Vangilder. v. Arizona Department of Revenue

          Appeal from the Arizona Tax Court No. TX2017-000663 The Honorable Christopher T. Whitten, Judge

          Goldwater Institute, Phoenix By Timothy Sandefur, Matthew Robert Miller Co-Counsel for Plaintiffs/Appellees/Cross-Appellants

          Mooney Wright & Moore, P.L.L.C, Mesa By Paul J. Mooney Co-Counsel for Plaintiffs/Appellees/Cross-Appellants

          Arizona Attorney General's Office, Phoenix By Scot G. Teasdale, Jerry A. Fries, Lisa A. Neuville Counsel for Defendant/Appellee/Cross-Appellee

          Pinal County Attorney's Office, Florence By Christopher C. Keller Co-Counsel for Defendant/Appellant/Cross-Appellee Pinal County

          Ballard Spahr L.L.P., Phoenix By Joseph A. Kanefield, Brian Schulman, Chase Bales Co-Counsel for Defendants/Appellants/Cross-Appellees Pinal County and Pinal Regional Transportation Authority

          Fennemore Craig, P.C., Phoenix By Patrick Irvine, Taylor Burgoon Co-Counsel for Defendants/Appellants/Cross-Appellees Pinal County and Pinal Regional Transportation Authority

          Sims Mackin, Ltd., Phoenix By William J. Sims Co-Counsel for Defendant/Appellant/Cross-Appellee Pinal Regional Transportation Authority

          Rose Law Group, P.C., Scottsdale By Evan Bolick, Johathan Udell Amicus Curiae for Pinal Partnership Inc.

          Dickson Wright P.L.L.C., Phoenix By Scott A. Holcomb, Vail C. Cloar Amicus Curiae for Town of Queen Creek

          Fitzgibbons Law Office, P.L.C., Casa Grande By Denis M. Fitzgibbons Amicus Curiae for City of Maricopa and City of Coolidge

          Florence Town Attorney's Office, Florence By Clifford L. Mattice Amicus Curiae for Town of Florence

          The Cavanagh Law Firm, P.A., Phoenix By James G. Busby, Jr., Karen C. Stafford Amicus Curiae for Arizona Tax Research Association and The Arizona Free Enterprise Club

          Presiding Judge Kenton D. Jones delivered the Opinion of the Court, in which Judge James B. Morse Jr. and Judge Diane M. Johnsen joined.

          OPINION

          JONES, JUDGE.

         ¶1 In 2017, Pinal County voters simultaneously approved Proposition 416 (Prop 416) to adopt a regional transportation plan and Proposition 417 (Prop 417) to enact an excise tax to fund the plan. In this appeal, Appellants, Pinal County (the County) and the Pinal Regional Transportation Authority (the RTA), appeal from the tax court's order invalidating the excise tax, and Cross-Appellants (collectively, Vangilder) challenge the court's order denying their request for an award of attorneys' fees. The Arizona Department of Revenue (ADOR) joins Vangilder in asserting the tax is invalid but joins Appellants in defending Prop 417's constitutionality and opposing Vangilder's claim for fees.

         ¶2 We find the Prop 417 tax to be valid. The RTA's authorizing resolution does not change the substance of the question posed to and approved by the voters; the tax, by its terms, applies across all transaction privilege tax (TPT) classifications; and the tax includes a valid, constitutional modified rate as applied to the retail sales classification. Accordingly, we reverse the order invalidating the tax. Because Vangilder is no longer the successful party in the tax court, we affirm the denial of his request for attorneys' fees.

         FACTS AND PROCEDURAL HISTORY

         ¶3 The RTA is a public improvement and taxing subdivision of the State of Arizona established by the Pinal County Board of Supervisors (the Board) in 2015 to coordinate multi-jurisdictional transportation planning, improvements, and funding. See Ariz. Rev. Stat. (A.R.S.) § 48-5302^[1] (governing the establishment of a regional transportation authority). Arizona law authorizes the RTA to formulate a plan for transportation projects and propose an excise tax to pay for them. See generally A.R.S. §§ 48-5309, -5314. By statute, a county transportation excise tax must be "approved by the qualified electors voting at a countywide election." A.R.S. § 42-6106(A); see also A.R.S. § 48-5314(F).

         ¶4 In June 2017, the RTA adopted the Pinal County Regional Transportation Plan (the Plan), which identifies key roadway and transportation projects to be developed over the next twenty years. In the same resolution (the June Resolution), the RTA asked the County to schedule a special election on the Plan and on "the issue of levying a transportation excise tax at a rate equal to one-half percent (0.005%) [sic] of the gross income from the business activity upon every person engaging or continuing in the business of selling tangible personal property at retail . . . needed to fund the Plan." The June Resolution further stated that the tax rate upon retail sales would be a "variable or modified rate," in that the tax would apply only to the first $10, 000 in gross income from the sale of any single item of tangible personal property, effectively capping the tax at $50 per item.

         ¶5 Before the election, and as directed by A.R.S. § 48-5314(C), the Board printed a publicity pamphlet describing Prop 416 and Prop 417 (the Pamphlet). The RTA "ratified, confirmed, approved and adopted [the Pamphlet] in the form presented" in October 2017 (the October Resolution). The Pamphlet detailed the planned transportation projects and explained that they could be completed only if voters approved the excise tax in Prop 417. As relevant here, the Pamphlet further explained:

If Proposition 417 is approved by the voters, the Transportation Excise Tax would . . . be assessed on the same business transactions that are subject to the State of Arizona transaction privilege (sales) tax [(TPT)], but at a rate equal to 10% of the State tax . . . . [T]he Transportation Excise Tax rate will generally be 0.5% or 1 cent on each $2 o[f] State taxable items.

         The Pamphlet identified each of the sixteen business classifications subject to the TPT and detailed the rates at which the transportation excise tax would apply to each class.^[2] See A.R.S. §§ 42-5061 to -5076. With respect to the retail sales classification, the Pamphlet described the same two-tiered structure outlined in the June Resolution. The Pamphlet estimated that revenues from the tax across all business classifications would total approximately $640 million over twenty years - the precise amount needed to fund the projects detailed within the Plan.

         ¶6 The question ultimately posed to the voters was stated in both the Pamphlet and official ballot:

         PROPOSITION 417

         (Relating to County Transportation ...