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Siete Solar, LLC v. Arizona Department of Revenue

Court of Appeals of Arizona, First Division

January 29, 2019

SIETE SOLAR, LLC, et al., Plaintiffs/Appellants,
ARIZONA DEPARTMENT OF REVENUE, et al., Defendants/Appellees.

          Appeal from the Arizona Tax Court No. TX2014-000212 The Honorable Christopher T. Whitten, Judge.

          Mooney Wright & Moore, PLLC, Mesa By Paul J. Mooney (argued) and Bart S. Wilhoit Counsel for Plaintiffs/Appellants

          Arizona Attorney General's Office, Phoenix By Macaen F. Mahoney and Lisa Neuville (argued) Counsel for Defendants/Appellees

          Acting Presiding Judge Paul J. McMurdie delivered the opinion of the Court, in which Judge Kent E. Cattani and Judge Lawrence F. Winthrop joined.


          MCMURDIE, JUDGE.

         ¶1 Appellants Siete Solar, LLC ("Siete"), Mesquite Solar, LLC ("Mesquite"), and Perrin Ranch Wind, LLC ("Perrin") appeal from the tax court's dismissal of their complaint, and Arlington Valley Solar Energy II, LLC ("Arlington") appeals the court's grant of summary judgment for the Arizona Department of Revenue (the "Department"). We affirm the tax court's application of Arizona Revised Statutes ("A.R.S.") section 42-14153(C) and hold that a statutory amendment enacted after the valuation date that changes the method of valuation requires retroactive application to apply to the corresponding tax year.


         ¶2 The parties do not dispute the facts in this case. Siete, Mesquite, Perrin, and Arlington (collectively "Taxpayers"), operate electric generation facilities that use renewable energy equipment. As part of the American Recovery and Reinvestment Act of 2009, Taxpayers received either an investment tax credit or a cash grant in lieu of the credit (either referred to as "tax incentive") for a portion of the costs to build their respective facilities.

         ¶3 In February of each year, the Department provides a form to facility owners requesting information necessary for the valuation of property. A.R.S. § 42-14152(A). The Department then calculates the value of renewable energy equipment pursuant to A.R.S. § 42-14155 and A.R.S. § 42-14156 (collectively the "valuation method"). Before an amendment in 2014, A.R.S. § 42-14155(B) directed the Department to value renewable energy equipment at "twenty per cent of the depreciated cost of the equipment," but provided no definition of "cost."

         ¶4 In 2013, Siete, Mesquite, and Perrin (the "2014 Appellants") each submitted an annual report to the Department for the 2014 tax year reporting the cost of their facilities. The 2014 Appellants' respective reports calculated their cost of the energy equipment by subtracting the amount received in tax incentives from the actual cost. However, the Department disallowed the deducted tax-incentive amounts before applying the valuation method to determine the properties' full cash value (the "final valuation"). The Department's refusal to deduct the tax-incentive amounts from the actual cost increased the 2014 Appellants' tax liability. The 2014 Appellants appealed to the State Board of Equalization, which upheld the Department's final valuation. The 2014 Appellants appealed the Board's decision.

         ¶5 While the 2014 Appellants' appeal was pending in the superior court, the legislature enacted an amendment to A.R.S. § 42-14155 (the "2014 Amendment"). The 2014 Amendment altered the valuation method by specifically allowing taxpayers to deduct tax incentives from the cost of renewable energy equipment. See A.R.S. § 42-14155(C)(4) (2014). Because the 2014 Amendment did not contain an emergency provision or a retroactivity clause, it became effective on July 24, 2014, the general effective date for legislation enacted during the 2014 session. See Ariz. Const. art. 4, pt. 1, § 1(3). Eventually, the 2014 tax year dispute resulted in an appeal to this court. See Siete Solar, LLC v. Ariz. Dep't of Revenue (Siete I), 1 CA-CV 15-0126, 2015 WL 8620672 (Ariz. App. Dec. 10, 2015) (mem. decision). On appeal, the 2014 Appellants argued the 2014 Amendment should apply to their tax appeal because it became effective before the taxes in question were assessed. Id. at *3, ¶ 12.

         ¶6 In August 2014, while the dispute over the 2014 tax year valuations continued, the Department issued the final valuations for the 2015 tax year. Taxpayers had again reported their cost as the actual cost minus the tax incentives. The Department, applying the pre-amended version of A.R.S. § 42-14155, again disallowed the tax incentive amounts to be deducted from the actual costs before computing the Taxpayers' final valuations. Taxpayers timely appealed the 2015 final determination directly to the tax court pursuant to A.R.S. § 42-16204. Taxpayers moved for summary judgment, asserting the Department was obligated to use the valuation method prescribed in the 2014 Amendment for their final valuations. Because the 2014 Appellants' appeal was still pending, the tax court stayed the 2015 tax-year proceedings pending a decision in the prior case.

         ¶7 In Siete I, we concluded that the 2014 Amendment was not retroactive-nor was it a clarification of the law- and thus, it did not apply to the 2014 tax year. 2015 WL 8620672, at *4, ¶ 18. After the decision, the Department moved to dismiss the 2014 Appellants' complaint for the 2015 tax year based on issue preclusion and for summary judgment on Arlington's claims. The tax court denied Taxpayers' motion for summary judgment and granted the Department's motions. Taxpayers timely appealed, and we have jurisdiction pursuant to A.R.S. § 12-2101(A)(1).


         ¶8 Taxpayers argue on appeal that the tax court erred by: (1) granting the Department's motion to dismiss the 2014 Appellants' claims based on issue preclusion and granting the Department's summary judgment motion against Arlington based on the decision in Siete I; and (2) not applying the 2014 Amendment to the 2015 tax year, resulting in the improper denial of Taxpayers' motion for summary judgment on all claims.

         ¶9 We review the tax court's dismissal of a complaint for failure to state a claim, Zubia v. Shapiro, 243 Ariz. 412, 414, ¶ 13 (2018), and grant of summary judgment, Sw. Airlines Co. v. Ariz. Dep't of Revenue, 217 Ariz. 451, 452, ¶ 6 (App. 2008), de novo. Although Taxpayers' appeal presents several procedural issues regarding the dismissal of the claims, we confine ourselves to the one substantive issue that is dispositive-whether the Department was required to calculate the 2015 tax year final valuations in accordance with the 2014 Amendment, which was enacted after the valuation date but prior to the date when the Department must determine the final valuation. Statutory interpretation raises questions of law and is reviewed de novo. Calpine Constr. Fin. Co. v. Ariz. Dep't of Revenue, 221 Ariz. 244, 247, ¶ 12 (App. 2009).

         ¶10 Taxpayers contend the tax court misapplied the law because: (1) the legislature intended for the 2014 Amendment to apply to the 2015 tax year; and (2) principles of retroactivity need not apply because the 2014 Amendment was enacted before the Department set the final valuations for the 2015 tax year. Taxpayers assert the Department was not required to apply the law as it existed on the valuation date. Instead, they contend, A.R.S. ยง 42-14153(C) "merely fixes the date the parties must use to determine full cash value." We understand the Taxpayers' argument to be that the legislature may change the valuation method at any ...

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