R.O.I. Properties LLC v. Ford

          Appeal from the Arizona Tax Court No. TX2017-000016 The Honorable Christopher T. Whitten, Judge.

          Lane & Nach, PC, Phoenix By Stuart Rodgers Counsel for Plaintiff/Appellant R.O.I. Properties, LLC

          Engelman Berger PC, Phoenix By Scott B. Cohen, Bradley D. Pack Counsel for Plaintiff/Appellant Compass Bank

          Pima County Attorney's Office, Tucson By Andrew L. Flagg Counsel for Defendants/Appellees Beth Ford, Bill Ford and Pima County

          Judge Kent E. Cattani delivered the opinion of the Court, in which Presiding Judge Jennifer B. Campbell and Judge Paul J. McMurdie joined.

          OPINION

          CATTANI, Judge.

         ¶1 ROI Properties LLC and Compass Bank (collectively, "Taxpayers") appeal the tax court's judgment dismissing their complaint in which they asserted claims for refund of property taxes paid, declaratory judgment, and mandamus relief, all premised on an alleged entitlement to the charter school exemption for the 2015 tax year. Because the charter schools previously operating on the property ceased operations in May 2015, the property was not exempt for the 2015 tax year, and we thus affirm.

         FACTS AND PROCEDURAL BACKGROUND

         ¶2 Under Arizona Revised Statutes ("A.R.S.") § 42-11104(C)(1), property owned by a § 501(c)(3) nonprofit organization that operates as a charter school is exempt from taxation if the property is used for education and not used or held for profit. Luz Social Services, Inc., a qualifying nonprofit corporation, owned three parcels of real property (the "Property") in Pima County, where it operated nonprofit charter schools.

         ¶3 Luz filed for bankruptcy protection in April 2014, at which time the Property became part of the bankruptcy estate, subject to the automatic bankruptcy stay. See 11 U.S.C. §§ 362(a), 541(a)(1). Compass, one of Luz's creditors and the beneficiary of a deed of trust on the Property, sought leave to pursue a sale of the Property. In February 2015, the bankruptcy court granted limited stay relief and authorized Compass to sell the property, but further ordered that the schools could continue to operate until May 29 and that no sale could be completed before that date.^[1] As part of this process, ROI was appointed as receiver with respect to the Property.

         ¶4 The schools ceased all operations on May 29, 2015. Although the Pima County Assessor had classified the Property as tax exempt under the charter school exemption and had applied the exemption through the 2014 tax year (during which time the schools had remained in continuous operation), the Assessor did not apply the exemption for the 2015 tax year. Accordingly, 2015 property taxes were fixed, levied, and assessed against the Property (which remained part of the bankruptcy estate); the taxes went unpaid, and the first installment became delinquent as of November 2, 2015. See A.R.S. § 42-18052(A)-(B).

         ¶5 The Property was eventually sold to a third-party on April 28, 2016. The next day, in conjunction with closing the sale (and timely as to the second installment of 2015 taxes), Luz (through ROI) paid the full amount of 2015 taxes owed on the Property (including interest on the delinquent first installment), totaling over $180, 000. See A.R.S. § 42-18052(B) (second installment not delinquent until May 1 after close of tax year).

         ¶6 Less than one year later, in April 2017, Taxpayers filed a tax claim in superior court, asserting that the Property remained entitled to the charter school exemption for the 2015 tax year, seeking a declaratory judgment to that effect, and requesting a refund of the 2015 taxes paid.^[2] See A.R.S. § 42-11005(A). Taxpayers concurrently filed a petition for a refund with the Pima County Board of Supervisors, invoking a special administrative procedure provided by the charter school exemption statute. See A.R.S. § 42-11104(G) (directing that, upon petition by a qualifying nonprofit charter school that failed to timely file an eligibility affidavit but otherwise qualified for the exemption, the county board of supervisors order the county treasurer to refund property taxes paid within the previous year and strike from the tax rolls any unpaid taxes, interest, and penalties). After the Board denied the petition, Taxpayers amended their tax court complaint to add a special action claim seeking a writ of mandamus directing the Board and the County Treasurer to refund the 2015 tax payment.

         ¶7 The County Defendants (Pima County Treasurer, Pima County Assessor, and Pima County) then moved to dismiss the complaint, arguing that (1) the tax court lacked jurisdiction over the illegal-tax claim because the 2015 taxes had not been paid before delinquency as required by A.R.S. § 42-11004, (2) the tax court should decline to exercise special action jurisdiction over the mandamus claim because Taxpayers had access to an adequate remedy at law (an illegal-tax claim), and (3) in the alternative, the complaint failed to state a claim for which relief could be granted because, as a matter of law, the Property was not exempt for the 2015 tax year as it ...