Salt River Project Agr. Imp. and Power Dist. v. Apache County
| Citation | 171 Ariz. 476,831 P.2d 852 |
| Decision Date | 26 March 1992 |
| Docket Number | CA-TX,No. 1,1 |
| Parties | SALT RIVER PROJECT AGRICULTURAL IMPROVEMENT AND POWER DISTRICT, a political subdivision of the State of Arizona; the Atchison, Topeka and Santa Fe Railway Company, a Delaware corporation; Tucson Electric Power Company, an Arizona corporation; San Carlos Resources, Inc., an Arizona corporation; Valencia Energy Company, an Arizona corporation; Mountain States Telephone and Telegraph Company, a Colorado corporation, doing business as U.S. West Communications; Arizona Public Service Company, an Arizona corporation; Public Service Company of New Mexico, a New Mexico corporation, Plaintiffs-Appellants, v. APACHE COUNTY, a political subdivision of the State of Arizona; Arizona Department of Revenue, an agency of the State of Arizona, Defendants-Appellees. 91-002. |
| Court | Arizona Court of Appeals |
The owners of taxable real property in Apache County appeal from a summary judgment entered by the Arizona Tax Court in the county's favor. In entering summary judgment, the Arizona Tax Court determined that the county had correctly calculated its levy limit for the 1986 tax year pursuant to article IX, section 19 of the Arizona Constitution and A.R.S. section 42-301. The Arizona Tax Court based its determination upon the interpretation that Division Two of this court had given these constitutional and statutory provisions in Arizona Tax Research Ass'n v. Maricopa County, 162 Ariz. 94, 781 P.2d 71 (App.1989), vacated in part on other grounds, 163 Ariz. 255, 787 P.2d 1051 (1989). We reverse because we conclude that Arizona Tax Research interpreted the provisions incorrectly.
At a special election held on June 3, 1980, the voters of Arizona approved and adopted article IX, section 19 of the Arizona Constitution. Section 19 provides in part:
(1) The maximum amount of ad valorem taxes levied by any county, city, town or community college district shall not exceed an amount two percent greater than the amount levied in the preceding year.
....
(4) The limitation prescribed by subsection (1) shall be increased each year to the maximum permissible limit, whether or not the political subdivision actually levies ad valorem taxes to such amounts.
(5) The voters, in the manner prescribed by law, may elect to allow ad valorem taxation in excess of the limitation prescribed by this section.
(6) The limitation prescribed by subsection (1) of this section shall be increased by the amount of ad valorem taxes levied against property not subject to taxation in the prior year and shall be decreased by the amount of ad valorem taxes levied against property subject to taxation in the prior year and not subject to taxation in the current year. Such amounts of ad valorem taxes shall be computed using the rate applied to property not subject to this subsection.
(7) The Legislature shall provide by law for the implementation of this section.
Pursuant to article IX, section 19(7), the legislature enacted A.R.S. section 42-301(A), which provides:
In addition to any other limitations that may be imposed, the counties, cities, including charter cities, towns and community college districts shall not levy primary property taxes in any year in excess of an aggregate amount computed as follows:
(1) Determine the maximum allowable primary property tax levy limit for such jurisdiction for the prior tax year.
(2) Multiply paragraph 1 by 1.02.
(3) Determine the assessed value for the current tax year of all property in such entity that was subject to tax in the preceding tax year.
(4) Divide the dollar amount determined in paragraph 3 by one hundred and then divide the dollar amount determined in paragraph 2 by the resulting quotient. The result rounded to four decimal places is the maximum allowable tax rate for the jurisdiction.
(5) Determine the finally equalized valuation of all property, less exemptions, appearing on the tax roll for the current tax year including an estimate of the unsecured property tax roll determined pursuant to § 42-304.01.
(6) Divide the dollar amount determined in paragraph 5 by one hundred and then multiply the resulting quotient by the rate determined in paragraph 4. The resulting product is the maximum allowable primary property tax levy limit for the current fiscal year for all political subdivisions.
(7) The allowable levy of primary property taxes for the current fiscal year for all political subdivisions is the maximum allowable primary property tax levy limit less any amounts required to reduce the levy pursuant to subsections I and J of this section.
The levy limit formula of section 42-301(A) establishes the following arithmetical relationship: the levy limit for the current year equals 1.02 multiplied by the product of the levy limit for the immediately preceding year times a fraction whose numerator is the total current assessed valuation of all property subject to taxation in the current year and whose denominator is the total current assessed valuation of all property that was subject to taxation in the immediately preceding year.
During the tax years affected by this appeal, Arizona law required the Department of Revenue to value utility property according to rules that are currently set forth in A.R.S. section 42-144.02. See former A.R.S. § 42-144. The rules provide that an operating electric plant is to be valued at its "original plant in service cost" less depreciation. A.R.S. § 42-144.02(B)(2). 1 Electric utility property that is not yet used or useful for generating electric power, however, is to be valued at "fifty per cent of the amount expended and entered upon the accounting records of the taxpayer as of December 31 of the preceding calendar year as construction work in progress." A.R.S. § 42-144.02(C). 2
The controversy in the present case arose out of the doubling of the statutory valuation of Unit I of the Springerville Generating Station for the 1986 tax year as a result of the unit's having been placed into service in 1985. Although the unit was substantially completed before January 1, 1985, it was not in commercial service and generating power before that date. As a result, it was valued as construction work in progress (CWIP) for the 1985 tax year. Between January 1 and May 31 of 1985, the unit was in its "start-up" phase awaiting certification. It went into commercial service and began generating electric power on June 1, 1985. In accordance with section 42-144.02(B)(2) and (C), the Arizona Department of Revenue first valued the unit at its operating plant in service (OPIS) cost in the 1986 tax year.
Apache County used the procedure set forth in section 42-301 to calculate its primary property tax levy limit for 1986. It initially determined the maximum allowable tax rate for the year pursuant to subsections 3 and 4 of section 42-301(A). These subsections fixed the denominator of the fraction that was to yield the maximum tax rate at one hundredth of "the assessed value for the current tax year [1986] of all property in [Apache County] that was subject to tax in the preceding tax year [1985]." The county did not include Unit I's OPIS value in the total assessed value figure. It instead treated the doubling in valuation that occurred when the unit first went into service as the creation of property that had not been subject to taxation in the preceding tax year. See § 42-144.02(B)(2) and (C). It therefore only included the unit's CWIP value--that is, fifty percent of its construction cost as of December 31, 1984-in the total assessed value figure. See A.R.S. § 42-144.02(C). This amount was $81,085,360 less than Unit I's 1986 OPIS value.
The total assessed value figure was the denominator of the fraction that was to yield the "maximum allowable tax rate" pursuant to section 42-301(A)(3) and (4). Since excluding the OPIS value from the assessed value figure made the denominator of this fraction smaller, it resulted in a higher tax rate than would have been the case if the OPIS value had been included. Employing the higher tax rate in the remaining calculations specified by section 42-301(A)(5) and (6) yielded a 1986 levy limit of $619,345. If the OPIS value of Unit I had been used in calculating the maximum tax rate, the levy limit would have been $491,042, or $128,303 less. Because each year's levy limit is based in part upon the previous year's limit, the use of Unit I's CWIP value instead of its OPIS value in computing the 1986 limit not only increased the limit for that year, but for each of the succeeding years as well.
In 1986, appellants filed four separate actions in the Apache County Superior Court challenging the legality of the county's treatment of Unit I. These actions were consolidated and transferred to Greenlee County. In 1987, the taxpayers filed separate actions in the Arizona Tax Court challenging the county's calculation of the 1987 property tax rate and levy limit, in part on the theory that the calculations were based upon the improperly computed 1986 levy limit. These actions were also...
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Salt River Project Agr. Imp. and Power Dist. v. Apache County
...for the purposes of calculating the County's property tax levy limit. Salt River Project Agric. Improv. & Power Dist. v. Apache County, 171 Ariz. 476, 831 P.2d 852 (Ct.App.1992) (hereinafter Salt River Project ). We granted review to resolve the conflict in the court of appeals between that......
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El Paso Elec. Co. v. Maricopa County
...and A.R.S. section 42-301. Our decision in this appeal is controlled by our opinion in Salt River Project Agricultural Improvement and Power District v. Apache County, 171 Ariz. 476, 831 P.2d 852 (1992). As in that case, we conclude that the county incorrectly calculated its levy limit and ......