San Diego Gas & Elec. Co. v. Ariz. Dep't of Revenue

• Docket Number: CV-23-0283-PR
• Decision Date: 31 January 2025
• Citation: San Diego Gas & Elec. Co. v. Ariz. Dep't of Revenue, 562 P.3d 879 (Ariz. 2025)
• Parties: SAN DIEGO GAS & ELECTRIC COMPANY, Plaintiff/Appellee, v. ARIZONA DEPARTMENT OF REVENUE, et al., Defendants/Appellants.
• Court: Arizona Supreme Court

562 P.3d 879

SAN DIEGO GAS & ELECTRIC COMPANY, Plaintiff/Appellee,

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

No. CV-23-0283-PR

Supreme Court of Arizona.

Filed January 31, 2025

Appeal from the Arizona Tax Court, The Honorable Danielle J. Viola, Judge, No. TX2019-001758, AFFIRMED

Opinion of the Court of Appeals, Division One, 256 Ariz. 375(App.2023), VACATED IN PART, DEPUBLISHED IN PART

Paul J. Mooney(argued), Mooney, Wright, Moore & Wilhoit, PLLC, Scottsdale, Attorneys for San Diego Gas & Electric Company

Kristin K. Mayes, Arizona Attorney General, Scot G. Teasdale, Assistant Attorney General, Kimberly Cygan, Assistant Attorney General, Jerry A. Fries(argued), Assistant Attorney General, Phoenix, Attorneys for Arizona Department of Revenue, Maricopa County, and Yuma County

JUSTICE MONTGOMERYauthored the opinion of the Court, in which CHIEF JUSTICE TIMMER, VICE CHIEF JUSTICE LOPEZ and JUSTICES BOLICK, BEENE, KING, and BRUTINEL (RETIRED) joined.^*

JUSTICE MONTGOMERY, Opinion of the Court:

[1]¶1 The Arizona Constitution provides that all property not exempt by law is subject to taxation.Ariz. Const. art. 9, § 2(A).The property tax formula is generally comprised of four elements, "classification, valuation, assessment ratio, and tax rate," with county assessors responsible for valuing most property in Arizona.Aileen H. Char Life Int. v. Maricopa County, 208 Ariz. 286, 291 ¶ 8, 93 P.3d 486, 491(2004).As relevant here though, the legislature has directed the Arizona Department of Revenue("ADOR") to centrally value all of the property "owned ... and used by taxpayers in the ... [o]peration of an electric transmission ... system."A.R.S. § 4244151(A)(5).ADOR therefore annually determines the value of specific components of electric transmission property, see§ 42-14154(B), as well as its overall full cash value, see§ 42-14153(A)."Electric transmission" property is comprised of four components: a plant; construction work in progress ("CWIP");¹ materials and supplies; and environmental protection facilities.§ 42-14154(G)(4).Values are then allocated to each taxing jurisdiction pursuant to § 42-14157 and transmitted to each respective county assessor per § 42-14153(B)(1).The assessor then applies an assessment ratio based on the property classification set by statute and the tax rate.See Aileen H., 208 Ariz. at 291 ¶ 8, 93 P.3d at 491.

¶2This case concerns whether the valuation for a reduced plant in service cost calculated pursuant to § 42-14154(B)(2) can be negative, and whether such a result can offset the valuation of the CWIP component.We hold that the calculation prescribed to determine a reduced plant in service cost does not preclude a negative valuation and that, although the negative valuation necessarily affects the full cash value determination inclusive of all electric transmission property components, it does not "offset"—as that term is understood in Arizona’s tax system—the valuation of CWIP.

I.BACKGROUND

¶3 San Diego Gas & Electric ("SDG&E") is a California corporation that owns an interstate electric transmission line running from the Palo Verde Generating Station in Maricopa County through Yuma County and into California, terminating in San Diego.SDG&E’s property in Arizona is therefore subject to taxation by the State of Arizona and to valuation by ADOR.See§ 42-14151.

¶4 In 2020, pursuant to the requirements of § 42-14152(A), SDG&E reported to ADOR a net "original plant in service"² valuation of $48,817,396 and a net "related accumulated provision for depreciation"³("accumulated depreciation") amount of $51,446,397.SDG&E also reported a CWIP valuation of $3,648,475.⁴To report the total value for all its property, SDG&E subtracted the accumulated depreciation from the original plant in service cost, resulting in a negative valuation of $2,629,001, and then added the valuation of CWIP to arrive at a "Full Cash Value All Property" of $1,019,474.

¶5 ADOR disagreed with SDG&E’s use of an accumulated depreciation value that exceeded the original plant in service cost.ADOR separately determined that accumulated depreciation should be $30,354,140, which, rounding down, resulted in a reduced plant in service cost of $18,463,000.Adding in a rounded down CWIP valuation of $3,648,000, ADOR calculated the full cash value as $22,111,000.

¶6 SDG&E filed a complaint in the tax court under §§ 42-16204 and -16207, appealing ADOR’s determination of the full cash value.Thereafter, the parties filed competing motions for summary judgment, each asking the tax court to uphold their respective full cash value calculations.The tax court granted SDG&E’s motion and denied ADOR’s, finding that SDG&E’s valuation correctly followed the requirements of § 42-14154.

¶7 ADOR appealed the ruling, arguing that, among other things, § 42-14154 does not permit a negative valuation for a reduced plant in service cost.The court of appeals agreed, noting:

Nothing in the plain language of A.R.S. § 42-14154 or the related valuation statutes, A.R.S. §§ 42-14151 to -14153, expressly provides for or precludes a negative full cash valuation of a plant in service.But applying a "sensible construction to avoid absurd results,"Mountainside MAR, LLC v. City of Flagstaff,253 Ariz. 448, 450, ¶ 9[514 P.3d 948, 950](App.2022), we are not persuaded that the legislature intended to permit a negative full cash valuation for a plant in service, and therefore hold that accumulated depreciation may not reduce the full cash value of a plant in service to a negative number.

San Diego Gas & Elec. Co. v. Ariz. Dep’t of Revenue, 256 Ariz. 375, 380 ¶ 21, 539 P.3d 136, 141(App.2023).Regarding the reduced plant in service cost and CWIP, the court"appl[ied] the plain and unambiguous language of AR.S. § 42-14154(B)" to conclude:

[T]he "related" accumulated depreciation that AR.S. § 42-14154(B) expressly states shall reduce the original plant in service cost may not reduce the value of construction work in progress, which is separately calculated under subsection (C) as "fifty per cent of the amount spent and entered on the taxpayer’s accounting records as of December 31 of the preceding calendar year."

Id.¶ 22.The court consequently vacated the tax court’s judgment and remanded for further proceedings.Id. at 381 ¶ 24, 539 P.3d at 142.

¶8 Both ADOR and SDG&E petitioned this Court for review of the court of appeals’ opinion.We denied review of ADOR’s petition and granted review of SDG&E’s crosspetition.⁵After oral argument, we ordered further briefing to address: "What is the relationship between AR.S. §§ 42-14154, - 1[4157], -15001 and what consequence, if any, does a negative reduced plant in service cost have on the allocations provided for in A.R.S. § 42-14157?"Both parties asserted in supple- mental briefing that §§ 42-14157 and -15001 have no bearing on the narrow issue before us: whether accumulated depreciation can reduce the full cash value of a plant in service to a negative number or offset the value of unrelated property, which are recurring issues of statewide importance.We have jurisdiction pursuant to article 6, section 5(3) of the Arizona Constitution.

II.DISCUSSION

[2]¶9We review de novo the tax court’s ruling on a motion for summary judgment, Wilderness World, Inc. v. Ariz. Dep’t of Revenue,182 Ariz. 196, 198, 895 P.2d 108, 110(1995), as well as the construction and interpretation of Arizona tax statutes, SolarCity Corp. v. Ariz. Dep’t of Revenue, 243 Ariz. 477, 480 ¶ 8, 413 P.3d 678, 681(2018).

A.Can the Reduced Plant in Service Cost be Negative?

¶10We begin by addressing whether § 42-14154 permits a negative valuation for the reduced plant in service cost.SDG&E argues that the tax court correctly applied the law, which resulted in a negative valuation.⁶Conversely, ADOR argues that a negative valuation would be "absurd on its face and violate[ ] every applicable provision of § 42-14154," but nonetheless does not oppose it if the relevant counties will "owe no monies to [SDG&E] arising out of negative property values."⁷

[3–6]¶11"Absent ambiguity, we interpret statutes according to their plain language,"In re Drummond,257 Ariz. 15,—, 543 P.3d1022, 1025 ¶ 5(2024), and we determine plain meaning "in [its] broader statutory context."Id.(quoting Columbus Life Ins. Co. v. Wilmington Tr., N.A., 255 Ariz. 382, 385 ¶ 11, 532 P.3d 757, 760(2023));see also Antonin Scalia & Bryan Garner, Reading Law: The Interpretation of Legal Texts 167 (2012)[hereinafter Scalia & Garner](explaining that courts interpret a statute’s plain language in context, because "[c]ontext is a primary determinant of meaning").In the event of ambiguity, we construe statutes in favor of the taxpayer.See City of Phoenix v. Orbitz Worldwide Inc., 247 Ariz. 234, 241 ¶ 22, 448 P.3d 275, 282(2019).When tasked with "construing a specific provision, we look to the statute as a whole and we may also consider statutes that are in pari materia— of the same subject or general purpose—for guidance and to give effect to all of the provisions involved."Stambaugh v. Killian, 242 Ariz. 508, 509 ¶ 7, 398 P.3d 574, 575(2017).Finally, "we seek to harmonize statutory provisions and avoid interpretations that result in contradictory provisions."Lagerman v. Ariz. State Ret. Sys., 248 Ariz. 504, 511 ¶ 35, 462 P.3d 1009, 1016(2020)(internal quotation marks omitted)(quoting Premier Physicians Grp., PLLC v. Navarro, 240 Ariz. 193,195 ¶ 9, 377 P.3d 988, 990(2016)).

¶12The legislature has instructed ADOR to "annually determine the valuation, in the manner prescribed by this article, of all property, owned or leased, and used by taxpayers" in the business of operating an electric transmission system.§ 42-14151(A)(5).The manner prescribed is set forth in § 42-14154.Section 42-14154(B)(1) requires ADOR to initially determine the original plant in service cost.That cost is then reduced by accumulated depreciation.§...