact, and that whenever evidence contradicting the presumption is received, the presumption disappears. Graham County v. Graham County Electric Cooperative, Inc., 109 Ariz. 468, 512 P.2d 11 (1973); Department of Property Valuation v. Trico Electric Co-Op, Inc., 113 Ariz. 68, 546 P.2d 804 (1976); State Tax Commission v. Phelps Dodge Corporation, 62 Ariz. 320, 157 P.2d 693 (1945); Honeywell Information Systems, Inc. v. Maricopa County, 118 Ariz. 171, 575 P.2d 801 (App.1977); Department of Revenue v. Transamerica Title Ins. Co., 117 Ariz. 26, 570 P.2d 797 (App.1977); Department of Property Valuation v. Salt River Project Agricultural Improvement and Power District, 27 Ariz.App. 110, 551 P.2d 559 (1976).

In Golder v. Department of Revenue, 123 Ariz. 260, 599 P.2d 216 (1979), Justice Hays points out that in order to rebut the presumption, the taxpayer must present competent evidence, and that where the taxpayer presents evidence based upon different methods of assessment than those used by the state, the taxpayer's evidence is not competent unless the taxpayer can demonstrate that the appraisal methods used are appropriate under the circumstances. 1 Where both the state and the taxpayer's valuation experts use the same method of appraisal, but differ as to the correct treatment of factors utilized in such method, the taxpayer's evidence is nevertheless competent and sufficient to overcome the statutory presumption. As stated by Justice Holohan in Trico, supra:

"We do not believe that this difference in approach affects the competence of [the taxpayer's expert] testimony. Rather, it is a factor that the jury must weigh in its analysis of the conflicting testimony. We therefore hold that [the taxpayer's expert] testimony contained substantial competent evidence of full cash value and of the excessiveness of the valuation of Trico." 113 Ariz. at 70, 546 P.2d at 806 (emphasis added).

The evidence which overcomes the statutory presumption and which the court considers in determining that the state's valuation is excessive is to be presented in a single trial de novo and may also be a part of the evidence which the court uses to thereafter determine the new full cash value for the property. Trico, supra; Navajo County v. Four Corners Pipe Line Company, supplemental opinion on rehearing, 107 Ariz. 296, 486 P.2d 778 (1971); Phelps Dodge, supra; Transamerica, supra.

From the foregoing discussion it is apparent that in reviewing a tax valuation the superior court is given broad de novo authority. The trial court is restricted only by the requirement that it must first conclude, based upon evidence of valuation derived from standard appraisal methods and techniques, that the statutory presumption has been overcome and that the taxing authority's valuation is excessive. Once these prerequisites have been established, the trial court then proceeds to consider the evidence and make a decision as to the appropriate new full cash value of the property. We find nothing in the statutory scheme or in the cases discussed above which speaks in terms of the narrow scope of superior court review urged by the state.

In fairness to the Department, however, we must acknowledge that there are several Arizona tax decisions which seemingly ignore the broad scope of review established by the Arizona statutes and either directly or indirectly furnish support for the narrow scope of review urged by the Department. See Mohave County v. Duval Corporation, 119 Ariz. 105, 579 P.2d 1075 (1978); Pima County v. Cyprus-Pima Mining Company, 119 Ariz. 111, 579 P.2d 1081 (1978); Pesqueira v. Pima County Assessor, 133 Ariz. 255, 650 P.2d 1237 (App.1982); Rancho Del Oro Apartment Co. v. State, 119 Ariz. 137, 579 P.2d 1107 (App.1978); County of Maricopa v. North Central Development Company, 27 Ariz.App. 561, 556 P.2d 1164 (1976). Thus, we are presented with two lines of case law regarding the scope of the superior court's authority on a property valuation review. The rationale of one line establishes a broad scope of review, while the rationale of the other line supports a much more restricted scope of review.

Historically, it appears that prior to 1970 the Arizona decisions unanimously held that the superior court exercised a broad scope of review on appeal from a valuation imposed by Arizona taxing authorities. See e.g., State Tax Commission v. Phelps Dodge Corporation, 62 Ariz. 320, 157 P.2d 693 (1945). ("This section requires an independent and original inquiry [by the superior court] into the matters affecting valuation in that it expressly authorizes the trial court to consider 'evidence of any matters that relate to the full cash value of the property' and directs that 'Should the court find that the assessment is excessive, then the court shall find the full cash value of the property, and render judgment for appellant and against the county.' " 62 Ariz. at 322, 157 P.2d at 694.); State Tax Commission v. United Verde Extension Mining Co., 39 Ariz. 136, 4 P.2d 395 (1931); State Tax Commission v. Magma Copper Co., 41 Ariz. 97, 15 P.2d 961 (1932).

The split in Arizona decisional law appears to have developed as a result of the differences between the rationale advanced by the Arizona Supreme Court in its initial decision in Navajo County v. Four Corners Pipe Line Company, 106 Ariz. 511, 479 P.2d 174 (1970), and the rationale finally adopted by the court in its supplemental opinion on rehearing, 107 Ariz. 296, 486 P.2d 778 (1971). The rationale expressed by the court in its initial decision was consistent with a very narrow scope of superior court review. Thus, in its initial decision, the court stated:

"It is the opinion of this Court that the focus of the evidence in the court below should have been...

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