S. Point Energy Ctr. v. Ariz. Dep't of Revenue

546 P.3d 1130

SOUTH POINT ENERGY CENTER LLC, Plaintiff/Appellant,

v.ARIZONA DEPARTMENT OF REVENUE, et al., Defendants/Appellees.

No. 1 CA-TX 20-0004

Court of Appeals of Arizona, Division 1.

Filed March 19, 2024

Appeal from the Arizona Tax Court, No. TX2013-000522, TX2014-000451, TX2015-000850, TX2016-001228, TX2017-001744, TX2018-000019, TX2019-000086 (Consolidated), The Honorable Christopher T. Whitten, Judge. AFFIRMED

Lewis Roca Rothgerber Christie LLP, Phoenix, By Patrick Derdenger, Karen M. Jurichko Lowell, Co-Counsel for Plaintiff/Appellant

Dickinson Wright PLLC, Phoenix, By Bennett Evan Cooper, Vail C. Cloar, CoCounsel for Plaintiff/Appellant

Gammage & Bumham, P.L.C., Phoenix, By Cameron C. Artigue, Christopher L. Hering, Counsel for Defendants/Appellees Arizona Department of Revenue and Mohave County

Arizona Attorney General’s Office, Phoenix, By Kimberly J. Cygan, Counsel for Defendant/Appellee Arizona Department of Revenue

Arizona Attorney General’s Office, Phoenix, By Jerry A. Fries, Counsel for Defendant/Appellee Mohave County

Kewenvoyouma Law, PLLC, Tempe, By Verrin T. Kewenvoyouma, Christopher Love, Co-Counsel for Amici Curiae Fort Mojave Indian Tribe, et al.

Jenner and Block, LLP, Washington, D.C., By Charles W. Galbraith, Pro Hac Vice, CoCounsel for Amici Curiae Fort Mojave Indian Tribe, et al.

Judge Cynthia J. Bailey delivered the opinion of the Court, in which Presiding Judge Paul J. McMurdie and Judge D. Steven Williams joined.

OPINION

BAILEY, Judge:

¶1 Plaintiff South Point Energy Center, LLC ("South Point") appeals the tax court’s summary judgment for the Arizona Department of Revenue ("ADOR") and Mohave County (collectively, "the County"). South Point argues that the tax court erred in concluding that the County’s valuation and taxation of South Point’s electric power generating plant ("the Plant") is not preempted under White Mountain Apache Tribe v. Bracker, 448 U.S. 136, 100 S.Ct. 2578, 65 L.Ed.2d 665 (1980). The issue comes to us on remand from the Arizona Supreme Court, which directed us to consider whether applying the Bracker interest-balancing test evi- dences Congress’s implicit intent to preempt taxing the Plant—a question previously raised by South Point on appeal but not decided by this court. See S. Point Energy Ctr. LLC v. Ariz. Dep’t of Revenue (South Point I), 251 Ariz. 263, 268, ¶ 24, 490 P.3d 372, 377 (App. 2021), vacated in part and remanded by S. Point Energy Ctr. LLC v. Ariz. Dep’t of Revenue (South Point II), 253 Ariz. 30, 39, ¶¶ 37–88, 508 P.3d 246, 255 (2022). For the following reasons, we affirm the tax court, which correctly ruled that the Plant is not exempt from the County’s tax under Bracker.

FACTS AND PROCEDURAL HISTORY¹

¶2 In 1999, Calpine Construction Finance Co. ("Calpine"), a non-Indian-owned entity, leased 320 acres of undeveloped land on a long-term basis from the Fort Mojave Indian Tribe ("the Tribe") to build and operate the Plant on reservation land. Beginning operations in 2001, the Plant is a "merchant plant" that sells electrical energy to public and private utility companies for resale to end-users. It does not supply electrical power to the Tribe or any person or entity on the reservation. The Tribe did not finance the Plant and does not contribute any operating funds.

¶3 Mohave County then assessed ad valorem property taxes against the Plant based on valuations determined by ADOR. See former Ariz. Const. art. 9, § 2(13) ("All property in the state not exempt under the laws of the United States or under this constitution or exempt by law under the provisions of this section shall be subject to taxation to be ascertained as provided by law.")²; accord Ariz. Rev. Stat. ("A.R.S.") § 42-11002. ADOR assessed the value of the Plant itself and the personal property used to operate the Plant; ADOR did not assess the value of the underlying land.

¶4 Calpine paid the taxes and unsuccessfully sued for a refund, arguing the Tribe, as lessor, owned all improvements to the leased property, thereby exempting the Plant from state taxation according to federal law. See Calpine Constr. Fin. Co. v. Ariz. Dep’t of Revenue, 221 Ariz. 244, 249, 1 22, 211 P.3d 1228, 1233 (App. 2009); see also Cass Cnty. v. Leech Lake Band of Chippewa Indians, 524 U.S. 103, 110, 118 S.Ct. 1904, 141 L.Ed.2d 90 (1998) ("State and local governments may not tax Indian reservation land ‘absent cession of jurisdiction or other federal statutes permitting it.’ " (quoting Cnty. of Yakima v. Confederated Tribes & Bands of Yakima Nation, 502 U.S. 251, 258, 112 S.Ct. 683, 116 L.Ed.2d 687 (1992))). On appeal, this court acknowledged the general rule that a lessor owns all real property improvements made by a lessee, but concluded the parties’ lease varied that rule by providing that Calpine owned all improvements. Calpine Constr., 221 Ariz. at 248, ¶¶ 16–17, 211 P.3d at 1232. Consequently, this court affirmed the tax court’s judgment that Calpine was liable for property taxes based on the value of the Plant and related personal property. See id. at 246, ¶ 1, 211 P.3d at 1230.

¶5 After a series of transactions involving Calpine and several of its related entities, the Tribe’s land and the Plant were sublet to South Point, another Calpine-related entity, with the Tribe’s consent and approval by the United States Bureau of Indian Affairs ("the BIA"). In 2012, the Tribe and Calpine’s successor-lessees, which are included in references to "South Point," executed an amended lease that remained in place during this lawsuit. The amended lease provides that no partnership exists between the Tribe and South Point. The amended lease also reaffirms that the Plant and "all [i]mprovements and associated materials, supplies, and equipment" are "owned and controlled" by South Point, and that at the expiration of the lease, South Point must remove all above-ground real property improvements and personal property, excepting roads and foundations.

¶6 The amended lease contemplates that ad valorem property taxes may be assessed on the Plant. In addition, the amended lease requires South Point to timely pay all taxes levied by any governmental entity to prevent the imposition of any liens and to hold the Tribe harmless against any imposed liens. The BIA approved the amended lease.

¶7 South Point initiated these consolidated lawsuits seeking a refund of payments for property taxes imposed from 2010 to 2018, to the extent they were based on valuations of the Plant. See A.R.S. § 42-11005 (authorizing a lawsuit to recover illegally levied, assessed, or collected taxes). South Point did not challenge the tax assessments based on ownership of the Plant, as Calpine did in its earlier lawsuit. Instead, South Point argued that § 5 of the Indian Reorganization Act of 1934 ("the Act"), see 25 U.S.C. § 5108 (former 25 U.S.C. § 465), expressly preempts states from imposing property taxes on any real property improvements, regardless of ownership, located on land held in trust by the federal government to benefit Indian tribes or individual Indians. Alternatively, South Point argued that applying the balancing test announced in Bracker demonstrates Congress’s implicit intent to preempt taxing the Plant.

¶8 The tax court rejected both of South Point’s arguments and granted summary judgment for the County. We reversed, concluding § 5 of the Act expressly and categorically exempted permanent improvements on the Tribe’s land from state taxation regardless of ownership. See South Point I, 251 Ariz. at 269, ¶ 30, 490 P.3d at 378. We remanded for the tax court to conduct an analysis under Whiteco Industries, Inc. v. Commissioner, 65 T.C. 664 (1975),³ to determine which, if any, of the assets making up the Plant constituted permanent tax-exempt improvements. South Point I, 251 Ariz. at 269, ¶ 30, 490 P.3d at 378. We did not apply the Bracker balancing test but directed the tax court to do so in considering whether property taxes on the Plant’s impermanent assets were preempted. Id.

¶9 The Arizona Supreme Court granted the County’s petition for review to decide whether the Act’s § 5 "expressly preempts taxing permanent improvements constructed on tribal lands acquired under that section when those improvements are owned by non-Indians." South Point II, 253 Ariz. at 33, ¶ 9, 508 P.3d at 249. The supreme court then vacated a portion of our opinion, holding that the Act does not expressly preempt Mohave County’s ad valorem property tax on the Plant. Id. at 31, 39, ¶¶ 1, 37–38, 508 P.3d at 247, 255. The court remanded the case to this court, see ARCAP 23(m)(2), to decide the remaining issue we had not addressed: "whether the tax court correctly ruled that the Plant is also not impliedly exempt from the County’s tax under Bracker," South Point II, 253 Ariz. at 39, ¶ 37, 508 P.3d at 255.

¶10 On remand, we ordered additional briefing by the parties and invited other interested parties to file amicus briefs, setting forth their respective positions on the issue.⁴ We now address the question presented to us on remand, and after consideration of Bracker and its progeny, we affirm the tax court.

DISCUSSION

[1, 2] ¶11 ‘We review the tax court’s entry of summary judgment de novo, viewing the facts in the light most favorable to South Point as the nonmoving party." South Point II, 253 Ariz. at 33, ¶ 10, 508 P.3d at 249 (citing Dinsmoor v. City of Phoenix, 251 Ariz. 370, 373, ¶ 13, 492 P.3d 313, 316 (2021)). We will affirm if there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Id. (citing Dinsmoor, 251 Ariz. at 373, ¶ 13, 492 P.3d at 316; Ariz. R. Civ. P. 56(a)).

[3, 4] ¶12 Preemption is a question of law, and we can decide the issue "based on a de novo Bracker analysis of the record before us." Seminole Tribe of Fla. v. Stranburg, 799 F.3d 1324, 1329 (11th Cir. 2015). The burden rests on South Point, as plaintiff, to prove implied federal preemption of state law. See Pickerel Lake Outlet Ass’n v....