Saban Rent-a-Car LLC, et al., Plaintiffs/Appellees/Cross-Appellants,
Arizona Department of Revenue, Defendant/Appellant/Appellee/Cross-Appellee, Tourism and Sports Authority, Defendant-in-Intervention/Appellant/Cross-Appellee.
from the Arizona Tax Court The Honorable Dean M. Fink, Judge
The Honorable Christopher T. Whitten, Judge No. TX2010-001089
of the Court of Appeals, Division One 244 Ariz. 293 (App.
K. Aiken (argued), Shawn Aiken PLLC, Phoenix; Gregory D.
Hanley, Kickham Hanley PLLC, Royal Oaks, MI; Taylor C. Young,
Robert A. Mandel, Mandel Young PLC, Phoenix, Attorneys for
Saban Rent-a-Car LLC
Brnovich, Arizona Attorney General, Phoenix, Kimberly Cygan,
Jerry A. Fries, Assistant Attorneys General, Phoenix; Thomas
L. Hudson (argued), Eric M. Fraser, Osborn Maledon, P.A.,
Phoenix, Attorneys for Arizona Department of Revenue
Timothy Berg (argued), Janice Procter-Murphy, Emily Ward,
Fennemore Craig, P.C., Phoenix; and Scot L. Claus, Vail C.
Cloar, Dickinson Wright PLLC, Phoenix, Attorneys for Tourism
and Sports Authority
Lawrence A. Kasten, Lewis Roca Rothgerber Christie LLP,
Phoenix, Attorneys for Amicus Curiae John Halikowski,
Director, Arizona Department of Transportation
Michael R. King, Cameron C. Artigue, Christopher L. Hering,
Gammage & Burnham, PLC, Phoenix, Attorneys for Amici
Curiae Convention and Visitors Bureaus
Barbara LaWall, Pima County Attorney, Regina L. Nassen,
Deputy County Attorney, Tucson, Attorneys for Amici Curiae
Pima County and the Pima County Stadium District
F. Eckstein, Thomas D. Ryerson, Perkins Coie LLP, Phoenix,
Attorneys for Amicus Curiae City of Phoenix
Michael K. Kennedy, Mark C. Dangerfield, Gallagher &
Kennedy, P.A., Phoenix, Attorneys for Amici Curiae The
Arizona Chamber of Commerce & Industry and The Greater
Phoenix Chamber of Commerce
JUSTICE TIMMER authored the opinion of the Court, in which
CHIEF JUSTICE BALES, VICE CHIEF JUSTICE BRUTINEL, and
JUSTICES PELANDER, GOULD, and LOPEZ joined.
Maricopa County imposes a surcharge on car rental agencies to
fund a stadium and other sports and tourism-related ventures.
The issue here is whether this surcharge violates the dormant
Commerce Clause implied by Article I, Section 8, Clause 3 of
the United States Constitution or the anti-diversion
provision, article 9, section 14 of the Arizona Constitution.
We hold that it does not violate either provision.
The legislature created the Arizona Tourism and Sports
Authority (the "AzSTA") in 2000 to build and
operate a sports stadium, build Major League Baseball spring
training facilities, build youth and amateur sports and
recreation facilities, and promote tourism. See
A.R.S. §§ 5-801(4), -802(A), -807 to -809, -815.
AzSTA's authority is restricted to counties with
populations greater than two million people, meaning it has
only ever operated in Maricopa County. See §
5-802(A). AzSTA's construction projects are funded solely
by taxes and surcharges approved by Maricopa County voters.
See § 5-802(C). One such voter-approved
surcharge is at issue here.
Soon after the creation of AzSTA, Maricopa County voters
passed an initiative that levied a surcharge on car rental
companies based on their income derived from leasing vehicles
for less than one year. See A.R.S. §
5-839(A)-(C) (authorizing voters to levy the surcharge and
providing its terms). (The initiative also imposed a tax on
hotels. The hotel tax is not at issue here.) The surcharge is
the greater of $2.50 per rental or 3.25% of the company's
gross proceeds or gross income. § 5-839(B)(1). If the
rental is a "temporary replacement" for a damaged
or lost vehicle, however, the surcharge is a flat $2.50.
§ 5-839(B)(2). The state treasurer distributes $2.50 per
rental transaction to the Maricopa County Stadium District,
which has collected a surcharge in this amount since 1991.
See § 5-839(G)(1); Act of June 25, 1991, ch.
285, § 10, 1991 Ariz. Sess. Laws 1444, 1451-53 (1st Reg.
Sess.) (codified at A.R.S. § 48-4234). The remaining
amount, the difference between $2.50 per rental transaction
and 3.25% of the company's gross income or proceeds, is
distributed to AzSTA. § 5-839(G)(2). Although the
surcharge is imposed on car rental companies, they can and do
pass its cost on to their customers.
Plaintiff Saban Rent-a-Car ("Saban") rents vehicles
in Maricopa County and has paid the car rental surcharge. Its
customers are primarily local residents. In 2009, after
unsuccessfully seeking a refund from the Arizona Department
of Revenue ("ADOR"), Saban sued ADOR in the tax
court and sought refunds and injunctive relief for all
similarly situated car rental companies. The tax court
certified a class of all individuals or entities that paid
the surcharge from September 2005 through March 2008 and
allowed AzSTA to intervene as a defendant.
As it does here, Saban argued to the tax court that the
surcharge violates both the dormant Commerce Clause and the
anti-diversion provision. On cross-motions for summary
judgment, the court agreed with ADOR and AzSTA that the
surcharge does not violate the dormant Commerce Clause. It
agreed with Saban, however, that the surcharge violates the
anti-diversion provision. Consequently, the court granted
summary judgment for Saban and ordered ADOR to refund the
surcharge payments to class members. The court also
authorized ADOR to recoup the refund amounts from AzSTA
pursuant to A.R.S. § 42-5029(G).
Like the tax court, the court of appeals ruled that the
surcharge does not violate the dormant Commerce Clause.
Saban Rent-A-Car LLC v. Ariz. Dep't of Revenue,
244 Ariz. 293, 296 ¶ 2 (App. 2018). But unlike the tax
court, the court of appeals concluded that the surcharge also
does not violate the anti-diversion provision. Id.
It therefore reversed the tax court's ruling and remanded
for entry of summary judgment in favor of ADOR and AzSTA.
See id. at 308 ¶ 49.
We granted review to address these legal issues of statewide
importance. We have jurisdiction pursuant to article 6,
section 5(3) of the Arizona Constitution.
The Dormant Commerce Clause
We review the constitutionality of the car rental surcharge
de novo, as a question of law. See Gallardo v.
State, 236 Ariz. 84, 87 ¶ 8 (2014). Likewise,
"[w]e review questions of statutory construction and
grants of summary judgment de novo." BSI Holdings,
LLC v. Ariz. Dep't of Transp., 244 Ariz. 17, 19
¶ 9 (2018). We presume that a statute not involving
fundamental constitutional rights or suspect-classification
distinctions is constitutional "and will uphold it
unless it clearly is not." Cave Creek Unified Sch.
Dist. v. Ducey, 233 Ariz. 1, 5 ¶ 11 (2013).
The Commerce Clause empowers Congress "[t]o regulate
Commerce . . . among the several States." U.S. Const.
art. I, § 8, cl. 3. By negative implication, states
cannot unjustifiably discriminate against or erect barriers
to interstate commerce. See Or. Waste Sys., Inc. v.
Dep't of Envtl. Quality of Or., 511 U.S. 93, 98
(1994). This implied restraint is known as the "dormant
Commerce Clause" and serves to prevent "economic
protectionism [, ] that is, regulatory measures designed to
benefit in-state economic interests by burdening out-of-state
competitors." Dep't of Revenue of Ky. v.
Davis, 553 U.S. 328, 337-38 (2008); see also Gen.
Motors Corp. v. Tracy, 519 U.S. 278, 299 (1997)
(describing the dormant Commerce Clause's fundamental
objective as "preserving a national market for
competition undisturbed by preferential advantages conferred
by a State upon its residents or resident competitors").
The principles developed under the dormant Commerce Clause to
counter economic Balkanization, however, have respected a
degree of local autonomy, as favored by the Framers. See
Davis, 553 U.S. at 338; see also Hunt v. Wash. State
Apple Advert. Comm'n, 432 U.S. 333, 350 (1977)
(recognizing that "in the absence of conflicting
legislation by Congress, there is a residuum of power in the
state to make laws governing matters of local concern which
nevertheless in some measure affect interstate commerce or
even, to some extent, regulate it" (internal quotation
To determine if a law violates the dormant Commerce Clause,
courts initially ask whether the law "regulates
evenhandedly with only incidental effects on interstate
commerce, or discriminates against interstate commerce."
Or. Waste Sys., 511 U.S. at 99 (internal quotation
marks omitted). If a law is discriminatory, it will survive
only if its proponents "show that it advances a
legitimate local purpose that cannot be adequately served by
reasonable nondiscriminatory alternatives." Id.
at 100-01 (internal interlineations and quotation marks
omitted). Courts have sometimes noted that such scrutiny
renders a law "virtually per se invalid."
See id. at 99. If the challenged law is
non-discriminatory but incidentally affects interstate
commerce, a balancing test is used, and the law will be
upheld unless "the burden imposed on such commerce is
clearly excessive in relation to the putative local
benefits." Pike v. Bruce Church, Inc., 397 U.S.
137, 142 (1970).
Saban argues the car rental surcharge is discriminatory and
thus subject to strict scrutiny review. A
"discriminatory" tax is one that is "facially
discriminatory, has a discriminatory intent, or has the
effect of unduly burdening interstate commerce."
Amerada Hess Corp. v. Dir., Div. of Taxation, N.J.
Dep't of the Treasury, 490 U.S. 66, 75 (1989). Saban
abandons prior assertions that the surcharge is facially
discriminatory and unduly burdens interstate commerce,
see Saban, 244 Ariz. at 303 ¶ 30, 304 ¶
32, and solely argues the surcharge is "invalid because
it was motivated by discriminatory intent, that is, forcing
out-of-state visitors [to] pay a special tax that residents
are shielded from." ADOR and AzSTA counter that the
surcharge was not enacted with a discriminatory intent but,
even if it was, intent alone is an insufficient reason to
invalidate the surcharge.
The car rental surcharge was not enacted with a
discriminatory intent, as that term is used in Commerce
Clause jurisprudence. Discrimination "means differential
treatment of in-state and out-of-state economic interests
that benefits the former and burdens the latter."
Or. Waste Sys., 511 U.S. at 99. Nothing in the
language of the surcharge or in the publicity pamphlet for
the initiative enacting the surcharge suggests an intent to
treat in-state and out-of-state interests differently or
engage in the type of "economic protectionism" at
odds with the Commerce Clause. Indeed, the surcharge applies
equally to resident and non-resident car rental agencies
operating in Maricopa County and is calculated and imposed
without regard to their customers' residencies.
Saban nevertheless argues that discriminatory intent exists
because statements in the initiative's publicity pamphlet
suggest voters targeted non-resident visitors, who
purportedly rent most vehicles offered by car rental
agencies, to pay the lion's share of the surcharges. But
even if true, this does not evidence an intent that
out-of-state visitors be treated any differently
from residents, as required to be discriminatory. See