Scottsdale Princess P'ship v. Maricopa Cnty.

• Decision Date: 04 October 2012
• Docket Number: No. 1 CA–TX 10–0004.,1 CA–TX 10–0004.
• Citation: 230 Ariz. 425,644 Ariz. Adv. Rep. 33,286 P.3d 174
• Parties: SCOTTSDALE PRINCESS PARTNERSHIP, an Arizona corporation, Plaintiff/Appellant, v. MARICOPA COUNTY, a political subdivision of the State of Arizona, Defendant/Appellee.
• Court: Arizona Court of Appeals

230 Ariz. 425

286 P.3d 174

644 Ariz. Adv. Rep. 33

SCOTTSDALE PRINCESS PARTNERSHIP, an Arizona corporation, Plaintiff/Appellant,

v.MARICOPA COUNTY, a political subdivision of the State of Arizona, Defendant/Appellee.

No. 1 CA–TX 10–0004.

Court of Appeals of Arizona,

Division 1, Department T.

Oct. 4, 2012.

Ballard Spahr LLP by Brian W. LaCorte, Phoenix, and Gallagher & Kennedy, P.A. by Mark A. Fuller, James G. Busby, Jr., Phoenix, Attorneys for Plaintiff/Appellant.

Helm, Livesay & Worthington, LTD by Roberta S. Livesay, Raushanah Daniels, Tempe, Attorneys for Defendant/Appellee.

OPINION

HALL, Judge.

¶ 1 Scottsdale Princess Partnership (Taxpayer) challenges Maricopa County's classification of the Fairmont Scottsdale Princess Resort land and improvements (the Property) as Class One property under Arizona Revised Statutes (A.R.S.) section 42–12001(12) (2003). Taxpayer contends that the Property qualifies for Class Nine status under A.R.S. § 42–12009(A)(1)(b) (2003) because it is used primarily for convention activities. The tax court upheld the Class One classification, which applies to commercial and industrial properties. Based on a fair reading of the statute, we affirm that judgment.

FACTS AND PROCEDURAL BACKGROUND

¶ 2 Taxpayer owns the Property and is liable for its property taxes for the 2003 through 2005 tax years. The hotel on the Property contains 651 rooms and is a total of 548,486 square feet, with 57,530 square feet of interior meeting space. It also features a ballroom measuring about 22,500 square feet. The Property's hotel also provides smaller meeting rooms in casitas and restaurants, along with additional meeting space in a villa.

¶ 3 A large portion of Taxpayer's improvements, buildings, fixtures, and equipment is located on land leased from the City of Scottsdale (the City), and the remaining portion lies on land owned by Taxpayer.¹ All buildings, improvements, fixtures, and equipment described in the 1985 Ground Lease with the City will become City property when the ninety-nine year leasehold terminates. During the relevant period, the Property hosted more than twenty groups, including the Sigma Sigma Sigma National Convention, the Dial Corporation National Sales Meeting, and the Destination Play Station Conference.

¶ 4 Taxpayer claims that the Class One determination for the 2003, 2004, and 2005 tax years is an “error” under A.R.S. § 42–16251(3) (2006). It argues that the Property qualified as Class Nine, A.R.S. § 42–12009(A), not Class One, A.R.S. § 42–12001(12), and an error correction and refund were required in light of Taxpayer's overpayments.² After failing to resolve the dispute and exhausting its administrative remedies with the County and the Arizona Board of Equalization, Taxpayer appealed to the tax court in accordance with A.R.S. § 42–16254(G) (Supp.2011).

¶ 5 The parties initially filed motions for summary judgment, but then jointly stipulated to withdraw the motions due to factual issues concerning the correct classification of the Property. The tax court told the parties: “The issue appears to be primarily one of applying uncontested facts to A.R.S. § 42–12009(A)(1)(b), in particular, determining whether ‘convention activit[y]’ under the statute includes the lodging and feeding of convention attendees and if so whether such use is a (or the) primary one of [the Property] and improvements.”

¶ 6 Taxpayer then moved for summary judgment on the classification, but the tax court denied the motion after briefing and oral argument. It conducted a four-day bench trial in an effort to determine how the Property was used.

¶ 7 Ultimately, the tax court affirmed the Property's Class One classification, reasoning that “convention activities” can involve only “core convention activities” and not other human activities or “the whole of daily life.” Accordingly, the Property did not qualify for Class Nine classification because the revenue relied upon by Taxpayer to establish its entitlement to Class Nine treatment was largely derived from room and dining charges attributable to group bookings for ten or more room nights, as distinguished from rent for ballroom and other spaces accommodating only conventions. Moreover, the tax court did not even find evidence to support primary use under Taxpayer's broader definition of convention activities: “Nothing in Scottsdale Princess's presentation has shown that ‘convention activities' constitute the primary use, however it is measured, of the property.”

¶ 8 The tax court entered a final judgment in favor of the County, and this timely appeal followed. We have jurisdiction pursuant to A.R.S. § 12–2101(B) (Supp.2011).

DISCUSSION

I. The Record Fails To Establish That The Property Is Used Primarily For Convention Activities Under A.R.S. § 42–12009(A)(1)(b).

¶ 9 The pivotal question on appeal is whether the Property meets the requirements of A.R.S. § 42–12009(A)(1)(b). If it does not, the Property is appropriately classified as Class One commercial property “devoted to any other commercial or industrial use, other than property that is specifically included in another class described in this article....” A.R.S. § 42–12001(12). See U–Stor Bell, L.L.C. v. Maricopa County, 204 Ariz. 79, 81, ¶ 11, 59 P.3d 843, 845 (App.2002).

¶ 10 We review de novo “the tax court's construction of statutes and findings that combine facts and law,” but review its factual findings for “clear error.” Ariz. Dep't of Revenue v. Ormond Builders, Inc., 216 Ariz. 379, 383, ¶ 15, 166 P.3d 934, 938 (App.2007).

¶ 11 As a preliminary matter, Taxpayer contends that A.R.S. § 42–12009 should be interpreted liberally in favor of the taxpayer because it is a statute imposing a tax liability. See State ex rel. Ariz. Dep't of Revenue v. Capitol Castings, Inc., 207 Ariz. 445, 447, ¶ 10, 88 P.3d 159, 161 (2004); see also City of Phoenix v. Borden Co., 84 Ariz. 250, 252–53, 326 P.2d 841, 843 (1958) (explaining that statutes creating property tax liability are “most strongly construed against the government and in favor of the taxpayer”). The County, on the other hand, argues that the statute should be strictly construed because property falling within that classification is taxed at a lower assessment ratio than other commercial property. See Ariz. Dep't of Revenue v. Raby, 204 Ariz. 509, 511–12, ¶ 16, 65 P.3d 458, 460–61 (App.2003). We conclude that, regardless of which rule of construction applies, the term “convention activities” in A.R.S. § 42–12009(A)(1)(b) cannot be read so broadly as to bring Scottsdale Princess within the ambit of Class Nine property; therefore, we need not determine which rule applies under the circumstances of this case.

A. The Statutory Framework

¶ 12 In 1994, the Arizona Legislature created a new property class with a preferential tax rate for private developments of specified types of facilities on government-owned land, including improvements “used primarily for ... convention activities.” 1994 Ariz. Sess. Laws, ch. 293, § 1 (2d Reg.Sess.) (then listing the provision as Class Thirteen), codified at A.R.S. § 42–162. This statute is designed “to keep with past legislative decisions to provide tax relief for owners of certain possessory interests.” Final Revised Fact Sheet for S.B. 1116, 1, 42d Leg., 2d Reg. Sess. (May 7, 1996). This new classification was part of a global series of amendments following a tax court ruling that granting tax exemptions for possessory interests in government lands was unconstitutional. Id. The statute was re-enacted in connection with other amendments, and until recently, was numbered as A.R.S. § 42–12009(A)(1), which provided Class Nine status for the following:

Improvements that are located on federal, state, county or municipal property and owned by the lessee of the property if:

(a) The improvements become the property of the federal, state, county or municipal owner of the property on termination of the leasehold interest in the property.

(b) Both the improvements and the property are used primarily for athletic, recreational, entertainment, artistic, cultural or convention activities.

(Emphasis added). The County conceded during summary judgment briefing that the Property satisfied A.R.S. § 42–12009(A)(1)(a). The dispute focuses on whether the Property satisfies the “used primarily for ... convention activities” requirement of A.R.S. § 42–12009(A)(1)(b).³

¶ 13 Section 42–12009(A)(1)(b) does not expressly limit “convention activities” to a specific type of facility, such as a convention center, and therefore does not necessarily exclude a hotel hosting a convention. It is not enough, however, that the Property is merely used for convention activities or in connection with convention activities. Id.; compareA.R.S. § 42–12009(A)(2)(b)(i) (Supp.2011) (applying Class Nine to improvements “[u]sed for or in connection with aviation”). Rather, A.R.S. § 42–12009(A)(1)(b) mandates that both the land and the improvements be used “primarily for” that purpose. Id.; compareA.R.S. § 42–12009(A)(5) (Supp.2011) (according Class Nine status to a portion of real property or improvements leased for operation of a charter school).

¶ 14 The phrase “used primarily for” is not used elsewhere in A.R.S. § 42–12009. We therefore turn to respected dictionaries for guidance. See Rigel Corp. v. State, 225 Ariz. 65, 69, ¶ 19, 234 P.3d 633, 637 (App.2010); see alsoA.R.S. § 1–213 (2002) (“Words and phrases shall be construed according to the common and approved use of the language.”). “Primarily” means “first of all,” “principally,” or “fundamentally.” Tucson Botanical Gardens, Inc. v. Pima County, 218 Ariz. 523, 527, ¶ 13, 189 P.3d 1096, 1100 (App.2008) (citing 12 Oxford English Dictionary 472 (2d ed.1989); Webster's Third New

International Dictionary

1800 (2002); Webster's Seventh New Collegiate Dictionary 675 (1970)); see also The American Heritage Dictionary of the English Language 1438 (3rd ed.1992) (defining “primarily” as “chiefly; mainly”).

¶ 15 ...