S. Point Energy Ctr. LLC v. Ariz. Dep't of Revenue

• Decision Date: 26 April 2022
• Docket Number: CV-21-0130-PR
• Citation: 69 Arizona Cases Digest 4,508 P.3d 246
• Parties: SOUTH POINT ENERGY CENTER LLC, Plaintiff/Appellant, v. ARIZONA DEPARTMENT OF REVENUE, et al., Defendants/Appellees.
• Court: Arizona Supreme Court

69 Arizona Cases Digest 4

508 P.3d 246

SOUTH POINT ENERGY CENTER LLC, Plaintiff/Appellant,

v.ARIZONA DEPARTMENT OF REVENUE, et al., Defendants/Appellees.

No. CV-21-0130-PR

Supreme Court of Arizona.

Filed April 26, 2022

Bennett Evan Cooper (argued), Vail C. Cloar, Dickinson Wright PLLC, Phoenix; Pat Derdenger, Karen Lowell, Lewis Roca Rothgerber Christie LLP, Phoenix, Attorneys for South Point Energy Center LLC

Cameron C. Artigue (argued), Camila Alarcon, Christopher L. Hering, Gammage & Burnham, P.L.C., Phoenix, Attorneys for Arizona Department of Revenue, et al.

Charles W. Galbraith, Jenner and Block LLP, Washington, D.C.; Verrin T. Kewenvoyouma, Christopher Love, Kewenvoyouma Law, PLLC, Tempe, Attorneys for Amici Curiae Fort Mojave Indian Tribe, the Navajo Nation, the Gila River Indian Community, Gila River Indian Community Utility Authority, the Inter-Tribal Association of Arizona, and the National Congress of American Indians

James M. Susa, DeConcini McDonald Yetwin & Lacy, P.C., Tucson, Attorneys for Amicus Curiae County Supervisors Association of Arizona and the Arizona Association of Counties

VICE CHIEF JUSTICE TIMMER authored the opinion of the Court, in which CHIEF JUSTICE BRUTINEL and JUSTICES BOLICK, LOPEZ, BEENE, MONTGOMERY, and KING joined.

VICE CHIEF JUSTICE TIMMER, opinion of the Court:

¶1 The issue here is whether the Indian Reorganization Act of 1934 (the "Act") expressly preempts Mohave County's ad valorem property tax on a power plant owned by non-Indian lessees of land purportedly acquired by the federal government under the Act and held in trust for the benefit of an Indian tribe. We hold the Act does not expressly preempt this tax.

BACKGROUND

¶2 In 1999, Calpine Construction Finance Co. ("Calpine"), a non-Indian-owned entity, leased 320 acres of undeveloped land on a long-term basis from the Fort Mojave Indian Tribe (the "Tribe") to construct and operate an electric power generating plant (the "Plant") on reservation lands. The Plant, which began operating in 2001, is a "merchant plant" that sells electrical energy to public and private utility companies for resale and redistribution to end-users. It does not supply electrical energy to the Tribe or to any person or entity located on the reservation. The Tribe did not finance the Plant's construction and does not contribute any operating funds.

¶3 After the Plant was built, Mohave County assessed ad valorem property taxes against the Plant based on valuations determined by the Arizona Department of Revenue ("ADOR"). See Ariz. Const. art. 9, § 2 (13) ("All property in the state not exempt under the laws of the United States or under this constitution or exempt by law under the provisions of this section shall be subject to taxation to be ascertained as provided by law."); A.R.S. § 42-11002 (to same effect). ADOR assessed only the value of the Plant itself and the personal property used to operate it; ADOR did not assess the value of the underlying land.

¶4 Calpine paid the taxes and unsuccessfully sued for a refund, arguing the Tribe, as lessor, owned all improvements to the leased property, thereby exempting the Plant from state taxation pursuant to federal law. See Calpine Constr. Fin. Co. v. Ariz. Dep't of Revenue , 221 Ariz. 244, 249 ¶ 22, 211 P.3d 1228, 1233 (App. 2009) ; see also Cass County v. Leech Lake Band of Chippewa Indians , 524 U.S. 103, 110, 118 S.Ct. 1904, 141 L.Ed.2d 90 (1998) ("State and local governments may not tax Indian reservation land ‘absent cession of jurisdiction or other federal statutes permitting it.’ " (quoting County of Yakima v. Confederated Tribes & Bands of Yakima Nation , 502 U.S. 251, 258, 112 S.Ct. 683, 116 L.Ed.2d 687 (1992) )). In the ensuing appeal, the court of appeals acknowledged the general rule that a lessor owns all real property improvements made by a lessee but concluded the parties’ lease varied that rule by providing that Calpine owns all improvements. Calpine Constr. , 221 Ariz. at 248 ¶¶ 16–17, 211 P.3d at 1232. Consequently, the court affirmed the tax court's judgment that Calpine was liable for property taxes based on the value of the Plant and related personal property. See id. at 246 ¶1, 211 P.3d at 1230.

¶5 After a series of transactions involving Calpine and several of its related entities, the Tribe's land and the Plant were sublet to South Point Energy Center LLC ("South Point"), another Calpine-related entity, with the Tribe's consent and approval by the Bureau of Indian Affairs (the "BIA"). In 2012, the Tribe and Calpine's successor-lessees, which we include in our references to "South Point" for convenience, executed an amended lease, which remained in place during this lawsuit. Among other things, the amended lease provides that no partnership exists between the Tribe and South Point. It further reaffirms that the Plant and "all [i]mprovements and associated materials, supplies, and equipment" are "owned and controlled" by South Point, and that at the expiration of the lease, South Point must remove all above-ground real property improvements and personal property, excepting roads and foundations.

¶6 The amended lease contemplates that ad valorem property taxes may be assessed on the Plant. The lease requires South Point to timely pay all taxes levied by any governmental entity to prevent imposition of any liens and to hold the Tribe harmless against any liens that are imposed. The BIA approved the amended lease.

¶7 South Point initiated these consolidated lawsuits seeking a refund of payments for property taxes imposed from 2010 to 2018, to the extent they were based on valuations of the Plant. See A.R.S. § 42-11005 (authorizing suit to recover illegally levied, assessed, or collected taxes). South Point does not challenge the tax assessments based on ownership of the Plant, as Calpine did in its earlier lawsuit. Instead, South Point argues that § 5 of the Act, 25 U.S.C. § 5108, expressly preempts states from imposing property taxes on any real property improvements, regardless of ownership, located on land held in trust by the federal government for the benefit of Indian tribes or individual Indians. Alternatively, South Point argues that application of a balancing test announced in White Mountain Apache Tribe v. Bracker , 448 U.S. 136, 100 S.Ct. 2578, 65 L.Ed.2d 665 (1980), evidences Congress's implicit intent to preempt taxing the Plant.

¶8 The tax court rejected both of South Point's arguments and granted summary judgment for Mohave County and ADOR (collectively, the "County"). The court of appeals reversed, reasoning that § 5 of the Act expressly and categorically exempts permanent improvements on the Tribe's land from state taxation regardless of ownership.

S. Point Energy Ctr. LLC v. Ariz. Dep't of Revenue , 251 Ariz. 263, 269 ¶ 30, 490 P.3d 372, 378 (App. 2021). It remanded for the tax court to determine which, if any, of the assets making up the Plant constitute the tax-exempt permanent improvements. Id. The court did not itself apply the balancing test under Bracker but instead instructed the tax court to do so in considering whether property taxes on the Plant's impermanent assets were taxable. Id.

¶9 We granted review to decide whether § 5 of the Act expressly preempts taxing permanent improvements constructed on tribal lands acquired under that section when those improvements are owned by non-Indians, an issue of statewide importance.

DISCUSSION

I.

¶10 We review the tax court's entry of summary judgment de novo, viewing the facts in the light most favorable to South Point as the nonmoving party. Dinsmoor v. City of Phoenix , 251 Ariz. 370, 373 ¶ 13, 492 P.3d 313, 316 (2021). We will affirm if there is no genuine dispute of material fact and the State is entitled to judgment as a matter of law. Id. ; Ariz. R. Civ. P. 56(a). We review the prior courts’ preemption decisions and their interpretation of § 5 of the Act de novo as issues of law. See Conklin v. Medtronic, Inc. , 245 Ariz. 501, 504 ¶ 7, 431 P.3d 571, 574 (2018) (preemption); Brenda D. v. Dep't of Child Safety , 243 Ariz. 437, 442 ¶ 15, 410 P.3d 419, 424 (2018) (statutory interpretation).

II.

A.

¶11 The Supremacy Clause of the United States Constitution makes valid federal laws predominate over conflicting state laws. See U.S. Const. art. 6, cl. 2. Within constitutional limits, Congress may generally preempt application of state law in a few ways, including "by so stating in express terms," which is known as "express preemption." See Pac. Gas & Elec. Co. v. State Energy Res. Conservation & Dev. Comm'n , 461 U.S. 190, 203–04, 103 S.Ct. 1713, 75 L.Ed.2d 752 (1983) (describing different types of preemption). In deciding whether state laws apply to non-Indian activities conducted on an Indian reservation, the Court in Bracker provided an additional pathway for finding federal preemption. 448 U.S. at 144–45, 100 S.Ct. 2578. A court faced with a preemption challenge in that circumstance, absent express preemption, should make "a particularized inquiry into the nature of the state, federal, and tribal interests at stake ... to determine whether, in the specific context, the exercise of state authority would violate federal law." Id. If so, the state law is impliedly preempted. See id. ; see also Cotton Petroleum Corp. v. New Mexico , 490 U.S. 163, 176–77, 109 S.Ct. 1698, 104 L.Ed.2d 209 (1989) ("It bears emphasis that although congressional silence no longer entails a broad-based immunity from taxation for private parties doing business with Indian tribes, federal preemption is not limited to cases in which Congress has expressly—as compared to impliedly—preempted the state activity.").

¶12 The only issue before us is whether § 5 of the Act expressly preempts application of Arizona's ad valorem tax laws against the Plant. See Confederated Tribes of Chehalis Rsrv. v. Thurston Cnty. Bd. of Equalization , 724 F.3d 1153, 1159 (9th Cir. 2013) (stating that when § 5 of the Act applies to preempt taxation, there is no need to...