US West Communications v. City of Tucson, 1 CA-TX 99-0021.

Decision Date24 October 2000
Docket NumberNo. 1 CA-TX 99-0021.,1 CA-TX 99-0021.
Citation198 Ariz. 515,11 P.3d 1054
PartiesUS WEST COMMUNICATIONS, INC., a Colorado corporation, Plaintiff/Appellee, v. CITY OF TUCSON, a municipal corporation, Defendant/Appellant.
CourtArizona Court of Appeals

Fennemore Craig by Paul J. Mooney, Kendis K. Muscheid, Phoenix, for Plaintiff/Appellee.

Ulrich & Anger, P.C. by Paul G. Ulrich, Phoenix, and Gabroy, Rollman & Bossé, PC by Lyle D. Aldridge, Tucson, for Defendant/Appellant.

OPINION

NOYES, Judge.

¶ 1 The City of Tucson ("the City") appeals from a tax court judgment that invalidated the 1.5% tax imposed by Tucson City Code section 19-1070(a)(2)(i) (effective Jan. 1, 1998), on the gross income of persons who provide telecommunication services to consumers in Tucson and use any City rights-of-way in doing so ("the 1.5% tax"). The tax court ruled that the 1.5% tax was invalid as a prohibited "tax, rent, fee or charge [on] a telecommunications corporation for the use of a public highway to provide telecommunications services." Ariz.Rev.Stat. Ann. ("A.R.S.") § 9-582(A) (Supp.1999) (emphasis added). The court held further that the 1.5% tax did not constitute a "transaction privilege tax authorized by law on the business of providing telecommunications services" exempt from the general prohibition as provided in A.R.S. section 9-582(A)(1). The appeal presents these questions:

1. Whether the tax court erred in determining that the 1.5% tax was not a "transaction privilege tax" within the exception provided in A.R.S. section 9-582(A)(1);
2. Assuming the 1.5% tax constituted a "transaction privilege tax" within A.R.S. section 9-582(A)(1),
a. whether it was nevertheless invalid as a double tax;
b. whether the 1.5% tax was invalid because it was beyond the authority conferred by the City's Charter; and
c. whether imposition of the 1.5% tax violated taxpayer US West Communications, Inc.'s right to equal protection of the laws.

This court has appellate jurisdiction under A.R.S. section 12-2101(B) (1994). We answer the first question in the affirmative and the rest in the negative. We therefore reverse with directions to enter judgment for the City.

FACTS AND PROCEDURE BELOW

¶ 2 US West Communications, Inc. ("US West") and its predecessors in interest have provided telecommunications services in the City of Tucson and throughout the State of Arizona since before statehood under legislative franchise. Other providers of telecommunications services in the City of Tucson must enter into franchise agreements with the City and pay agreed fees for the exercise of their franchise rights.

¶ 3 Since 1962, the City's Charter has authorized a transaction privilege tax calculated as a percentage of the "gross income, or gross value, or gross proceeds of sale, as the case may be, of the business done by the taxpayer." Tucson Charter ch. IV, § 2. The authorized rate was 1% initially, and then increased to 2% in 1969. Id. at editor's note (discussing Ord. No. 3346, § 1 (effective Dec. 29, 1969)). One of the categories of business activities on which the City has imposed this tax is that of "providing telecommunication services to consumers" in the City. Tucson Code § 19-470 (1996). "Telecommunication services" under this classification include "[t]wo-way voice, sound, and/or video communication over a communications channel." Tucson Code § 19-470(a)(1)(a).

¶ 4 Since 1967, the City's Charter has also authorized a tax on the "gross income or gross value or gross proceeds of sales or the provision of services ... by public utilities whether or not such public utilities are doing business under a franchise." Tucson Charter ch. XVII, § 16 (effective Oct. 14, 1967). This provision expressly authorizes public utility taxes in excess of the percentage tax rate limit applicable to the transaction privilege tax under Chapter IV, Section 2, of the City's Charter. ¶ 5 As Chapter XVII, Section 16, authorizes, the City imposes a tax "upon persons on account of their public utility business activities." Tucson Code § 19-1000(a) (1988). The tax is "in addition to all other licenses, fees and taxes levied by law." Tucson Code § 19-1000(b). The tax rate is 2% of public utilities' gross income from, inter alia, "providing telecommunication services."1 Tucson Code § 19-1070(a)(1).

¶ 6 In December 1997, the City added a second tier to the tax rate for the "telecommunication services" classification under the public utility tax. Tucson Code section 19-1070(a)(2)(i) imposes an additional 1.5% tax "upon the gross income of providing telecommunication services by any provider who uses any city rights-of-way." Section 19-1070(a)(2)(ii) excludes from the scope of the additional tax the gross telecommunication services income of (1) resellers of solely interstate services, (2) resellers who do not separately bill customers for local exchange service, and (3) telecommunication services providers who principally use wireless transmitter/receiver cell sites with no more than 1000 feet of facility installation per cell site within City rights-of-way. Additionally, section 19-1070(a)(2)(iii) provides:

All franchise or license payments made by a person to the city shall be credited toward the payment of the public utility tax levied in this article III. All right-of-way permit payments made by a person to the city shall be credited towards the payment of the public utility tax levied in this subsection (a)(2)(i).

¶ 7 In 1998, the Arizona Legislature enacted A.R.S. sections 9-581 to -583 (Supp.1999) and made them retroactively effective to November 1, 1997. 1998 Ariz. Sess. Laws, ch. 220, § 2. Section 9-582 provides in relevant part:

A. A political subdivision shall not levy a tax, rent, fee or charge to a telecommunications corporation for the use of a public highway2 to provide telecommunications services, or levy a tax, fee or charge upon the privilege of engaging in the business of providing telecommunications services within that political subdivision other than:
1. Any transaction privilege tax authorized by law on the business of providing telecommunications services. Any transaction privilege tax authorized by law on the business of providing commercial mobile radio service shall not exceed the tax rate levied on a telecommunications corporation.
2. A public highway construction permit fee if the permit fee applies to all telecommunications corporations using the political subdivision's public highways to provide telecommunications services.

¶ 8 In November 1998, US West brought this action against the City seeking to enjoin and declare unlawful the imposition of the 1.5% tax under Tucson Code section 19-1070(a)(2). On cross-motions for summary judgment, the tax court held that the 1.5% tax violated A.R.S. section 9-582(A) because it was a "tax, rent, fee or charge to a telecommunications corporation for the use of a public highway." The court held further that the 1.5% tax was not a "transaction privilege tax" of the kind permitted by section 9-582(A)(1) because [u]nder [the City's] scheme, whether a taxpayer pays 2% or 3.5% is entirely dependent upon whether the taxpayer uses [the City's] rights-of-way. Therefore, the tax at issue is clearly not on the privilege of providing telecommunications services, but is instead, a tax on using [the City's] rights-of-way. Therefore, it is not a transaction privilege tax.

The tax court entered judgment for US West and an award of costs and $20,000 in attorneys' fees under A.R.S. section 12-348 (Supp. 1999). After moving unsuccessfully for a new trial, the City commenced this timely appeal.

ANALYSIS

Code Section 19-1070(a)(2)(i) and A.R.S. Section 9-582(A)

¶ 9 The City contends that the tax court interpreted A.R.S. section 9-582(A) incorrectly. It urges that both the statute's language and its historical background and development require us to conclude that A.R.S. section 9-582(A)(1) permits political subdivisions to levy transaction privilege taxes applicable only to telecommunication companies that occupy or otherwise use public rights-of-way.

¶ 10 US West supports the tax court's ruling on a number of grounds. It argues first that Tucson Code section 19-1070(a)(2) runs afoul of A.R.S. section 9-582(A) because it levies a "tax ... to a telecommunications corporation for the use of a public highway to provide telecommunications services." US West maintains that the statute provides no exceptions to this prohibition. Relying on the "doctrine of last antecedent" as discussed in Federal Mutual Liability Insurance Co. v. Industrial Commission, 32 Ariz. 293, 297-98, 257 P. 982, 984 (1927), US West contends that the exceptions in subsections (1) and (2) of A.R.S. section 9-582(A) apply only to the second clause of section 9-582(A), prohibiting taxes, fees, and charges on the business of providing telecommunications services, and not to the first clause, prohibiting taxes "for the use of a public highway to provide telecommunications services." US West accordingly concludes that A.R.S. section 9-582(A)(1) allows no tax at all, even a transaction privilege tax, relating to the use of a right-of-way.

¶ 11 We interpret or construe statutes for the sole purpose of identifying and effectuating the underlying legislative intent. Mail Boxes, Etc., U.S.A. v. Indus. Comm'n, 181 Ariz. 119, 121, 888 P.2d 777, 779 (1995); Devenir Assocs. v. City of Phoenix, 169 Ariz. 500, 503, 821 P.2d 161, 164 (1991). In doing so, we look first to the statute's words, and if the words fail to disclose legislative intent, we read the statute as a whole and give meaningful effect to all its provisions. Mail Boxes, 181 Ariz. at 121, 888 P.2d at 779; Devenir, 169 Ariz. at 503, 821 P.2d at 164.

¶ 12 A statute is to be read and applied in accordance with any special statutory definitions of the terms that it uses. Tobel v. State, 189 Ariz. 168, 174, 939 P.2d 801, 807 (App.1997). If a statute's meaning is manifestly unambiguous when all its...

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