Shamrock Foods Co. v. City of Phoenix, 1
| Decision Date | 03 March 1987 |
| Docket Number | No. 1,CA-CIV,1 |
| Citation | 157 Ariz. 276,757 P.2d 80 |
| Parties | SHAMROCK FOODS COMPANY, an Arizona corporation, Plaintiff Counter-Defendant-Appellee, v. CITY OF PHOENIX, a municipal corporation of the State of Arizona, Defendant Counter-Claimant-Appellant. 8790. |
| Court | Arizona Court of Appeals |
Shamrock Foods Company (Shamrock) sought to recover from the City of Phoenix (the City) certain privilege license and use taxes arising from the operation of its Dairy and Foods divisions. On cross motions for summary judgment, the trial court ruled for Shamrock on all issues.
The City's appeal presents the following questions for our consideration: (1) whether the proceeds of Shamrock's sales to schools, private clubs, and other exempt organizations should be excluded from privilege license taxation; (2) whether the proceeds of Shamrock's sales of disposable paper and plastic products to restaurants and other food service businesses should be excluded from privilege license taxation; (3) whether Shamrock owed use taxes on its purchases of the reusable milk cases in which it delivered dairy products to its customers; (4) whether Shamrock is entitled to credit for municipal privilege taxes it paid to Arizona cities and towns other than Phoenix; (5) whether the proceeds of sales attributable to Shamrock's profit centers located outside Phoenix were exempt from privilege license taxation; and (6) whether this court should assess attorney's fees against the City as a penalty for pursuing a frivolous appeal. We state the facts necessary to resolve these issues with our discussions below.
Shamrock includes the Shamrock Dairy Division (Dairy division) and the Shamrock Foods Division (Foods division), both of which operate in Arizona. At all times material to the litigation, the Dairy division manufactured and sold dairy products to grocery stores, restaurants, schools, private clubs, and various other organizations. Similarly, the Foods division distributed food and food-related products to restaurants, cafeterias, hotels, schools, private clubs, and various service, fraternal, governmental and other organizations in Arizona.
The City audited the Dairy and Foods divisions for the period from September 1, 1979, through August 31, 1982, and assessed additional privilege license taxes, use taxes, and interest against them. Shamrock exhausted its administrative remedies with the City and, after paying taxes and interest under protest, commenced this action seeking a refund. The City counterclaimed for additional taxes and interest on several grounds on which Shamrock had prevailed at the administrative level.
The parties filed cross motions for summary judgment concerning all claims and counterclaims. The trial court ruled in Shamrock's favor on all issues and later entered formal judgment against the City. The City timely appealed. We have jurisdiction pursuant to A.R.S. § 12-2101(B).
Most of the schools that purchased dairy products from Shamrock and all schools that purchased food products from Shamrock operated cafeterias that regularly served meals to students. All the schools employed cooks, and many employed full-time food directors and dietitians. The schools had kitchen facilities and served meals in their own lunchrooms. Each school received compensation for school lunches from students and from various governmental sources. The meals sold to the students included the dairy and food products purchased from Shamrock. Some of the schools that purchased milk from Shamrock did not offer hot lunches, but sold Shamrock milk to students.
Shamrock also sold dairy and food items to private clubs, including country clubs and military base clubs. Each club operated kitchen and dining facilities, employed cooks, and served food to its members. The members of the clubs paid for the dairy and food items served by the clubs. 1
Shamrock also sold food and dairy products to organizations including nursing homes, sororities and fraternities, summer camps, senior citizen centers, preschools and child care centers, governmental entities, commercial food service businesses, and various other organizations including the Arizona Desert Museum, the University of Arizona Student Union, and ARA, a commercial food service business that ran kitchen and dining facilities for the Cochise County jail, Tucson General Hospital, and the Mesa Senior Center (hereinafter collectively referred to as "exempt organizations"). Each of these organizations maintained dining facilities, cafeterias, lunchrooms, snack bars, or similar facilities that employed food service personnel. Each organization resold the food or dairy products it purchased from Shamrock to food service patrons or to the management of the facility in question.
Former Phoenix City Code § 14-2(a)(8) imposed a privilege license tax on "[s]elling any tangible personal property whatsoever at retail." Phoenix City Code § 14-1 defined "retail sale" or "sale at retail" as a "sale of tangible personal property for any purpose other than the resale thereof." These provisions were in effect for the portion of the audit covering the time from September 1979 to June 1980.
In ruling on the parties' cross motions for summary judgment, the trial court found that the sales to the exempt organizations before July 1980 were not subject to the privilege license tax. The court found that the sales were wholesale sales and, therefore, were not subject to a tax as a retail sale.
The City now argues this judgment was error. It asserts that Shamrock produced "no evidence that these schools, or other entities actually resold the purchased products to their members, students, etc." The City further argues, without citation of authority, that organizations like fraternities and day camps, which provide meals to their members or patrons and allocate a portion of their overall charges to food expenses, do not engage in "resales" of food products. The City also argues that public schools do not "resell" food at retail to the extent they receive government subsidies in return for school lunches they provide. 2 The City urges in conclusion that the factual record before the trial court was insufficient to justify the ruling in favor of Shamrock on its sales to exempt organizations before July 1980.
The City did not raise the above arguments in the trial court. In its response to motion for summary judgment and cross motion for summary judgment, the City argued that Shamrock's sales to the exempt organizations constituted sales at retail because the organizations were not "in the business" of selling food at retail. The quoted language was the City's entire analysis on that point. When it submitted its response to Shamrock's motion for summary judgment and its cross motion for summary judgment, the City did not include a statement of facts as required by Maricopa County Local Rule 3.2(g) and Uniform Rule IV(f). Nowhere in the record did the City attack Shamrock's statement of facts in support of its motion for summary judgment as being insufficient to establish any of the exempt organizations' dispositions of food or dairy products as retail sales. Nor did the City argue that receiving indirect compensation or government subsidies in return for serving food could not constitute selling food at retail.
On appeal an appellant may not assert arguments it failed to make in the trial court. Stratton v. Inspiration Consolidated Copper Co., 140 Ariz. 528, 530, 683 P.2d 327, 329 (App.1984); Sullins v. Third and Catalina Construction Partnership, 124 Ariz. 114, 120, 602 P.2d 495, 501 (App.1979); Crook v. Anderson, 115 Ariz. 402, 403-04, 565 P.2d 908, 909-10 (App.1977). We accordingly decline to consider the City's challenge to that portion of the trial court's ruling that granted summary judgment in favor of Shamrock concerning its sales to the exempt organizations before July 1980.
We preface our discussion of this issue with some pertinent historical background. In 1969, the Arizona Supreme Court invalidated regulations of the State Tax Commission that dealt with the state's transaction privilege tax on retail sales. 3 Swift & Co. v. State Tax Commission, 105 Ariz. 226, 462 P.2d 775 (1969). The regulations imposed the transaction privilege tax on wholesale sales to military retailers that were exempt from the tax by "deeming" the sales to be sales at retail. 4
In Swift, the court ruled that the statutes explicitly imposed the transaction privilege tax only on retailers. The court acknowledged that the legislature had allowed a tax gap, either intentionally or inadvertently. Because the legislature had not acted to close the gap, the court ruled that the tax commission could not act as a legislature and artificially declare wholesalers to be retailers in order to impose the tax.
Perhaps in response to Swift, the City of Phoenix later adopted City Code §§ 14-2(a)(10) 5 and 14-44.2(b), 6 effective July 1, 1980. These ordinances accomplished through legislation what the State Tax Commission attempted to accomplish through regulation. Section 14-44.2(b) artificially designates wholesale sales to exempt organizations as retail sales in order to impose the City's privilege tax under § 14-2(a)(10). This artificial designation applies even though the exempt organizations may later resell the property.
The imposition of the privilege tax under § 14-2(a)(10) is subject to the provisions...
To continue reading
Request your trial