Enterprise Leasing Co. of Phoenix v. Dept. of Revenue

211 P.3d 1

221 Ariz. 123

ENTERPRISE LEASING COMPANY OF PHOENIX; Enterprise Leasing Company-West, Plaintiffs-Appellants, v. ARIZONA DEPARTMENT OF REVENUE, Defendant-Appellee.

No. 1 CA-TX 06-0017.

Court of Appeals of Arizona, Division 1, Department T.

December 16, 2008.

Steptoe & Johnson, LLP By Patrick Derdenger, Bennett Evan Cooper, Mark Vilaboy, Phoenix, Attorneys for Plaintiffs-Appellants.

Terry Goddard, Attorney General By Michael F. Kempner, Assistant Attorney General, J. Gregory Marble, Assistant Attorney General, Phoenix, Attorneys for Defendant-Appellee.

OPINION

THOMPSON, Presiding Judge.

¶ 1 Enterprise Leasing Company of Phoenix (Enterprise Leasing) and Enterprise Leasing Company-West (Enterprise-West) (collectively, Taxpayer) appeal from a grant of partial summary judgment holding that Taxpayer was not entitled to income tax credits under Arizona Revised Statutes (A.R.S.) section 43-1170 (1995) for the cost of emission control equipment integrated into its motor vehicles. Finding no genuine dispute of material fact or legal error, we affirm the judgment.

FACTUAL AND PROCEDURAL BACKGROUND

A. The Applicable Statute

¶ 2 The Arizona Legislature enacted a pollution control equipment tax in 1994 as part of Senate Bill 1523. See Ariz. Sess. Laws 1994, ch. 117, § 6, 41st Leg., 2d Reg. Sess. (1994). Effective January 1, 1995, the statute provided in relevant part:

A. A credit is allowed against the taxes imposed by this title for expenses that the taxpayer incurred during the taxable year to purchase real or personal property that is used to control or prevent pollution. The amount of the credit is equal to ten percent of the purchase price.

B. Property that qualifies for the credit under this section includes that portion of a structure, building, installation, excavation, machine, equipment or device and any attachment or addition to or reconstruction, replacement or improvement of that property that is directly used, constructed or installed for the purpose of meeting or exceeding rules or regulations adopted by the United States environmental protection agency, the department of environmental quality or by a political subdivision of this state to prevent monitor, control or reduce air, water or land pollution.

A.R.S. § 43-1170. This statute's legislative history reflects that the credit was designed "to encourage companies to consider expansion or renovations now." See Minutes of Comm. on Ways and Means, S.B. 1523 (Ariz. March 22, 1994) (statement of Scott Butler). The minutes contain no discussion about applying the credit to equipment attached to motor vehicles.

¶ 3 The Legislature initially estimated the cost of the pollution control credits at about $2.5 million annually. Joint Legislative Budget Comm. Staff Memorandum on General Fund Impact of S.B. 1504 at 5 (Ariz. March 29, 2000). In December 1999, the Arizona Department of Revenue (the Department) received its first claim for a pollution control credit for equipment attached to a motor vehicle. It then became evident that, absent legislative clarification, the tax credit could cost the State about $15 million annually.

¶ 4 The Legislature responded promptly. By March 10, 2000, it had prepared Senate Bill 1504 to "[c]orrect[] the current income tax credit for pollution control equipment to exclude motor vehicle equipment." H.R. Summary of S.B. 1504, 44th Leg., 2d Reg. Sess. (Ariz. March 10, 2000). In April 2000, the Legislature amended the statute based upon Senate Bill 1504 to state that: "The credit allowed pursuant to this section does not apply to the purchase of any personal property that is attached to a motor vehicle." Ariz. Sess. Laws 2000, ch. 405, § 21, 44th Leg., 2d Reg. Sess. (2000). The revised legislation states that these changes were intended "to be clarifying changes and are consistent with the legislature's intent when those sections were enacted." Ariz. Sess. Laws 2000, ch. 405, § 30(B), 44th Leg., 2d Reg. Sess. (2000). Another stated purpose was "to close loopholes." Minutes of Comm. on Gov't Reform at 19, S.B. 1504 (Ariz. March 10, 2000) (statement of House Speaker Jeff Groscost). The legislation further provides that it is to "apply retroactively to taxable years beginning from and after December 31, 1994." Ariz. Sess. Laws 2000, ch. 405, § 40(A), 44th Leg., 2d Reg. Sess. (2000).

B. This Litigation

¶ 5 Taxpayer rents, leases, and sells motor vehicles to customers. A motor vehicle manufacturer installs emissions control equipment in these vehicles.

¶ 6 During the fiscal years ending in July 1996, 1997, and 1998 (the Refund Period), Taxpayer filed Arizona income tax returns without claiming any pollution control credits. On March 14, 2000, Enterprise Leasing filed refund claims totaling $2,440,843 plus interest for pollution control devices pursuant to A.R.S. § 43-1170 during the Refund Period. Meanwhile, Enterprise-West filed a similar claim for $1,283,539 plus interest.

¶ 7 The Department denied Taxpayer's claims. Taxpayer appealed the denial by filing two complaints (TX 2003-000551 and TX 2003-000552) in the Arizona Tax Court pursuant to A.R.S. § 42-1254(C) (2006). After consolidation, the parties filed cross-motions for partial summary judgment. The tax court ruled in the Department's favor on two alternative theories: the retroactivity of the 2000 amendment was constitutionally valid, and Taxpayer was not eligible for the credit under the plain language of the original tax credit statute. This appeal followed.

DISCUSSION

A. The Retroactive Amendment Did Not Deprive Taxpayer Of Due Process Or Violate The Separation Of Powers

¶ 8 The tax court held that the 2000 amendment to A.R.S. § 43-1170 applied retroactively and did not violate the constitution. Taxpayer contests this holding. We consider both the due process and separation of powers arguments.

1. Due Process

¶ 9 This court presumes that statutes are constitutional and attempts to construe them in a constitutional manner when possible. Baker v. Arizona Dep't of Revenue, 209 Ariz. 561, 564, ¶ 10, 105 P.3d 1180, 1183 (App.2005). As the challenging party, Taxpayer bears the burden of proof and must show beyond a reasonable doubt that the statute conflicts with the state or federal constitution. Hall v. A.N.R. Freight Sys., Inc., 149 Ariz. 130, 133, 717 P.2d 434, 437 (1986) (explaining that substantive rights may not be impaired once vested), superseded by statute on other grounds as recognized by Dykeman v. Engelbrecht, 166 Ariz. 398, 400-01, 803 P.2d 119, 121-22 (App.1990).

¶ 10 We presume that a statutory amendment changes the prior law. State v. Bridgeforth, 156 Ariz. 60, 63, 750 P.2d 3, 6 (1988). The Arizona Legislature's amendment, however, indicates that the original version of A.R.S. § 43-1170 did not give taxpayers a right to a tax credit for pollution control devices integrated into a vehicle. Our Supreme Court has stated: "It is ... clear ... that `[a]n amendment which, in effect, construes and clarifies a prior statute will be accepted as the legislative declaration of the original act.'" State v. Sweet, 143 Ariz. 266, 269, 693 P.2d 921, 924 (1985) (quoting City of Mesa v. Killingsworth, 96 Ariz. 290, 297, 394 P.2d 410, 414 (1964)); see generally 2 C. Sands, Sutherland Statutory Construction § 41.11, at 289-90 (4th ed.1973) (cited in Canisius College v. United States, 799 F.2d 18, 27 (2d Cir.1986)) (curative legislation is typically entitled to a liberal construction); but see San Carlos Apache Tribe v. Superior Ct., 193 Ariz. 195, 209, ¶ 30, 972 P.2d 179, 193 (1999) (the suggestion that the 1995 legislature can clarify what an earlier legislature in 1919 or 1974 intended carries us "into the world of speculation").

¶ 11 The legislative branch has the power to explain a statute and ensure that it is not extended beyond its intended reach. It may clarify the statute by amendment if the statute is ambiguous. Circle K Stores, Inc. v. Apache County, 199 Ariz. 402, 409, ¶ 22, 18 P.3d 713, 720 (App.2001). Therefore, curative statutes generally are not found to violate due process on retroactivity grounds. See Stephen R. Munzer, A Theory of Retroactive Legislation, 61 Tex. L.Rev. 425, 468 (Nov.1982). One indication of whether a statute is truly curative is whether the Legislature has provided specific guidance about the meaning of the amendment.

¶ 12 In this case, the Legislature indicated its curative intent as directly as possible. It stated that the revisions were intended to be "clarifying changes and are consistent with the legislature's intent when those sections were enacted" and were intended to "apply retroactively to taxable years beginning from and after December 31, 1994." Ariz. Laws 2000, ch. 405, §§ 40(A)41, 44th Leg., 2d Reg. Sess. (2000). A retroactive clarification does not violate due process. See Honeywell, Inc. v. Minn. Life & Health Ins. Guar. Ass'n, 110 F.3d 547, 555-56 (8th Cir.1997) (holding that an amendment to a fifteen-year-old statute narrowing the definition of "contractual obligation" did not violate the due process clause).

¶ 13 Following Taxpayer's argument would require us to approve a windfall because the original statute was not meant to grant a right to such a credit. See Charles B. Hochman, The Supreme Court and the Constitutionality of Retroactive Legislation, 73 Harv. L.Rev. 692, 705 (1960) (hereinafter Supreme Court). The clarifying amendment explained what the original legislation intended and did not change the status quo. Therefore, the amendment did not retroactively abolish a right.

¶ 14 Even if the amendment is not curative, it still passes muster under the due process clause. As a threshold matter, we must point out that even a retroactive statute is entitled to a presumption of constitutionality. See Usery v. Turner Elkhorn Mining Co., 428 U.S. 1, 15, 96 S.Ct. 2882, 49 L.Ed.2d 752 (1976). The plethora of decisions upholding retroactive legislation attests that a statute does not violate due...