Swat Training Facilities LLC v. Ariz. Dep't of Revenue

251 Ariz. 269

490 P.3d 378

SWAT TRAINING FACILITIES LLC, Plaintiff/Appellant,

v.ARIZONA DEPARTMENT OF REVENUE, Defendant/Appellee.

No. 1 CA-TX 20-0002

Court of Appeals of Arizona, Division 1.

FILED April 27, 2021

Frazer, Ryan, Goldberg & Arnold, LLP, Phoenix, By Douglas S. John, Counsel for Plaintiff/Appellant

Arizona Attorney General's Office, Phoenix, By Benjamin H. Updike, Nancy K. Case, Counsel for Defendant/Appellee

Presiding Judge Paul J. McMurdie delivered the Court's opinion, in which Judge Cynthia J. Bailey and Judge Lawrence F. Winthrop joined.

McMURDIE, Judge:

¶1 Appellant SWAT Training Facilities LLC ("SWAT") challenges the tax court's judgment affirming the Department of Revenue's (the "Department") classifications of its shooting-range revenues as amusements and its membership-program revenues as retail for transaction privilege tax purposes. We hold that a shooting range is a business subject to the transaction privilege tax under the amusement classification. We further hold that when a taxpayer fails to report separately revenues derived from different business classifications, the Department may treat those mixed revenues as if they were generated by the classification that yields the highest effective tax rate. We, therefore, affirm the tax court's judgment assessing tax on SWAT's shooting-range revenues under the amusement classification and membership revenues under the retail classification.

FACTS AND PROCEDURAL BACKGROUND

¶2 SWAT operates an indoor shooting range under the name "Shooter's World." The State and the City of Phoenix audited Shooter's World from January 1, 2010, through July 31, 2015. As relevant to this appeal, the audit determined a tax deficiency based on the unreported amusement classification receipts for shooting-range time and the underreported retail classification receipts. The Department issued a Notice of Proposed Assessment of additional amusement taxes under A.R.S. § 42-5073(A), retail taxes under A.R.S. § 42-5061(A), commercial leasing taxes, and use taxes totaling $509,707. That sum included $329,206 in state tax, $100,032 in municipal tax, and $80,468 in interest and penalties.

¶3 Shooter's World protested the combined assessment at an administrative hearing. The resulting administrative decision upheld the assessment.

¶4 Shooter's World appealed to the tax court under A.R.S. § 42-1254(C), arguing that its operation of an indoor shooting range does not fall within the amusement classification. It also argued that gross income attributable to its membership sales should not be taxed under the retail classification. The tax court entered summary judgment in favor of the Department. Shooter's World appealed, and we have jurisdiction under A.R.S. §§ 12-2101(A)(1) and 42-1254(D)(4).

DISCUSSION

¶5 We review the tax court's grant of summary judgment de novo . Rigel Corp. v. State , 225 Ariz. 65, 67, ¶ 11, 234 P.3d 633, 635 (App. 2010). We review the facts in a light most favorable to Shooter's World, the losing party. Nelson v. Phoenix Resort Corp ., 181 Ariz. 188, 191, 888 P.2d 1375, 1377 (App. 1994). A court should grant summary judgment only if it finds no genuine issues of material fact and that one party is entitled to judgment as a matter of law. Grain Dealers Mut. Ins. v. James , 118 Ariz. 116, 118, 575 P.2d 315, 317 (1978). Summary judgment is inappropriate if the facts, even if undisputed, would allow reasonable minds to differ. Nelson , 181 Ariz. at 191, 888 P.2d at 1377.

A. Shooter's World's Range Operations Fall Within the Amusement Classification.

¶6 The transaction privilege tax is an excise tax on the privilege or right to engage in an occupation or business in Arizona. CCI Europe, Inc. v. ADOR , 237 Ariz. 50, 52, ¶ 9, 344 P.3d 352, 354 (App. 2015). "It is not a sales tax, but a tax on the gross receipts of the [taxpayer's] business activities." Id . The tax is levied upon the business the taxpayer conducts, and "it is presumed that all gross proceeds of sales and gross income derived by a person from business activity classified under a taxable business classification comprise the tax base for the business until the contrary is established." A.R.S. § 42-5023 ; see also A.R.S. § 42-5008(A).¹ The Arizona transaction privilege tax is imposed on 16 different business classifications, including the "amusement" classification at issue here. A.R.S. §§ 42-5061 to -5076.

¶7 Shooter's World contends its range operations should not be classified as amusements because its range is not "of the same kind, class, or character" as the businesses listed in the statute establishing the classification, A.R.S. § 42-5073. That section provides that the amusement classification is comprised of the business of operating or conducting

theaters, movies, operas, shows of any type or nature, exhibitions, concerts, carnivals, circuses, amusement parks, menageries, fairs, races, contests, games, billiard or pool parlors, bowling alleys, public dances, dance halls, boxing and wrestling matches, skating rinks, tennis courts, except as provided in subsection B of this section, video games, pinball machines or sports events or any other business charging admission or user fees for exhibition, amusement or entertainment, including the operation or sponsorship of events by a tourism and sports authority under title 5, chapter 8.

A.R.S. § 42-5073(A). Under the Phoenix City Code, the amusement classification includes the following type or nature of businesses:

theaters, movies, operas, shows of any type or nature, exhibitions, concerts, carnivals, circuses, amusement parks, menageries, fairs, races, contests, games, billiard or pool parlors, bowling alleys, skating rinks, tennis courts, golf courses, video games, pinball machines, public dances, dance halls, sports events, jukeboxes, batting and driving ranges, animal rides, or any other business charging admission for exhibition, amusement, or entertainment.

Phoenix City Code ("P.C.C.") § 14-410(a)(1). Because "shooting ranges" do not appear in either provision, we must decide whether Shooter's World's range falls within "any other business charging admission or user fees for exhibition, amusement or entertainment." A.R.S. § 42-5073(A) ; P.C.C. § 14-410(a)(1).

¶8 When construing a tax statute, we give words their plain and ordinary meaning. Wilderness World, Inc. v. ADOR , 182 Ariz. 196, 198, 895 P.2d 108, 110 (1995). If the statute is unambiguous, we apply it as written without further analysis. City of Phoenix v. Orbitz Worldwide Inc ., 247 Ariz. 234, 238, ¶ 10, 448 P.3d 275, 279 (2019). If ambiguities remain after applying the usual tools of statutory construction, we will resolve those ambiguities in the taxpayer's favor. Wilderness World , 182 Ariz. at 199, 895 P.2d at 111 (citing Ebasco Servs. Inc. v. Tax Comm'n , 105 Ariz. 94, 97, 459 P.2d 719, 722 (1969) ). We construe city ordinances using the same principles we use to construe statutes. Orbitz Worldwide , 247 Ariz. at 238, ¶ 10, 448 P.3d at 279 (quoting Rollo v. City of Tempe , 120 Ariz. 473, 474, 586 P.2d 1285, 1286 (1978) ). In considering the statute's meaning, we give great weight to a regulation promulgated by an agency at the legislature's instruction. See Di Giacinto v. Ariz. State Ret. Sys. , 242 Ariz. 283, 286, ¶ 9, 395 P.3d 292, 295 (App. 2017). "But we make our own legal conclusions to determine whether the agency properly interpreted the law. An agency's interpretation is not infallible, and courts must remain the final authority on critical questions of statutory construction." Id. (citation and quotations omitted). Further, "[r]egulations may not be applied inconsistent with or contrary to the statutes they implement." Id.

¶9 Our supreme court interpreted the "catch all" clause of what is now A.R.S. § 42-5073(A) in Wilderness World , a case involving river-rafting excursions. 182 Ariz. at 197–98, 895 P.2d at 109–10. Applying the doctrine of ejusdem generis , the court held that unenumerated business "could be an ‘amusement’ under this statute if they were of the same kind or nature of activity as those specifically enumerated in the statute." Id. at 199, 895 P.2d at 111 ; see also Bilke v. State , 206 Ariz. 462, 465, ¶ 13, 80 P.3d 269, 272 (2003) (stating that ejusdem generis applies "where general words follow the enumeration of particular classes of things") (emphasis omitted) (quoting Black's Law Dictionary 517 (6th ed. 1990)). The court concluded that Wilderness World's river-rafting excursions were not of the same kind or nature as the activities offered by the enumerated businesses. The businesses listed in the statute provided "mainly spectator events of short duration or participatory activities requiring no supervision." Wilderness World , 182 Ariz. at 199, 895 P.2d at 111. By contrast, each Wilderness World excursion was guided, typically lasted 12 days, and covered several hundred miles. Id. at 197, 199, 895 P.2d at 109, 111. Further, Wilderness World did not charge an "admission fee" like the businesses specified in the statute; its customers did not pay "to sit in the raft," but instead paid "for the skill, direction, and service provided by the guide, the food and equipment for the trip, and the transportation to and from the river." Id. at 198-99, 895 P.2d at 110–11.

¶10 Shooter's World argues the supreme court's observation that the enumerated businesses offer "mainly spectator events of short duration or participatory activities requiring no supervision" created a test for determining what unenumerated businesses are subject to the tax under the statute. But the supreme court did not offer this characterization as a controlling test. In fact, several of the specifically enumerated businesses in the statute would fail such a test. For example, amusement parks and bowling alleys generally do not involve spectator events. Instead, they involve participatory activities requiring some supervision and would not qualify under Shooter's World's test.

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