Original Apartment Movers, Inc. v. Waddell

• Decision Date: 07 December 1993
• Docket Number: No. 1,CA-TX,1
• Citation: 179 Ariz. 419,880 P.2d 639
• Parties: The ORIGINAL APARTMENT MOVERS, INC., an Arizona corporation, Plaintiff-Appellant, v. Paul WADDELL, in his capacity as Director of the Arizona Department of Revenue, Defendant-Appellee. 92-0012.
• Court: Arizona Court of Appeals

Page 639

880 P.2d 639

179 Ariz. 419

The ORIGINAL APARTMENT MOVERS, INC., an Arizona corporation, Plaintiff-Appellant, v. Paul WADDELL, in his capacity as Director of the Arizona Department of Revenue, Defendant-Appellee.

No. 1 CA-TX 92-0012.

Court of Appeals of Arizona Division 1, Department T.

Dec. 7, 1993.

Reconsideration Denied Jan. 20, 1994.

Review Denied Sept. 20, 1994.

[179 Ariz. 420] Shimmel, Hill, Bishop & Gruender, P.C. by Keith F. Overholt and James C. Paul, Phoenix, for plaintiff/appellant.

Grant Woods, Atty. Gen. by William D. Hostetler, Phoenix, for defendant/appellee.

OPINION

WEISBERG, Presiding Judge.

This appeal stems from the granting of a motion to dismiss in a declaratory judgment action. Because we hold that the trial court should decline to accept a declaratory judgment action when the issue in question is factually based and more appropriately decided through administrative procedures, we affirm.

Facts and Procedural History

The Department of Revenue ("DoR") attempted to audit the records of appellant, the Original Apartment Movers, Inc. ("Movers"), to determine whether it owed transaction privilege taxes, see A.R.S. § 42-1310.02 (1991), but Movers refused to give DoR access to its records. Before subpoena enforcement proceedings were instituted, Movers filed a declaratory judgment action in the tax court seeking a declaration that it was exempt from transaction privilege taxes and, as a result, that DoR did not have the authority to audit it.

DoR filed a motion to dismiss arguing that Movers had failed to state a claim upon which relief could be granted and that the tax court lacked subject-matter jurisdiction. The tax court granted the motion to dismiss based on failure to state a claim upon which relief could be granted; it held that Movers had not presented a "justiciable issue." Movers timely appealed.

Discussion

Justiciable Controversy

A. Standard of Review

For a court to grant declaratory judgment, the party seeking relief must assert "a legal relationship, status or right" in which the party has a definite interest and "the denial of it by the other party." Morris v. Fleming, 128 Ariz. 271, 273, 625 P.2d 334, 336 (App.1980). That assertion provides the necessary "justiciable controversy" on which to base the declaratory judgment. See Thomas v. City of Phoenix, 171 Ariz. 69, 74, 828 P.2d 1210, 1215 (App.1991) (citing Arizona State Bd. of Directors for Junior Colleges v. Phoenix Union High Sch. Dist., 102 Ariz. 69, 73, 424 P.2d 819, 823 (1967)). In the instant case, Movers seeks a declaration that it is not a "taxpayer" under Ariz.Rev.Stat.Ann. ("A.R.S.") section 42-117, which provides DoR's power to audit. Movers argues that it is statutorily exempt from transaction privilege taxes and therefore is not subject to DoR's audit. DoR responds that the decision whether Movers owes taxes should be determined first by DoR as the administrative agency created for that purpose.

B. Subject-Matter Jurisdiction

Although DoR argues that the trial court lacks subject-matter jurisdiction, and couches its argument in terms of Movers' failure to exhaust administrative remedies, its substantive position is really founded on the doctrine of primary jurisdiction. See Campbell v. Mountain States Tel. & Tel. Co., 120 Ariz. 426, 429-30, 586 P.2d 987, 990-91 (App.1978) (exhaustion doctrine determines when judicial review is available; primary jurisdiction doctrine determines who should initially determine case). Both the exhaustion of remedies doctrine and the primary jurisdiction doctrine are methods of judicial administration, not subject-matter jurisdiction. See id. The issue in the instant case is whether, under the doctrine of primary jurisdiction, the tax court should consider the dispute, not whether it can consider the dispute. Although the tax court has the necessary subject-matter jurisdiction, we must consider the substance of DoR's argument: whether the tax court should exercise that jurisdiction.

C. Doctrine of Primary Jurisdiction

Arizona has adopted the doctrine of primary jurisdiction:

[T]he doctrine of primary jurisdiction determines whether the court or the agency should make the initial decision in a particular case.

....

The doctrine of primary jurisdiction is a discretionary rule created by the courts to effectuate the efficient handling of cases in specialized areas where agency expertise may be useful.

Campbell, 120 Ariz. at 429-30, 586 P.2d at 990-91; see also Tanner Cos. v. Arizona State Land Dep't, 142 Ariz. 183, 188, 688 P.2d 1075, 1080 (App.1984) (declaratory judgment not appropriate for initial decisions committed to administrative body). The Arizona Supreme Court has applied the United States Supreme Court's reasoning to determine whether an agency should have primary jurisdiction:

[I]n cases raising issues of fact not within the conventional experience of judges or cases requiring the exercise of administrative discretion, agencies created by Congress for regulating the subject matter should not be passed over. This is so even though the facts after they have been appraised by specialized competence serve as a premise for legal consequences to be judicially defined. Uniformity and consistency in the regulation of business entrusted to a particular agency are secured, and the limited functions of review by the judiciary are more rationally exercised, by preliminary resort for ascertaining and interpreting the circumstances underlying legal issues to agencies that are better equipped than courts by specialization, by insight gained through experience, and by more flexible procedure.

Campbell, 120 Ariz. at 430, 586 P.2d at 991 (quoting Far East Conference v. United States, 342 U.S. 570, 574-75, 72 S.Ct. 492, 494-95, 96 L.Ed. 576 (1952)). The Arizona Supreme Court went on to note that "[i]n deciding questions of primary jurisdiction, the statutorily defined purposes and powers of the administrative agency are relevant indicators of the agency's particular skill and expertise in the specific area." Id. at 431, 586 P.2d at 992.

D. Application

Decisions concerning a person's tax liability are entrusted to DoR. A.R.S. § 42-117. DoR has the authority and expertise to make the necessary factual investigations. The administrative decision whether a person owes taxes is within the primary jurisdiction of DoR. A.R.S. § 42-117. In the instant case, the question whether Movers is a taxpayer subject to transaction privilege taxes turns on the factual question whether it has engaged in any business transaction within the ambit of A.R.S. section 42-1310.02. Under the administrative approach adopted by the legislature, that question should first be examined by DoR through its audit procedures. See A.R.S. § 42-117. Movers may not preempt the administrative investigation by rushing to the tax court before all factual questions have been subjected to DoR's audit.

Movers' attempt to narrowly define "taxpayer" under A.R.S. section 42-117 is necessarily dependent upon the facts of its business transactions. Those same facts would be the subject of DoR's proposed audit. In accordance with the doctrine of primary jurisdiction, we hold that courts must defer the first examination of such facts to DoR. Because these facts are necessary to determine the issues before it, the tax cour...