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BSI Holdings, LLC v. Arizona Department of Transportation

Court of Appeals of Arizona, First Division

July 13, 2017

BSI HOLDINGS, LLC, Plaintiff/Appellee,
v.
ARIZONA DEPARTMENT OF TRANSPORTATION, Defendant/Appellant.

         Appeal from the Arizona Tax Court No. TX2014-000444 The Honorable Christopher T. Whitten, Judge

          Ryan Rapp & Underwood, PLC, Phoenix By Christopher T. Rapp Counsel for Plaintiff/Appellee

          Arizona Attorney General's Office, Phoenix By Mark Ingle Counsel for Defendant/Appellant

          Presiding Judge Margaret H. Downie delivered the opinion of the Court, in which Judge Kenton D. Jones and Judge Donn Kessler [1] joined.

          OPINION

          DOWNIE, Judge

         ¶1 The Arizona Department of Transportation ("ADOT") appeals the tax court's entry of summary judgment in favor of BSI Holdings, LLC ("BSI"). We hold that, in calculating the annual license tax due for a non-resident aircraft based in Arizona, the word "day" in Arizona Revised Statutes ("A.R.S.") section 28-8336 means any calendar day during which the aircraft was on the ground in Arizona for any period of time. Because the tax court applied a materially different definition, we vacate its judgment and remand for further proceedings consistent with this opinion.

         FACTS AND PROCEDURAL HISTORY

         ¶2 BSI is an Oregon limited liability company that was formed to purchase, operate, and maintain a dual engine turbo-jet (the "Jet"). During the period relevant to this appeal, the Jet was based in Arizona and regularly flew in and out of the Scottsdale Airport, where BSI maintained a tie-down arrangement/hangar agreement. For the period of time at issue, the Jet was used exclusively by Arizona resident (and BSI member) Richard Burke for personal purposes, including "family trips, transportation to family events, drop-off and pick-up of family and friends."

         ¶3 In 2004, BSI and ADOT executed a "Closing Agreement" that settled a dispute between them regarding the aircraft license tax due for 2003 and 2004. Under the terms of the Closing Agreement, BSI paid no tax for 2003. For 2004, it paid the non-resident rate applicable to aircraft that are present in Arizona for more than 90 days but fewer than 210 days. BSI thereafter paid that same rate for tax years 2005 through 2012.

         ¶4 ADOT conducted an audit and concluded the Jet had been based in Arizona for more than 209 days each audited year and that BSI should therefore have paid the resident tax rate. ADOT issued an assessment for $161, 004. ADOT also notified the Federal Aviation Administration of the assessment, and a lien was recorded against the Jet. See A.R.S. § 28-8330(A) ("The license tax, registration fee and penalty constitute a lien on the aircraft on which they are due from the due date.").

         ¶5 After an unsuccessful administrative appeal, BSI filed a complaint in the tax court, alleging ADOT improperly applied the tax rates set forth in A.R.S. § 28-8336 and was estopped from imposing assessments for tax years 2004 through 2012. BSI subsequently moved for partial summary judgment, arguing: (1) the Closing Agreement barred the 2004 assessment; (2) ADOT was equitably estopped from imposing assessments for tax years 2004 and 2005; and (3) the lien against the Jet was illegal. ADOT responded to BSI's motion and cross-moved for summary judgment as to the validity of the lien and the assessment for the eight tax years at issue. BSI responded to ADOT's motion and cross-moved for summary judgment, arguing the assessment was invalid for all tax years.

         ¶6 The tax court granted BSI's cross-motion for summary judgment, ordering that the assessment be vacated and abated. The court concluded the Jet was present in Arizona "for more than 90 days, but less than 210 days, in each of the subject tax years" and was thus eligible for the non-resident tax rate BSI had previously paid. The court also awarded BSI attorneys' fees and costs. After the court issued a final judgment, ADOT timely appealed. We have jurisdiction pursuant to A.R.S. §§ 12-120.21(A)(1) and -170(C).

         DISCUSSION

         ¶7 An "annual license tax is imposed on all aircraft based in this state and required to be registered" unless an exemption applies. A.R.S. § 28-8335; see also Ariz. Const. art. IX, § 15. Aircraft owned by Arizona residents are taxed at .5% of the "average fair market value" of the aircraft. See A.R.S. ยง 28-8335(B). Aircraft owned by non-residents may receive ...


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