Unformatted text preview: state bar of arizona F-41 2012 CONVENTION
Friday, June 22
2:00 p.m. TO 3:30 p.m. F-41 Federal, State and Local Tax Update
Two of the state’s foremost experts in federal, state and local taxation will provide an informative
and entertaining review of recent developments in tax law. Specifically, the panelists will review
administrative, legislative and judicial developments occurring over the past year. This presentation
is a must-attend event for any attorney whose practice area includes taxation.
Sponsored by: Tax Law Section Seminar Chair: Derek W. Kaczmarek, IRS Office of Chief Counsel Faculty: James G. Busby, Jr., Gallagher & Kennedy PA
Mona L. Hymel, University of Arizona, James E. Rogers College of Law ©2012. All Rights Reserved.
The opinions of the faculty expressed in their written materials and
oral presentations are not necessarily those of the State Bar of Arizona. 1 CLE
2 Speaker Biographies
James G. Busby, Jr. is a shareholder at Gallagher & Kennedy, P.A., a Phoenix-based law firm
where his practice involves all areas of state and local tax including sales, use, gross receipts,
privilege, excise and severance taxes as well as income, real and personal property taxes. Before
entering private practice, Mr. Busby served as Chief Auditor and Principal Tax Analyst for the
Transaction Privilege (Sales) and Use Tax Division of the Arizona Department of Revenue.
During his time at the Department, he argued and settled cases for the Department, advised the
Director on tax policy issues as a member of the Uniformity Committee and acted as liaison to
the Attorney General's office. As Chief Auditor, he employed a staff of 125 pr ofessionals to
administer Arizona's sales, use and severance tax audit programs including the Cities Program,
which conducts audits for 75 Arizona municipalities. At Gallagher & Kennedy and before that
while working for two of the world’s largest accounting firms (Arthur Andersen and Deloitte),
Mr. Busby has successfully advised and represented numerous clients of all sizes and from
numerous industries in a variety of tax matters. Active in the business, professional and nonprofit
communities, he currently serves as a board member at the Arizona Tax Research Association
and as Chair-elect and Legislative Liaison for the State Bar of Arizona’s Tax Section. M r.
Busby lectures extensively on state and local tax topics. He earned his J.D. and M.B.A. from
Arizona State University and his B.A. from Brigham Young University. M r. Busby is a
Certified Public Accountant and a member of the State Bar of Arizona and the Utah State Bar.
Direct dial: (602) 530-8277. E-mail address: [email protected]
Mona L. Hymel is the Arthur W. Andrews Professor of Law at the University of Arizona, James
E. Rogers College of Law. Ms. Hymel teaches the following courses: Federal Income Tax; LLC,
LLP and Partnership Taxation; Tax Policy; Accounting and Finance for Lawyers; and
Professional Responsibility. She received her J.D. (with Honors) and her B.B.A. (with Highest
Honors) from the University of Texas. Ms. Hymel is admitted to practice in Texas and the
District of Columbia. Prior to entering academia, Ms. Hymel was employed as an attorney with
King & Spalding and as a law clerk to the Honorable Judge John M. Duhé, United States Court
of Appeals for the Fifth Circuit. E-mail address: [email protected] D irect dial: (520)
Derek W. Kaczmarek is an attorney with Silver Law PLC, where his practice involves tax
controversy. Mr. Kaczmarek served as a trial attorney with the I.R.S. Office of Chief Counsel
from 2005 through 2012. During his employment with the I.R.S., He tried over 30 cases in the
U.S. Tax Court, served as an instructor for the Office of Chief Counsel’s Basic Trial Advocacy
course and won multiple awards related to successful litigation. Mr. Kaczmarek earned his J.D.
(cum laude) and M.B.A. from Indiana University (Bloomington) and LL.M. in taxation from
New York University. He is licensed to practice in Arizona, Indiana and Illinois (inactive).
Direct dial: (480) 429-3363. E-mail address:[email protected] IN THE COURT OF APPEALS
STATE OF ARIZONA
DIVISION ONE DIVISION ONE
RUTH A. WILLINGHAM,
BY: DLL CITY OF PEORIA, a municipal
) 1 CA-TX 09-0001
corporation; and CITY OF PHOENIX, )
a municipal corporation,
) DEPARTMENT T
) O P I N I O N
BRINK’S HOME SECURITY, INC., a
) Appeal from the Arizona Tax Court
Cause No. TX2006-000113, TX2006-000116, TX2006-000228,
The Honorable Thomas Dunevant, III, Judge (Retired)
REVERSED IN PART; AFFIRMED IN PART Stephen M. Kemp, City Attorney
Peoria City Attorney’s Office
Cynthia Odom, Assistant City Attorney
Attorneys for Plaintiff/Defendant/Appellee Peoria
Gary Verburg, City Attorney
Phoenix City Attorney’s Office
James H. Hays, Assistant City Attorney
Attorneys for Plaintiff/Defendant/Appellee Phoenix 1 Peoria Phoenix Snell & Wilmer LLP
Barbara J. Dawson
Martha E. Gibbs
Melissa M. Krueger
Robert I. Schwimmer
Attorneys for Defendant/Plaintiff/Appellant Phoenix J O H N S E N, Judge
¶1 Phoenix and Peoria assessed Brink’s Home Security, Inc. under a provision of the Model City Tax Code that taxes
services.” In assessments did municipal “monitoring
an earlier not taxation services” of decision, violate a interstate state as “telecommunication we held the statute cities’ prohibiting telecommunications services. City of Peoria v. Brink’s Home Sec., Inc., 224 Ariz. 278, 229
P.3d 1020 (App. 2010); see Arizona Revised Statutes (“A.R.S.”)
section 42-6004(A)(2) (Supp. 2010). The supreme court vacated our decision, concluding that the transmissions by which Brink’s
conducts its monitoring telecommunications. services are not intrastate City of Peoria v. Brink’s Home Sec., Inc., 226 Ariz. 332, 334, ¶ 12, 247 P.3d 1002, 1004 (2011). The court remanded to us to consider the cities’ argument that the taxes
do not breach the telecommunications ban on because municipal
Brink’s is taxation
not of interstate engaged in the business of providing “telecommunications services” pursuant to
state law. We reject the cities’ argument and conclude the 2 taxes are impermissible assessments on interstate “telecommunications services.”
FACTS AND PROCEDURAL BACKGROUND
¶2 Brink’s monitoring
panels, sells services. then home It contracts monitoring services. alarm installs
with systems home and sensors homeowners to related and control provide alarm When a sensor detects a disturbance in a home, information is transmitted through a telephone line to the
Brink’s central monitoring station in Texas. There, a Brink’s employee telephones the homeowner to alert him or her to the
alarm. When appropriate, the monitoring employee then telephones to summon first responders to the home.
¶3 After an account review, Phoenix and Peoria assessed transaction privilege taxes on Brink’s pursuant to Phoenix City
Code § 14-470(a)(2)(D) and Peoria City Code § 12-470(a)(2)(D),
1998 to Phoenix October 2004 assessed
audit $169,912.33 period; Peoria for the assessed December
taxes of $5,968.29 for the January 1999 to December 2003 audit period.
After Brink’s challenged the taxes, the tax court entered summary judgment in favor of the cities. 1 1 We have jurisdiction of the appeal by Brink’s under A.R.S.
§ 12-2101(B) (2003).
Because we have determined that it would
not assist us in determining the issue presented on remand, we
deny the parties’ requests for oral argument. 3 DISCUSSION
on No Arizona city may levy a transaction privilege tax
City Tax services.” A.R.S. § 42- Phoenix and Peoria assessed Brink’s under a Model Code business telecommunications provision activity of that taxes providing gross income telecommunication from “the services,” which the Phoenix and Peoria tax codes state “shall include . .
. [c]harges for monitoring services relating to a security or
burglar alarm system located within the City where such system
transmits or channel.” receives signals or data over a communications Model Code § 470(a)(2)(D); see Phoenix City Code § 14-470(a)(2)(D); Peoria City Code § 12-470(a)(2)(D).
¶5 While the cities acknowledge that their own tax codes characterize home-security monitoring companies as being in the
business of providing “telecommunication services,” they argue
that phrase means something different for purposes of the statelaw prohibition.
tax Brink’s That is, they contend the law allows them to because even though the company “provid[es] telecommunication services” for purposes of the Model City Tax
Code, it is not engaged in “telecommunications services” pursuant to A.R.S. § 42-6004(A)(2).
¶6 The cities’ argument is based on their codes’ broad definition
activity of “telecommunication connected with the service” as “any transmission or relay 4 service
of or sound, visual image, data, communications
100. information, channel or any images, or combination material
of over a communication Phoenix City Code § 14-100; Peoria City Code § 12- Under that definition, the cities argue the monitoring services Brink’s performs are taxable under their codes merely
because they are “connected with” the transmission of data over
a communications channel.
¶7 State law does not define the “[i]nterstate telecommunications services” that A.R.S. § 42-6004(A)(2) exempts
from municipal taxes. “Intrastate telecommunications services,” however, to is defined mean “transmitting signs, signals, writings, images, sounds, messages, data or other information of
any nature by wire, radio waves, light waves or other electromagnetic means if the information transmitted originates
and terminates in this state.” A.R.S. § 42-5064(E)(4) (Supp. 2010).
¶8 From the language of § 42-5064(E)(4), the cities argue the exemption granted by § 42-6004(A)(2) applies only to the
transmission of “signs, signals, writings, images, sounds, messages, data or other information of any nature by wire, radio
waves, light waves or other electromagnetic means.” Thus, the cities contend that by prohibiting municipal taxation only of
“interstate telecommunications services,” rather than services
“connected with” interstate telecommunications, the legislature 5 intended to permit cities to tax services that merely are “connected with” interstate telecommunications services.
¶9 Guided by People’s Choice TV Corp. v. City of Tucson, 202 Ariz. 401, 46 P.3d 412 (2002), we disagree. At issue in that case was a city tax on revenues generated by a company that
provided customers with “microwave television services.”
402, ¶ 2, 46 P.3d at 413. Id. at The company “received both local and out-of-state programs at its facility outside Tucson and then
transmitted the frequencies.” programs Id. to its customers using microwave The city argued that A.R.S. § 42-6004 (A)(2) did not prohibit the tax because the assessment was not imposed
on the company’s subscription transmissions fees and access of
the only on charged its customers for connecting to the telecommunications service. Id. at 403-04, ¶ 8, 46 P.3d at 414-15.
6004(A)(2) barred proposition that the
statute the In holding that § 42- supreme allows company but court cities to rejected
tax the “services ancillary to the interstate transmission of signals.” Id. at 403, 404, ¶¶ 6, 8, 46 P.3d at 414, 415 (citing A.R.S. § 425064(B), which provides that “[t]he tax base for the telecommunications classification is the gross proceeds of sales
or gross income derived from the business, including the gross
income from tolls, subscriptions subscribers.”) (emphasis added). 6 and services on behalf of The court likewise rejected the notion that the city’s assessment could survive A.R.S. § 426004(A)(2) because it did not tax “transmissions” but rather
taxed “the provision of services that use telecommunication.”
Id. at 403, ¶ 6, 46 P.3d at 414.
¶10 People’s Choice teaches that the exemption granted by § 42-6004(A)(2) extends not only to income from the transmitting
of interstate ancillary” signals, to such telecommunication.” but also to transmissions income and from “services “services that use 202 Ariz. at 403, ¶ 6, 46 P.3d at 414. Although the monitoring services that Brink’s provides require
the use of sensory devices installed in customers’ homes and
likely are enhanced by the exterior signs Brink’s furnishes to
warn off would-be conducts
center by of way its of intruders, the interstate business. Under monitoring that telecommunications
People’s Choice, Brink’s is at the the income Brink’s receives for providing monitoring services therefore is
exempt from municipal taxes pursuant to A.R.S. § 42-6004(A)(2).
¶11 Although the cities argue that Brink’s is engaged in the home-security business, not the telecommunications business,
the record does not disclose that the cities have assessed the
revenues Brink’s receives from its sales or installation sensors and communication devices in customers’ homes. of Instead, the cities have assessed the monthly revenues Brink’s receives
for monitoring those devices 7 and from engaging in the telecommunications described above. Brink’s customers pay for security services provided by telecommunications that are sent
over state lines, just as the People’s Choice customers paid for
entertainment in the form of interstate television programs.
¶12 The cities also argue that a customer may purchase a home-security service simply for deterrence purposes (they posit
that a homeowner may subscribe simply to obtain a Brink’s sign
for the effect it will have on potential burglars) and that
therefore Brink’s services. But does
an not actually individual sell telecommunications customer’s motivation for purchasing home-security monitoring services does not alter the
nature of the service Brink’s is selling. Analogizing to the situation presented in People’s Choice, a customer may purchase
a television subscription to entertain friends who may come to
idle, If her friends do not show up, the television may sit
but that would not alter the taxable nature of her subscription.
¶13 Nor do we accept the cities’ contention that Brink’s does not provide “telecommunications services” under state law
because federal law does not include “monitoring services” in
the definition of “telecommunications services.” See 47 U.S.C. § 153(24) (defining “information services”); U.S. West Commc’ns,
Inc. v. Hix, 183 F. Supp. 2d 1249, 1252-53 (D. Colo. 2000). In its decision remanding this case to us, our supreme court held 8 that § 42-6004(A)(2)’s definition of telecommunications is not
limited by the federal definition. Brink’s, 226 Ariz. at 334- 35, ¶¶ 14-15, 247 P.3d at 1004-05. Section 42-6004(A)(2) was amended taxes in 1991 to prohibit telecommunications services, telecommunications services, federal law which
to as on include that subscriber interstate “[i]nterstate
portion line of service, allocable by telecommunications service.” 1991 Ariz. Sess. Laws, ch. 28, § 1 (emphasis added). As our supreme court stated, “the insertion of the comma that
precedes ‘which include’ makes the clause non-restrictive.” Brink’s, 226 Ariz. at 335, ¶ 15, 247 P.3d at 1005.
cities’ taxation of “telecommunications The bar on services” in § 42- 6004(A)(2) therefore does not apply only to “telecommunications
services” as defined by federal law.
the reasons stated, we conclude Brink’s is engaged in the business of providing telecommunications services
within the precludes
municipal of A.R.S. taxation §
interstate That statute telecommunications The corollary to our supreme court’s conclusion that the Brink’s telecommunications are not intrastate transmissions
is that they are interstate transmissions.
Ariz. at 334, ¶ 8, 247 P.3d at 1004. See Brink’s, 226 Accordingly, A.R.S. § 42- 6004(A)(2) prohibits the taxes Phoenix and Peoria seek to impose 9 on Brink’s. For this reason, we reverse the tax court judgment insofar as it upheld the cities’ assessments. 2 /s/
DIANE M. JOHNSEN, Presiding Judge CONCURRING: /s/
DANIEL A. BARKER, Judge /s/
MAURICE PORTLEY, Judge 2 We do not upset the decision of the tax court denying the
request by Brink’s for attorney’s fees pursuant to Peoria City
Code § 12-578(a) and Phoenix City Code § 14-578(a), which allow
an award of fees when a city’s position is “not substantially
justified.” However, contingent on compliance with ARCAP 21, we
grant the request by Brink’s for its costs and attorney’s fees
in this court and the supreme court pursuant to A.R.S. § 12348(B)(1) (2003). See Wilderness World, Inc. v. Dep’t of Rev.,
182 Ariz. 196, 202, 895 P.2d 108, 114 (1995). 10 IN THE COURT OF APPEALS
STATE OF ARIZONA
DIVISION ONE BURLINGAME INDUSTRIES, INC., a
corporation dba EAGLE ROOFING
__________________________________) DIVISION ONE
RUTH A. WILLINGHAM,
1 CA-TX 10-0003 BY: DLL
O P I N I O N Appeal from the Arizona Tax Court
Cause No. TX2008-000786
The Honorable Dean M. Fink, Judge
REVERSED AND REMANDED Mooney, Wright & Moore, PLLC
Paul J. Mooney
Jim L. Wright
Attorneys for Plaintiff/Appellant Mesa Helm & Kyle, Ltd.
Roberta S. Livesay
Attorneys for Defendant/Appellee Tempe S W A N N, Judge
Assessor, After a miscommunication Burlingame Industries with the Maricopa (“Plaintiff”) personal property valuation to the tax court. County appealed a Because Plaintiff had not first appealed the valuation to a state or county board 11 of equalization, the tax court dismissed Plaintiff’s appeal for
lack of subject matter jurisdiction. We hold that A.R.S. §§ 42-15104(2) and -16201 establish a direct right to appeal a
personal property valuation to the tax court, and that these
provisions offer an alternative to the statutes that provide for
in these Because we conclude that judicial review circumstances administrative remedies, is
we not predicated reverse and on exhaustion remand for of further proceedings.
FACTS AND PROCEDURAL HISTORY
¶2 On September 3, 2008, Plaintiff petitioned the Assessor for a review of the valuation of Plaintiff’s personal
property, contending instead be $2,600,636.
by telephone on that the $8,668,786 valuation should Plaintiff’s agent and the Assessor met September 22, and the Assessor informed Plaintiff’s agent that the valuation would not be altered. The Assessor claims to have mailed his decision to Plaintiff on
September 23. Plaintiff claims never to have received that mailing, and did not learn that the Assessor’s decision had been
mailed out until October 23 -- well after the 20 days allowed
for an administrative appeal under A.R.S. §§ 42-19052, -16101
through -16111, and -16151 through -16169. Plaintiff requested that the Assessor reissue the decision so that Plaintiff could
file a timely appeal to the State Board of Equalization. 2
12 When the Assessor did not respond, Plaintiff commenced this action in
tax court on December 12, 2008.
¶3 Maricopa County (“Defendant”) moved to dismiss the valuation appeal with prejudice, contending that under A.R.S.
§ 42-19052 the court had no jurisdiction to hear a personal
property valuation appeal except from a decision by a state or
county board of equalization. After briefing and oral argument, the tax court granted the motion in a detailed minute entry on
March 31, 2010, and entered a signed judgment on June 17, 2010.1
Plaintiff timely appeals.
¶4 The issue on appeal is whether a personal property valuation that has been affirmed on review by the assessor can
be appealed directly to the tax court. The tax court’s jurisdiction is a matter of statute that we review de novo.
Sempre, 225 Ariz. at 108, ¶ 5, 235 ...
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