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Empire Southwest LLC v. Arizona Department of Revenue

Court of Appeals of Arizona, First Division

May 24, 2018

EMPIRE SOUTHWEST LLC, Plaintiff/Appellee,
v.
ARIZONA DEPARTMENT OF REVENUE, Defendant/Appellant.

          Appeal from the Arizona Tax Court No. TX2016-001024 The Honorable Christopher T. Whitten, Judge

          DeConcini, McDonald, Yetwin & Lacy, PC, Tucson By James M. Susa, Sesaly O. Stamps Counsel for Plaintiff/Appellee

          Arizona Attorney General's Office, Phoenix By Benjamin H. Updike, Scot G. Teasdale Counsel for Defendant/Appellant

          Presiding Judge Jon W. Thompson delivered the opinion of the Court, in which Judge Peter B. Swann joined and Judge James P. Beene specially concurred.

          OPINION

          THOMPSON, Presiding Judge

         ¶1 The Arizona Department of Revenue (Department) appeals from the tax court's grant of summary judgment in favor of Empire Southwest LLC (Empire). Because we conclude that the sale of Empire's fuel truck was exempt from transaction privilege tax, we affirm.

         FACTUAL AND PROCEDURAL HISTORY

         ¶2 The facts in this case are undisputed. Empire is an equipment retailer operating in Arizona. In 2014, Empire sold a modified Caterpillar 777G WT truck (the Truck) to the Pinto Valley Mine (the Mine) for use in its open pit copper mining operation. Pinto uses the Truck to transport fuel and lubricants from the Mine rim to equipment located in the pit.

         ¶3 Empire added $121, 777.68 in transaction privilege tax to the Truck's purchase price, but Pinto refused to pay the tax claiming the Truck was exempt from tax pursuant to Arizona Revised Statutes (A.R.S.) section 42-5061(B)(2) (2018), which exempts equipment used directly in the process of extracting ores or minerals from the earth. Empire paid the tax itself and, thereafter, sought a refund, which the Department denied.

         ¶4 After an unsuccessful administrative appeal, Empire filed a complaint in tax court. The parties filed cross-motions for summary judgment. The tax court granted Empire's motion and denied the Department's motion finding that the Truck qualified for the tax exemption. The Department timely appealed, and we have jurisdiction pursuant to A.R.S. §§ 12-120.21(A)(1) and -170(C) (2016).

         LEGAL DISCUSSION

         ¶5 The sole issue on appeal is whether the Truck is exempt from transaction privilege tax pursuant to A.R.S. § 42-5061(B)(2). We review this issue of statutory interpretation de novo. See Chevron U.S.A. Inc. v. Ariz. Dep't of Revenue, 238 Ariz. 519, 520, ¶ 6 (App. 2015). Because A.R.S. § 42-5061(B) creates a tax exemption, we strictly construe this provision and acknowledge a presumption against the exemption. See id. We will not, however, construe the exemption so strictly "as to defeat or destroy the [legislative] intent and purpose." State ex rel. Ariz. Dep't of Revenue v. Capitol Castings, Inc., 207 Ariz. 445, 447, ¶ 10 (2004) (citation omitted).

         ¶6 The Arizona transaction privilege tax is an excise tax on the privilege of conducting business within the state. See Ariz. Dep't of Revenue v. Mountain States Tel. & Tel. Co., 113 Ariz. 467, 468 (1976). The retail classification imposes a tax on the gross proceeds or income derived from "the business of selling tangible personal property at retail." A.R.S. § 42-5061(A).

         ¶7 There are numerous exemptions to the retail transaction privilege tax, including the one at issue here, which permits ...


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