Tower Plaza Investments Ltd. v. DeWitt

• Decision Date: 29 March 1973
• Docket Number: No. 11066,11066
• Citation: 508 P.2d 324,109 Ariz. 248
• Parties: TOWER PLAZA INVESTMENTS LIMITED, a limited partnership, Burgbacher, Behrstock and Burgbacher, a co-partnership doing business as Park Central Shopping Center, Center Associates, Inc., an Arizona corporation, Tri- City Mall, Inc., an Arizona corporation, Malouf & Malouf Investment Co., Inc., an Arizona corporation, Alfred M. Tibshraeny, a married man dealing with his sole and separate property, Valley Fair Shopping Center, Inc., an Arizona corporation, and Westown Investment Corporation, an Arizona corporation, Petitioners, v. L. Waldo DeWITT, John M. Hazelett and Bob Kennedy as members of and as constituting the State Tax Commission of Arizona, and State Tax Commission, an agency of the State of Arizona, Respondents.
• Court: Arizona Supreme Court

Page 324

508 P.2d 324

109 Ariz. 248

TOWER PLAZA INVESTMENTS LIMITED, a limited partnership, Burgbacher, Behrstock and Burgbacher, a co-partnership doing business as Park Central Shopping Center, Center Associates, Inc., an Arizona corporation, Tri- City Mall, Inc., an Arizona corporation, Malouf & Malouf Investment Co., Inc., an Arizona corporation, Alfred M. Tibshraeny, a married man dealing with his sole and separate property, Valley Fair Shopping Center, Inc., an Arizona corporation, and Westown Investment Corporation, an Arizona corporation, Petitioners, v. L. Waldo DeWITT, John M. Hazelett and Bob Kennedy as members of and as constituting the State Tax Commission of Arizona, and State Tax Commission, an agency of the State of Arizona, Respondents.

No. 11066.

Supreme Court of Arizona, In Banc.

March 29, 1973.

Rehearing Denied May 15, 1973.

Gary K. Nelson, Atty. Gen. by Mary Z. Chandler, Asst. Atty. Gen., Phoenix, for respondents.

Snell & Wilmer by Robert C. Bates, Kenneth R. Reed, Edward Jacobson, Phoenix, for petitioners.

STRUCKMEYER, Justice.

This is a special action pursuant to Article 6, § 5(1), Constitution of Arizona, A.R.S., and Rules of Procedure for Special Actions, A.R.S. 17, seeking to prohibit respondents, members of the State Tax Commission of Arizona, from imposing certain real property rental taxes. Because substantial revenues of the State are involved, as well as the legal rights of petitioners as taxpayers, and, following the decision in Alvord v. State Tax Commission, 69 Ariz. 287, 213 P.2d 363 (1950), we accepted jurisdiction.

Collectively, petitioners are the owners of real property herein described as shopping centers. As landlords, they have entered into written leases, some as long as fifty years. After the execution of many of their leases, the State of Arizona, by Laws of 1967, Third Special Session, Ch. 3, amended its Transaction Privilege Tax Act, §§ 42--1314, subsec. (A) and 42--1361, to impose a tax on the business of leasing or renting real property. It is urged that the tax violates the Arizona and Federal Constitutions in that it has retroactive application.

In 1935, the Legislature of Arizona enacted the first transaction privilege tax. By what is now A.R.S. § 42--1309, there were levied 'annual privilege taxes' measured by the amount or volume of business transacted by persons in the amounts to be determined by the application of rates against values, gross proceeds of sales, or gross income. Section 42--1314, as amended by Laws of 1966, Ch. 23, § 1, and Laws of 1967, Third Special Session, Ch. 3, § 1, provides:

'A. The tax imposed * * * shall be levied and collected at an amount equal to two per cent of the gross proceeds of sales or gross income from the business upon every person engaging or continuing within this state in the following businesses:

3. Leasing or renting for a consideration the use or occupancy of real property * * *.'

By subsection B of § 42--1314, the tax exacted under paragraph 3 of subsection A did not apply to petitioners' business activities until December 1, 1972.

In addition, Arizona levies an educational excise tax at the rate of one percent on the privilege of leasing or renting real property, A.R.S. § 42--1361. Both taxes have been dealt with by petitioners as identical. There is, therefore, no question as to possible different treatment for the two taxes and reference will hereafter be made only to the transaction privilege tax.

The Arizona Transaction Privilege Tax is not a property tax, See e.g., Terrell v. McDonald, 32 Ariz. 30, 32, 255 P. 485, 486 (1927); it is an excise tax on the privilege of engaging in an occupation. Gila Meat Co. v. State, 35 Ariz. 194, 197, 276 P. 1, 2 (1929). The tax is not upon sales, as such, but upon the privilege or right to engage in business in the State, although measured by the gross volume of business activity conducted within the State. Industrial Uranium Co. v. State Tax Commission, 95 Ariz. 130, 132, 387 P.2d 1013, 1014 (1963), and cases cited.

A retroactive law, even today is often defined in the words used by Justice Story in Society for Propagation of the Gospel v. Wheeler, 22 F.Cas. pp. 756, 767 (No. 13,156) (C.C.D.N.H.1814):

'(E)very statute, which takes away or impairs vested rights acquired under existing laws, or creates a new obligation, imposes a new duty, or attaches a new disability, in respect to transactions or considerations already past, must be deemed retrospective * * *.'

Petitioners state that this case 'is an attempt by the Legislature to reach back and tax retroactively a completed transaction which was immune from taxation when consummated.' They argue that although the taxes are measured by gross receipts received after the enactment of the statute, aknowledging that to this extent the statute is prospective, the actual incidence of the tax is the lease entered into prior to the enactment. Their conclusion is that since the leases were entered into prior to the enactment of the statute, there is created a new obligation in respect to transactions already past. We, however, do not agree.

The word 'incidence,' as it relates to taxation, is defined by Webster's Third International Dictionary as '3: the falling of a tax upon a person who is unable to shift it onto someone else and who therefore bears the money burden of the tax.' In Arizona State Tax Comm. v. Garrett Corp., 79 Ariz. 389, 291 P.2d 208 (1955), we held that the legal incidence of the tax was on the person engaging in the business of selling tangible personal property at retail, and not upon the transaction, the sales. The incidence of the tax in the present case is upon petitioners, as landlords, and not upon the transactions out of which they acquire their gross receipts or income, the leases.

It is a general principle that a statute is not retroactive in application simply because it may relate to antecedent facts. Cox v. Hart, 260 U.S. 427, 435, 43 S.Ct. 154, 157, 67 L.Ed. 332, 337 (1922). In American Federation of Labor v. American Sash & Door Co., 67 Ariz. 20, 189 P.2d 912 (1948), aff'd, 335 U.S. 538, 69 S.Ct. 258, 93 L.Ed. 222 (1949), in a proceeding for a declaratory judgment to determine the constitutionality under the United States Constitution of the 'right to work' amendment to the Arizona Constitution, we held:

'The effect of appellants' argument is that persons by making contracts extending into the future may prevent the exercise of the police power by the state. The agreements in the record extend year after year unless terminated by thirty days' notice at the end of an annual period. It must be remembered that a statute is not retrospective from the mere fact that it relates to antecedent facts.' 67 Ariz. at 39, 189 P.2d at 925.

That petitioners, as landlords, pay taxes on gross receipts or income received under leases entered into before the enactment of the tax, the antecedent facts, does not import retrospective operation. Other courts have held that an excise tax is not retroactive merely because it draws upon some antecedent fact for its operation. John McShain, Inc. v. District of Columbia, 92 U.S.App.D.C. 358, 205 F.2d 882 cert. denied, 346 U.S. 900, 74 S.Ct. 227, 98 L.Ed. 400 (1953); Neild v. District of Columbia, 71 U.S.App.D.C. 306, 110 F.2d 246 (1940); Bates v. McLeod, 11 Wash.2d 648, 120 P.2d 472 (1941).

For example, in John McShain, Inc. v. District of Columbia, supra, the tax was measured by the value of materials purchased by petitioner, a contractor who had entered into construction contracts prior to the enactment of the tax. The United States Court of Appeals, District of Columbia Circuit, in affirming the decision of the District of Columbia tax court, said:

'Petitioner argues that assessment of any tax on the basis of these purchases impairs petitioner's rights under existing valid contracts, and is retrospective, discriminatory, and unconstitutional.

This contention must fail. The personal property involved was purchased by petitioner subsequent to the passage of the statute. And it is the purchase (or use) itself, not the signing of construction contracts ultimately necessitating the purchase, which is the taxable event. It is irrelevant in the present connection that the construction contracts were made prior to the date of the Act: a statute is not necessarily objectionable as being retroactive if antecedent facts affect its operation.' 205 F.2d at 883.

In the instant case, it is the receipt of rentals by the taxpayer, not the leases out of which the rentals arise, which is the taxable event. A taxable event is the realization of income. Helvering v. Horst, 311 U.S. 112, 115, 61 S.Ct. 144, 146, 85 L.Ed. 75, 77 (1940).

We do not think such cases as Jones v. Gordy, 169 Md. 173, 180 A. 272 (1935), and Comptroller of the Treasury v. Glenn L. Martin Co., 216 Md. 235, 140 A.2d 288, cert. denied, 358 U.S. 820, 79 S.Ct. 34, 3 L.Ed.2d 62 (1958), heavily relied upon by petitioners, on their facts are germane here. In Jones v. Gordy, the Maryland Legislature imposed a gross receipts tax very similar to the Arizona Transaction Privilege Tax. The Supreme Court of Maryland construed the act in question not to impose a tax, measured by receipts from sales received before the passage of the act, and held that the Maryland act did not have retrospective application.

In Comptroller of the Treasury v. Glenn L. Martin Co., the facts were that the Supreme Court of Maryland had previously decided in another case that certain purchases similar to those of Martin were not subject to the Maryland exaction. Thereafter, the Maryland Legislature in 1957 undertook to levy a tax measured by gross receipts retroactively to July 1, 1947. The Supreme Court of Maryland, in holding that the tax retroactively denied due process to Martin, said:

'* * * Chapter 3 of the Acts of 1957 seeks to place a tax where none was imposed before and to reach transactions completed long before its enac...