Microchip Tech. Inc. v. State

• Decision Date: 05 June 2012
• Docket Number: No. 1 CA–TX 11–0001.,1 CA–TX 11–0001.
• Citation: 283 P.3d 34,230 Ariz. 303,635 Ariz. Adv. Rep. 31
• Parties: MICROCHIP TECHNOLOGY INCORPORATED, a Delaware corporation, Plaintiff/Appellant, v. STATE of Arizona and State of Arizona Department of Revenue, Defendants/Appellees.
• Court: Arizona Court of Appeals

230 Ariz. 303

283 P.3d 34

635 Ariz. Adv. Rep. 31

MICROCHIP TECHNOLOGY INCORPORATED, a Delaware corporation, Plaintiff/Appellant,

v.STATE of Arizona and State of Arizona Department of Revenue, Defendants/Appellees.

No. 1 CA–TX 11–0001.

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

May 31, 2012.

As Amended June 5, 2012.

The Cavanagh Law Firm by Peter C. Guild, Kerry M. Griggs, Richard W. Mear, Taylor C. Young, Phoenix, Attorneys for Plaintiff/Appellant.

Thomas C. Horne, Arizona Attorney General by Scot G. Teasdale, Assistant Attorney General, Phoenix, Attorneys for Defendants/Appellees.

OPINION

SWANN, Judge.

¶ 1 Microchip Technology Inc. (“Taxpayer”) appeals from a summary judgment. The tax court ruled that Taxpayer's sewer systems and storm basins failed to qualify for the pollution-control income-tax credit, codified at A.R.S. § 43–1170. We hold that the tax court erred when it concluded that § 43–1170(B), which describes what property is “included” in the credit, limits the broader language of § 43–1170(A). We therefore reverse and remand.

FACTS AND PROCEDURAL HISTORY

¶ 2 Taxpayer manufactures semiconductors at plants in Tempe and Chandler. Between 2000 and 2001, Taxpayer spent $45 million constructing new buildings, a parking structure and a parking lot. According to its tax-credit documentation, Taxpayer incurred expenses in dedicating real property to use for storm-water basins, in making improvements required for the installation of storm-water basins and their integrated components, and in making improvements required for the installation of sewer systems. Other property expenses included storm sewers, sanitary sewers, retaining walls, fencing footings, a block wall, a fence, a sprinkler system, a garage roof, floor drains and drains on the office roof. Taxpayer's application also claimed expenses for various construction activities: compaction, surveying, underground detection, geotechnical work, excavation and landscaping.

¶ 3 On October 14, 2003, Taxpayer applied for $191,928.84 in pollution-control income-tax credits for these items, less depreciation and costs, under A.R.S. § 43–1170. The Arizona Department of Revenue (“the Department”) denied the entire claim on March 12, 2004. It found that Taxpayer's expenses failed to qualify because (1) the land-acquisition and service expenses did not qualify for the credit; (2) Taxpayer's on-site sewers were not installed to meet or exceed pollution-control regulations; (3) the storm-water retention basins served to meet city health and safety requirements in addition to flood control and other purposes; and (4) Taxpayer's documentation was insufficient. Taxpayer pursued its administrative remedies, but on January 26, 2007, the Director of the Department affirmed the denial of Taxpayer's request.

¶ 4 Pursuant to A.R.S. § 42–1254(C), Taxpayer appealed to the Arizona tax court on March 26, 2007. The Department moved for summary judgment on the grounds that (1) the tax credit could not apply because the property's primary purpose was not to control pollution and (2) the credit did not apply to real property. Taxpayer filed a cross-motion arguing that the property did qualify for the tax credit. After briefing and oral argument, the tax court held that none of Taxpayer's expenses qualified for the credit and granted summary judgment in favor of the Department.

¶ 5 This appeal followed. We have jurisdiction pursuant to A.R.S. § 12–2101.

STANDARD OF REVIEW

¶ 6 This court reviews a grant of summary judgment de novo. Wilderness World, Inc. v. Dep't of Revenue, 182 Ariz. 196, 198, 895 P.2d 108, 110 (1995) (in banc). We also review the interpretation of statutes de novo. Ariz. Dep't of Revenue v. Ormond Builders, Inc., 216 Ariz. 379, 383, ¶ 15, 166 P.3d 934, 938 (App.2007). And although we construe statutes creating tax exemptions strictly, we do not interpret such statutes so strictly that we effectively “defeat or destroy the [legislative] intent and purpose.” See State ex rel. Ariz. Dep't of Revenue v. Capitol Castings, Inc., 207 Ariz. 445, 447, ¶ 10, 88 P.3d 159, 161 (2004).

DISCUSSION

¶ 7 In 1994, the Arizona Legislature enacted A.R.S. § 43–1170 “to encourage companies to consider expansion or renovations now.” Watts v. Ariz. Dep't of Revenue, 221 Ariz. 97, 99, 210 P.3d 1268, 1270 (App.2009) (quoting Minutes of Comm. on Ways and Means, S.B. 1523 (Ariz. March 22, 1994) (statement of Scot Butler)). The credits claimed in this case belong to the 2000 and 2001 tax years. The relevant portions of the version of A.R.S. § 43–1170 in effect at that time were:

A. A credit is allowed against the taxes imposed by this title for expenses that the taxpayer incurred during the taxable year to purchase real or personal property that is used in the taxpayer's trade or business in this state to control or prevent pollution. The amount of the credit is equal to ten per cent [sic] of the purchase price.

B. Property that qualifies for the credit under this section includes that portion of a structure, building, installation, excavation, machine, equipment or device and any attachment or addition to or reconstruction, replacement or improvement of that property that is directly used, constructed or installed in this state for the purpose of meeting or exceeding rules or regulations adopted by the United States environmental protection agency, the department of environmental quality or a political subdivision of this state to prevent, monitor, control or reduce air, water or land pollution. The credit allowed pursuant to this section does not apply to the purchase of any personal property that is attached to a motor vehicle.

I. THE RELATIONSHIP OF THE LIST IN § 43–1170(B) TO § 43–1170(A)

¶ 8 On appeal, Taxpayer primarily challenges the tax court's holding that § 43–1170(B) limits the applicability of § 43–1170(A). Section 43–1170(A) provides a tax credit for “expenses that the taxpayer incurred during the taxable year to purchase real or personal property that is used in the taxpayer's trade or business in this state to control or prevent pollution.” There is no dispute that Taxpayer made the purchases and used the items in its Arizona business. Moreover, the tax court acknowledged that Taxpayer's claim that storm water and sewage are pollutants “is probably unobjectionable.” ¹ During the summary judgment briefing, the Department did not dispute that the storm-water retention system and the sewer system prevent the spread of pollution. Accordingly, we hold that under the plain language of § 43–1170(A), storm-water and sewage control systems constitute “real or personal property that is used ... to control or prevent pollution.”

¶ 9 The tax court, however, held that the credit is limited to items listed in § 43–1170(B). Invoking the canon of construction inclusio unius est exclusio alterius, the court reasoned that the enumerated items in § 43–1170(B) define the scope of the credit. According to the tax court, if § 43–1170(A) were to define the scope of the statute, then “the list of qualifying property contained in [§ 43–1170(B) ] would be superfluous.” By resorting to rules of statutory construction, the tax court implicitly found that § 43–1170 is ambiguous. See Paging Network of Ariz., Inc. v. Ariz. Dep't of Revenue, 193 Ariz. 96, 97, ¶ 8, 970 P.2d 450, 451 (App.1998) (rules of statutory construction are needed only when a statute is ambiguous).

¶ 10 We do not find the statute ambiguous. The language of § 43–1170(A) is clear on its face, and the interplay between subsections (A) and (B) becomes problematic only if subsection (B) is read to limit the scope of the credit defined in subsection (A). So read, subsection (A) would become superfluous. See Grand v. Nacchio, 225 Ariz. 171, 175–76, ¶ 22, 236 P.3d 398, 402–03 (2010) (in banc) (“We ordinarily do not construe statutes so as to render portions of them superfluous.”). But the language of subsection (B), which describes what property is “included,” need not—and should not—be read as imposing a limit on subsection (A).

¶ 11 In Bernhart v. Industrial Commission, 200 Ariz. 410, 26 P.3d 1181 (App.2001), we addressed the meaning of the word “include” in a statutory definition. We held:

In ordinary usage, “INCLUDE suggests the containment of something as a constituent, component, or subordinate part of a larger whole.” Webster's Ninth New Collegiate Dictionary 609 (1985). The term is “not one of all-embracing definition, but connotes simply an illustrative application of the general principle.” Federal Land Bank of St. Paul v. Bismarck Lumber Co., 314 U.S. 95, 100 [62 S.Ct. 1, 86 L.Ed. 65] (1941).... See Adams v. Dole, 927 F.2d 771, 775 (4th Cir.1991) (items following the word “including” may be merely illustrative or may add definitional content).

200 Ariz. at 413, ¶ 12, 26 P.3d at 1184.

¶ 12 Because § 43–1170(A) is clear, and § 43–1170(B) is properly read as illustrative, resort to the principle of expressio unius is unnecessary. ²Sw. Iron & Steel Indus., Inc. v. State, 123 Ariz. 78, 79–80, 597 P.2d 981, 982–83 (1979). (“The doctrine of ‘expressio unius' is not to be applied where its application contradicts the general meaning of the statute or state public policy.”). We therefore hold that § 43–1170(B) is not the touchstone for determining whether property qualifies for the credit—the section is illustrative, not exclusive. So long as the nature or use of the property does not conflict with the import of § 43–1170(B), it may qualify under § 43–1170(A).

II. PRIMARY PURPOSE AND DIRECT USE

¶ 13 The Department argues that Taxpayer's expenses do not qualify for the tax credit because the primary purpose and function of the property is not pollution control. But the statute contains no requirement that the “primary purpose” of the property must be pollution control to qualify. In Owens–Illinois, Inc. v. Town of Bradley, the Wisconsin Department of Revenue similarly argued that property eligible for a tax exemption...