Vangilder v. Ariz. Dep't of Revenue

• Decision Date: 16 January 2020
• Docket Number: No. 1 CA-TX 19-0001,1 CA-TX 19-0001
• Citation: 248 Ariz. 254,459 P.3d 1189
• Parties: Harold VANGILDER, et al., Plaintiffs/Appellees/Cross-Appellants, v. ARIZONA DEPARTMENT OF REVENUE, Defendant/Appellee/Cross-Appellee, Pinal County, et al., Defendants/Appellants/Cross-Appellees.
• Court: Arizona Court of Appeals

248 Ariz. 254

459 P.3d 1189

Harold VANGILDER, et al., Plaintiffs/Appellees/Cross-Appellants,

v. ARIZONA DEPARTMENT OF REVENUE, Defendant/Appellee/Cross-Appellee,Pinal County, et al., Defendants/Appellants/Cross-Appellees.

No. 1 CA-TX 19-0001

Court of Appeals of Arizona, Division 1.

FILED January 16, 2020

AS AMENDED March 3, 2020

Goldwater Institute, Phoenix, By Timothy Sandefur, Matthew Robert Miller, Co-Counsel for Plaintiffs/Appellees/Cross-Appellants

Mooney Wright & Moore, P.L.L.C, Mesa, By Paul J. Mooney, Co-Counsel for Plaintiffs/Appellees/Cross-Appellants

Arizona Attorney General’s Office, Phoenix, By Scot G. Teasdale, Jerry A. Fries, Lisa A. Neuville, Counsel for Defendant/Appellee/Cross-Appellee

Pinal County Attorney’s Office, Florence, By Christopher C. Keller, Co-Counsel for Defendant/Appellant/Cross-Appellee Pinal County

Ballard Spahr L.L.P., Phoenix, By Joseph A. Kanefield, Brian Schulman, Chase Bales, Co-Counsel for Defendants/Appellants/Cross-Appellees Pinal County and Pinal Regional Transportation Authority

Fennemore Craig, P.C., Phoenix, By Patrick Irvine, Taylor Burgoon, Co-Counsel for Defendants/Appellants/Cross-Appellees Pinal County and Pinal Regional Transportation Authority

Sims Mackin, Ltd., Phoenix, By William J. Sims, Co-Counsel for Defendant/Appellant/Cross-Appellee Pinal Regional Transportation Authority

Rose Law Group, P.C., Scottsdale, By Evan Bolick, Johathan Udell, Amicus Curiae for Pinal Partnership Inc.

Dickson Wright P.L.L.C., Phoenix, By Scott A. Holcomb, Vail C. Cloar, Amicus Curiae for Town of Queen Creek

Fitzgibbons Law Office, P.L.C., Casa Grande, By Denis M. Fitzgibbons, Amicus Curiae for City of Maricopa and City of Coolidge

Florence Town Attorney’s Office, Florence, By Clifford L. Mattice, Amicus Curiae for Town of Florence

The Cavanagh Law Firm, P.A., Phoenix, By James G. Busby, Jr., Karen C. Stafford, Amicus Curiae for Arizona Tax Research Association and The Arizona Free Enterprise Club

Presiding Judge Kenton D. Jones delivered the Opinion of the Court, in which Judge James B. Morse Jr. and Judge Diane M. Johnsen joined.

JONES, Judge:

¶1 In 2017, Pinal County voters simultaneously approved Proposition 416 (Prop 416) to adopt a regional transportation plan and Proposition 417 (Prop 417) to enact an excise tax to fund the plan. In this appeal, Appellants, Pinal County (the County) and the Pinal Regional Transportation Authority (the RTA), appeal from the tax court’s order invalidating the excise tax, and Cross-Appellants (collectively, Vangilder) challenge the court’s order denying their request for an award of attorneys’ fees. The Arizona Department of Revenue (ADOR) joins Vangilder in asserting the tax is invalid but joins Appellants in defending Prop 417’s constitutionality and opposing Vangilder’s claim for fees.

¶2 We find the Prop 417 tax to be valid. The RTA’s authorizing resolution does not change the substance of the question posed to and approved by the voters; the tax, by its terms, applies across all transaction privilege tax (TPT) classifications; and the tax includes a valid, constitutional modified rate as applied to the retail sales classification. Accordingly, we reverse the order invalidating the tax. Because Vangilder is no longer the successful party in the tax court, we affirm the denial of his request for attorneys’ fees.

FACTS AND PROCEDURAL HISTORY

¶3 The RTA is a public improvement and taxing subdivision of the State of Arizona established by the Pinal County Board of Supervisors (the Board) in 2015 to coordinate multi-jurisdictional transportation planning, improvements, and funding. See Ariz. Rev. Stat. (A.R.S.) § 48-5302¹ (governing the establishment of a regional transportation authority). Arizona law authorizes the RTA to formulate a plan for transportation projects and propose an excise tax to pay for them. See generally A.R.S. §§ 48-5309, -5314. By statute, a county transportation excise tax must be "approved by the qualified electors voting at a countywide election." A.R.S. § 42-6106(A) ; see also A.R.S. § 48-5314(F).

¶4 In June 2017, the RTA adopted the Pinal County Regional Transportation Plan (the Plan), which identifies key roadway and transportation projects to be developed over the next twenty years. In the same resolution (the June Resolution), the RTA asked the County to schedule a special election on the Plan and on "the issue of levying a transportation excise tax at a rate equal to one-half percent (0.005%) [sic] of the gross income from the business activity upon every person engaging or continuing in the business of selling tangible personal property at retail ... needed to fund the Plan." The June Resolution further stated that the tax rate upon retail sales would be a "variable or modified rate," in that the tax would apply only to the first $10,000 in gross income from the sale of any single item of tangible personal property, effectively capping the tax at $50 per item.

¶5 Before the election, and as directed by A.R.S. § 48-5314(C), the Board printed a publicity pamphlet describing Prop 416 and Prop 417 (the Pamphlet). The RTA "ratified, confirmed, approved and adopted [the Pamphlet] in the form presented" in October 2017 (the October Resolution). The Pamphlet detailed the planned transportation projects and explained that they could be completed only if voters approved the excise tax in Prop 417. As relevant here, the Pamphlet further explained:

If Proposition 417 is approved by the voters, the Transportation Excise Tax would ... be assessed on the same business transactions that are subject to the State of Arizona transaction privilege (sales) tax [ (TPT) ], but at a rate equal to 10% of the State tax .... [T]he Transportation Excise Tax rate will generally be 0.5% or 1 cent on each $2 o[f] State taxable items.

The Pamphlet identified each of the sixteen business classifications subject to the TPT and detailed the rates at which the transportation excise tax would apply to each class.² See A.R.S. §§ 42-5061 to -5076. With respect to the retail sales classification, the Pamphlet described the same two-tiered structure outlined in the June Resolution. The Pamphlet estimated that revenues from the tax across all business classifications would total approximately $640 million over twenty years — the precise amount needed to fund the projects detailed within the Plan.

¶6 The question ultimately posed to the voters was stated in both the Pamphlet and official ballot:

PROPOSITION 417

(Relating to County Transportation Excise (Sales) Taxes)

Do you favor the levy of a transportation excise (sales) tax including at a rate equal to one-half percent (0.5%) of the gross income from the business activity upon every person engaging or continuing in the business of selling tangible personal property at retail; provided that such rate shall become a variable or modified rate such that when applied in any case when the gross income from the sale of a single item of tangible personal property exceeds ten thousand dollars ($10,000), the one-half percent (0.5%) tax rate shall apply to the first ten thousand dollars ($10,000), and above ten thousand dollars ($10,000), the measure of tax shall be a rate of zero percent (0.0%), in Pinal County for twenty (20) years to provide funding for the transportation elements contained in the Pinal Regional Transportation Plan?

Do you favor the levy of a transaction privilege (sales) tax for regional transportation purposes, including at a variable or modified rate, in Pinal County?

YES _____

NO _____

(A "YES" vote has the effect of imposing a transaction privilege (sales) tax in Pinal County, including at a variable or modified rate, for twenty (20) years to provide funding for the transportation projects contained in the Regional Transportation Plan.)

(A "NO" vote has the effect of rejecting the transaction privilege (sales) tax for transportation purposes in Pinal County.)

In November 2017, Pinal County voters approved both the regional transportation plan set out in Prop 416 and the transportation excise tax set out in Prop 417.

¶7 The following month Vangilder filed a complaint to enjoin ADOR, the County, and the RTA from collecting and/or enforcing the tax, alleging it was invalid and unconstitutional.³ The tax court resolved competing motions for summary judgment in Vangilder’s favor but denied his request for an award of attorneys’ fees under the private attorney general doctrine. The parties timely appealed, and we have jurisdiction pursuant to A.R.S. §§ 12-120.21(A)(1) and -2101(A)(1).

DISCUSSION

I. The Prop 417 Tax is Valid.

¶8 Resolution of this appeal requires us to determine the scope and legality of the tax enacted by the voters via Prop 417. The interpretation and application of a voter-approved measure present questions of law we review de novo . See Ariz. Citizens Clean Elections Comm’n v. Brain , 234 Ariz. 322, 325, ¶ 11, 322 P.3d 139, 142 (2014).

A. The Authorizing Resolution Does Not Invalidate the Tax.

¶9 Vangilder first contends the tax is invalid because the June Resolution described a tax on "the gross income from the business activity upon every person engaging or continuing in the business of selling tangible personal property at retail." See supra ¶ 4. Thus, Vangilder contends "voters were asked to approve a tax that applied solely to retail sales" in violation of A.R.S. § 42-6106(B), which requires the county transportation excise tax be imposed upon all TPT classifications. We disagree with both the factual premise and the legal import of Vangilder’s argument.

¶10 First, A.R.S. § 48-5314(A) required the RTA to adopt a twenty-year regional transportation plan and then "[r]equest by resolution certified to the county board of supervisors that the issue of levying a transportation excise tax ... be submitted to the qualified electors at a countywide special election or placed on the ballot at a countywide general election." The RTA is not authorized to enact a tax and the June Resolution did not purport...