Salt River Project Agr. Imp. and Power Dist. v. City of Phoenix
| Decision Date | 05 May 1981 |
| Docket Number | No. 1,CA-CIV,1 |
| Citation | 631 P.2d 553,129 Ariz. 398 |
| Parties | SALT RIVER PROJECT AGRICULTURAL IMPROVEMENT AND POWER DISTRICT, Plaintiff-Appellee, v. CITY OF PHOENIX, a municipal corporation, Defendant-Appellant. 4360. |
| Court | Arizona Court of Appeals |
The main issue to be determined on this appeal is whether the City of Phoenix (City) may impose its privilege license tax (excise) on the sale of electricity by the Salt River Project Agricultural Improvement and Power District (Salt River Project or Project) to the Roosevelt Irrigation District (Roosevelt District). We hold that it may not, and affirm the judgment of the trial court.
The facts are not in dispute. Salt River Project entered into a "Water Contract" with Roosevelt District's predecessor on August 25, 1921, by which it sold certain of its pumping facilities and drainage works to the Roosevelt District and agreed to furnish electricity at cost to the Roosevelt District in consideration for Roosevelt's pumping and draining part of the Salt River Project lands. For performing this service, Roosevelt District was given the use of all pumped and other waste water to use for its own irrigation needs. This contract was reviewed and approved in Brewster v. Salt River Valley Water Users' Ass'n, 27 Ariz. 23, 229 P. 929 (1924).
On December 15, 1975, the City commenced a privilege license tax audit of the Salt River Project for the period from November 1972 through October 1975. As a result, a tax assessment was made against the Project in the amount of $36,803.82, 1 including penalties and interest, based on its gross sales of electricity to the Roosevelt District under the provisions of the "Water Contract." Salt River Project protested the tax assessment, and when the protest was denied, it paid the tax under protest and sued the City for recovery of the tax in the superior court. Since no factual issue was involved, both parties moved for summary judgment. The trial court granted Salt River Project's motion and denied the City's. The court said in its judgment:
that under the facts and the law the Plaintiff, Salt River Project Agricultural Improvement and Power District, is exempt from the city sales taxes imposed by the City of Phoenix upon the transaction described in the Complaint.
The City then perfected its appeal from the summary judgment.
Although the trial court did not specifically state the legal basis for its ruling, it is clear from the record the basis was the court's conclusion, as a matter of law, that Salt River Project's sale of electricity to the Roosevelt District under the terms of the "Water Contract" involves the exercise of its governmental function as opposed to its proprietary function, thereby exempting the tax under Article XIII, § 7 of the Arizona Constitution. The main thrust of the City's appeal is directed to this alleged error.
The City contends that "The Supreme Court has flatly and repeatedly held that in their ordinary activities of selling water and electricity, agricultural water and electrical districts act in a proprietary (rather than a governmental) capacity." In support of its contention, the City cites Taylor v. Roosevelt Irrigation Dist., 71 Ariz. 254, 226 P.2d 154 (1950), modified on rehearing, 72 Ariz. 160, 232 P.2d 107 (1951), and City of Mesa v. Salt River Project Agr. Imp. & Power Dist., 92 Ariz. 91, 373 P.2d 722 (1962). We believe the decisions cited are not controlling, as explained below.
The Salt River Project was the first project organized under the Reclamation Act of 1902 which provided federal financing for reclamation of arid lands in the western United States. Act of June 17, 1902, 32 Stat. 388 (43 U.S.C.A. § 371 et seq.). Surplus power sales were permitted by the Act of April 16, 1906, ch. 1631, § 5, 34 Stat. 117 (43 U.S.C.A. § 522 et seq.). 2 Both the Salt River Project and the Roosevelt District are political subdivisions of the state and immune from taxation by virtue of Article XIII, § 7, Arizona Constitution. They are also municipal corporations by virtue of A.R.S. §§ 45-902 and 45-1501. See also Uhlmann v. Wren, 97 Ariz. 366, 401 P.2d 113 (1965).
Electrical power sales by the Salt River Project are also authorized by A.R.S. § 45-903(A)(6) and (7). A.R.S. § 45-903(A)(6) provides that one purpose of the Project is:
(t)o provide new or additional means for the irrigation or drainage of all or a part of the lands or to provide power or a means of communication for the use of the owners or occupants of the lands.
A.R.S. § 45-903(A)(7) provides that an additional purpose of the Project is:
(t)o reduce the cost of irrigation, drainage and power to the owners of the lands in the district by the sale of surplus water or power produced, owned or controlled by the district, and the construction, maintenance, extension, replacement, financing and refinancing of the works useful for such purpose.
A.R.S. § 45-903 thus recognizes that electrical power generated by the Salt River Project may be used within the district for project purposes or, where a surplus exists, it may be sold to provide a revenue source for financing project activities. The fact that the Salt River Project sells surplus power as a revenue source in its proprietary capacity does not defeat its status as a municipal corporation and political subdivision of the state. Rubenstein Const. Co. v. Salt River Project Agr. Imp. & Power Dist., 76 Ariz. 402, 265 P.2d 455 (1953).
The Taylor case recognized that an irrigation district may act in a proprietary as well as a governmental capacity. The court in Taylor held that a political subdivision acting in its proprietary capacity is liable for negligence. In the City of Mesa case it was held that retail sales of electricity by the Salt River Project are in the nature of proprietary activities. Similarly, sales of water by cities to consumers are held to be proprietary business activities of the cities, rather than governmental acts. Town of Somerton v. Moore, 58 Ariz. 279, 119 P.2d 239 (1941); City of Phoenix v. State ex rel. Conway, 53 Ariz. 28, 85 P.2d 56 (1938).
The City has raised an additional contention that the Project has no governmental functions whatsoever, and thus is not entitled to the exemption even under the Project's version of the transaction between the Project and Roosevelt District. The City cites Valley Nat'l Bank v. Electrical Dist. No. 4, 90 Ariz. 306, 367 P.2d 655 (1961) and Local 266, Int'l Bhd. of Electrical Workers v. Salt River Project Agr. Imp. & Power Dist., 78 Ariz. 30, 275 P.2d 393 (1954) in support of its argument that the Project "exists merely to move dirt and channel water", which "does not rise to the dignity of government."
We are not persuaded by the City's argument on this point. In Valley Nat'l Bank, supra, the Electrical District argued that it was immune from the operation of a section of the banking code because the code section was in the nature of a statute of limitations, the District was a municipality, and municipalities were immune from statutes of limitations. The court found that the code section was not a statute of limitations and that municipalities were not immune from such statutes in any event. The court stated that:
Electrical districts organized under A.R.S. § 30-501 et seq. are distinguishable from cities or towns. They do not exercise governmental functions except in limited spheres.... Their governmental status is similar to that of irrigation districts organized under A.R.S. § 45-1501 et seq.
Valley Nat'l Bank v. Electrical Dist. No. 4, 90 Ariz. at 312-13, 367 P.2d at 660 (1961) (emphasis added). Thus this case supports the Project's contention that, within the limited sphere of its drainage and irrigation function, it does exercise a governmental function.
In Local 266, supra, the Project argued that it could not enter collective bargaining agreements with its...
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