State Tax Commission v. Howard P. Foley Co., 1

Decision Date09 September 1970
Docket NumberCA-CIV,No. 1,1
Citation13 Ariz.App. 85,474 P.2d 444
PartiesSTATE TAX COMMISSION of Arizona, the State of Arizona, William E. Stanford, as Chairman, John M. Hazelett and L. Waldo DeWitt, as Members of the State Tax Commission of Arizona, Appellants, v. The HOWARD P. FOLEY CO., and Jelco Incorporated d/b/a Foley-Jelco, a Joint Adventure, Appellees. 1153.
CourtArizona Court of Appeals

Gary K. Nelson, Atty. Gen., by James D. Winter, Tucson, for appellants.

Brown, Vlassis & Bain, by Charles C. Bernstein and Geo. E. Hilty, Phoenix, for appellees.

JACOBSON, Acting Presiding Judge.

We are called upon to determine whether the activities of plaintiff within the State of Arizona constituted 'contracting' and therefore were properly subject to the transaction privilege taxes of the state or whether these activities were an interstate sale and therefore protected from local taxation by the commerce clause of the U.S. Constitution.

Plaintiff-appellee, FOLEY-JELCO, is a joint venture comprised of two foreign corporations, HOWARD T. FOLEY CO., and JELCO, INCORPORATED. Plaintiff brought suit against the combined taxing authorities of the State of Arizona hereinafter referred to as 'defendant', for a refund of transaction privilege taxes and education excise taxes in the sum of $197,944.71 paid by plaintiff under protest to the defendant. On cross motions for summary judgment, the trial court, Judge John E. Burke, presiding, held that the tax in question as applied to the transactions involved was in violation of the commerce clause of the Constitution of the United States and entered judgment for the plaintiff. Defendant appealed this judgment.

The facts are not in dispute. On May 10, 1961, plaintiff entered into a contract with Arizona Public Service Company entitled 'Contract and Specifications for Construction of Phoenix-Four Corners 345 K V Transmission Lines.' The contract itself described the purpose and scope of the project contemplated by the contract.

'Scope of Project

'Arizona Public Service Company is constructing a 350 MW coal fired steamelectric station in the Four Corners Area six miles southwest of Fruitland, New Mexico. To integrate this plant into the existing electric transmission system Arizona Public Service Company proposes to build a 345 kv transmission system.

'* * * (T)his system would consist of two single circuit lines (approximately 320 circuit miles) from the Four Corners Plant to the Cholla Power Plant (near Joseph City, Arizona) and one single circuit line (approximately 130 circuit miles) from the Cholla Power Plant to Pinnacle Peak Substation, a receiving substation in upper Paradise Valley.

'The line will be constructed of self supporting steel or aluminum towers with a 2 conductor bundle of 795 MCM ACSR. The overhead ground wires will be 3/8 H.S. Steel. The majority of the line will be single circuit towers with double circuit towers being utilized on the south end of the Pinnacle Peak-Cholla line.

'The substations and switchyards are not a part of this contract.

'This project is to be constructed by a major electrical contractor in accordance with these specifications and other contract documents.

'The Contractor will be responsible for the following:

'a. Purchasing storage and expediting of materials.

'b. Completion of engineering design in accordance with these specifications.

'c. Physical clearing of right-of-way including the disposal of merchantable timber.

'd. Obtaining of right-of-way for and/or the construction of access roads where needed by the Contractor.

'e. Provide the manpower, equipment and supervision required to adequately construct the line within the time required.

'The Company would be responsible for the following:

'a. Obtain the legal rights to the transmission line right-of-way.

'b. Do the basic line design as specified and covered by these specifications.

'c. Provide quality control inspection of the contract work.'

Subsequent to the execution of the transmission line contract, plaintiff and Arizona Public Service entered into a second, separate agreement whereby plaintiff agreed to build the substation located at Pinnacle Peak, Arizona, under an instrument entitled 'Contract and Specifications for Construction of Pinnacle Peak 345/230/69/KV Substation (switchyard).'

Plaintiff was formed by its two corporate adventurers for the specific purpose of entering into and performing these contracts with Arizona Public Service.

In connection with these contracts plaintiff was required to obtain specified materials such as towers, and wire and material in the Pinnacle Peak Substation from out-of-state suppliers. Specifically, the steel towers upon which were hung the transmission lines were specially designed and fabricated outside the State of Arizona and were shipped to railheads in New Mexico and Arizona in a 'knocked down' condition.

The parties agree that materials purchased in the State of Arizona comprised approximately 3.7% Of the entire contract price, these materials being primarily used in the footings and foundations for the steel towers.

The entire project required approximately 21 months to complete. During this time plaintiff employed a work force of approximately 200 men in Arizona and established an office in Holbrook, Arizona which was staffed by seven people for over a year. Plaintiff in the execution of the transmission line contract constructed 292 miles of roads and engaged in all the necessary construction activities to install the power line from the northwest corner of New Mexico to Phoenix, Arizona, a distance of approximately 182 miles. It also built the structure and installed the necessary equipment for the substation. Plaintiff received a total consideration under the two contracts of $26,578,446.98 of which $22,914,029.99 was attributable to work performed in Arizona.

After making the deductions required by statute, defendant assessed a tax on plaintiff's gross income on the two contracts in the sum of $197,944.71. These assessments were made pursuant to A.R.S. 42--1309, 42--1310, subsec. 2, par. i and 42--1361 (levying taxes on the privilege of doing business in this state, specifically contracting).

The only question on appeal is whether or not the contracts and activities of plaintiff were a sale in interstate commerce and therefore not subject to taxation by the state or whether these contracts and activities required plaintiff to perform services which constituted contracting, a business which is intrastate in nature and therefore subject to the taxing power of this state.

We note initially that the facts in this case are not in dispute and that the trial court's 'findings of fact', are in many respects conclusions of law. We therefore are not bound by them, but may draw our own legal conclusions from the admitted facts. 1 Combustion Engineering Inc. v. Arizona State Tax Commission, 91 Ariz. 253, 371 P.2d 879 (1962).

We also note that plaintiff's contention in this case rests on the premise that it sold the power transmission line and substation to Arizona Public Service in an interstate sale and its activities in Arizona were limited to installation of the system, thereby claiming the protection of the Commerce Clause of the United States Constitution. Defendant on the other hand bases its argument as to the existence of a constitutional taxing power on the theory that the installation of the transmission line and substation was not merely incidental to an interstate sale, but were activities amounting to the engaging in the business of contracting within the State of Arizona, an intrastate activity. From an analysis of the contracts in question and the applicable law we agree with the defendant's contention.

The taxing statutes involved here have been properly designated as...

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7 cases
  • Dravo Corp. v. City of Tacoma
    • United States
    • Washington Supreme Court
    • May 4, 1972
    ...borders of this state. No violation of the federal commerce clause is alleged and none can be asserted. State Tax Comm. v. Howard P. Foley Co., 13 Ariz.App. 85, 474 P.2d 444 (1970). It is, therefore, unnecessary to consider whether § 6.68.225 of the Tacoma B&O tax ordinance violates the fed......
  • Peabody Coal Co. v. State, 1
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    • Arizona Court of Appeals
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    ...measured by gross income or gross receipts. A.R.S. §§ 42-1306 (formerly § 42-1309), -1361, and -1371; State Tax Comm'n v. Howard P. Foley Co., 13 Ariz.App. 85, 474 P.2d 444 (1970). Given the basis of the taxes (the privilege of doing business) Peabody initially questions the state's power t......
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    ...in the record. The trial court's ruling was a conclusion of law, which does not bind an appellate court. Tax Comm'n v. Howard P. Foley Co., 13 Ariz.App. 85, 87, 474 P.2d 444, 446 (1970). This court is free to substitute its analysis of the record for that of the lower court. Tax Comm'n v. F......
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    ...court's findings of fact are in many respects conclusions of law, this court is not bound by them. State Tax Commission v. Howard P. Foley Co., 13 Ariz.App. 85, 474 P.2d 444 (1970). In the instant case, the trial court made a finding of fact that Mrs. LeDoux acted intentionally. However, as......
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