I 2 J 4 5 6 7 8 9 l0 11 t2 13 t4 15 t6 t7 18 t9 20 2l 22 23 24 25 26 27 28 FENNEMORE CRAIG, P.C. Timothy Berg (No. 004170) Kendis Key Muscheid (No. 015212) Kevin M. Green (No. 025506) 3003 North Central Avenue Suire 2600 Phoenix, AZ 85012-2913 Telephone: (602) 916-5000 Email: tbersØfolaw.com Email : kmu"slheiø.fclaw. com Email: [email protected]èlaw.com Auomeffiefenclant-in-Intervention Tourism and Sports Authority dba The Arizona Sports and Tourism Authority Thomas C. Horne Arizona Attorney General Kimberly Cygan (No. 013977) Assistant Attorney General Arizona Attorney General's Office, Tax Unit 1275 West \Mashington St. Phoenix, AZ 85007 Telephone: (602) 542-17 19 Email: Tax@azap,.gov Attorney forìb e feî õant s Arizona Department of Revenue and Gale Garriott SUPERIOR COURT OF THE STATE OF ARIZONA ARIZONA TAX COURT SABAN RENT.A-CAR, LLC1' DS RENTCO, INC.; and PTNK, individually and in a representative capacity, Plaintiffs, V. ARIZONA DEPARTMENT OF REVENLIE, A political subdivision of the State of Arizona;' and ^CeI-g GARzuOTT, Director of the Arizonâ Department of Revenue, Defendants and TOLIRISM AND SPORTS AUTHORITY dba THE ARIZONA SPORTS AND TOURISM AUTHORITY, a political subdivision of the State of Arizona, De fendant- in- Intervention. Case No. TX20l0-001089 DEFENDANTS' RESPONSE TO PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT AND REPLY IN SUPPORT OF MOTION FOR SUMMARY JUDGMENT (Assigned to the Hon. Dean Fink)
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FENNEMORE CRAIG, P.C.Timothy Berg (No. 004170)Kendis Key Muscheid (No. 015212)Kevin M. Green (No. 025506)3003 North Central AvenueSuire 2600Phoenix, AZ 85012-2913Telephone: (602) 916-5000Email: tbersØfolaw.comEmail : kmu"slheiø.fclaw. comEmail: [email protected]èlaw.comAuomeffiefenclant-in-InterventionTourism and Sports Authority dba The ArizonaSports and Tourism Authority
Thomas C. HorneArizona Attorney GeneralKimberly Cygan (No. 013977)Assistant Attorney GeneralArizona Attorney General's Office, Tax Unit1275 West \Mashington St.Phoenix, AZ 85007Telephone: (602) 542-17 19Email: Tax@azap,.govAttorney forìb e feî õant sArizona Department of Revenue andGale Garriott
SUPERIOR COURT OF THE STATE OF ARIZONA
ARIZONA TAX COURT
SABAN RENT.A-CAR, LLC1' DS RENTCO,INC.; and PTNK, individually and in arepresentative capacity,
Plaintiffs,V.
ARIZONA DEPARTMENT OF REVENLIE, Apolitical subdivision of the State of Arizona;' and^CeI-g GARzuOTT, Director of the ArizonâDepartment of Revenue,
Defendants
and
TOLIRISM AND SPORTS AUTHORITY dbaTHE ARIZONA SPORTS AND TOURISMAUTHORITY, a political subdivision of theState of Arizona,
Plaintiffs ask this Court to invalidate the AzSTA Taxr on the ground it violates the
Dormant Commerce Clause. However, Plaintiffs urge the Court to apply a
"discriminatory purpose" test that has no application to the transaction privilege taxes at
issue. Plaintiffs wholly fail to address the United States Supreme Court's goveming
effects-driven analysis for evaluating such challenges to state taxes, set forth in Complete
Auto Transít v. Brady, 430 U.5.274,279 (1977). Not surprisingly then, Plaintiffs fail to
establish the AzSTA Tax has the effect of discriminating against interstate commerce.
Even assuming "discriminatory purpose" were a relevant inquiry here-and it is
not-there simply is no admissible evidence establishing the Arizona legislature enacted
the AzSTA Tax for a discriminatory pu{pose as that term is understood in Dormant
Commerce Clause jurisprudence. The contrary authorities Plaintiffs cite are inapposite.
Additionally, Plaintiffs' strained interpretation of Article 9 $ 14 of the Arizona
Constitution has no traction. Accordingly, summary judgment in Defendants' favor is
warranted.
I. THE AZSTA TAX HAS DENTAL AND NON- INATORY
Plaintiffs allege the AzSTA Tax impermissibly discriminates against interstate
commerce because the rental car surcharge falls primarily on out-of-state visitors. See
Counter-Motion at 27-28. This is not so. In an effort to fabricate a claim of
impermissible discrimination, however, Plaintiffs continue to ignore the fundamental
nature of the AzSTA Tax.
The AzSTA Tax is a transaction privilege tax, and its legal incidence falls only on
car rental companies renting cars within Arizona-i.e., the companies are the taxpayers.
Karbal v. Arizona Dep't of Revenue,2l5 Atiz. ll4, Il6, 'T 10, 158 P.3d 243,245 (App.
2007). The liability for the AzSTA Tax (like Arizona's other transaction privilege taxes)
falls on the taxpayer, and not on its customers. ,See A.R.S. ç 42-5024. Taxpayers may
I Unless otherwise noted, capitalized, def,tned terms usedReply have the same meaniñgs as those ascribed in theMótion for Summary Judgment.
in this combined Response andDefendants' February 18, 2011
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elect to pay the AzSTA Tax themselves or to charge their customers a separately itemized
amount to cover the rental car surcharge. See A.R.S. ç 42-5002(AXt); see also Arí2. Dept.
of Rev. v. Action Marine, Inc.,2l8 Ariz.l41, 181 P. 3d 188 (2008). In all cases, however,
it is the vendor (or, in this case, lessor) that must remit the AzSTA Tax to the ADOR,
without regard to whether or not it elects to pass on the cost of that tax to its customers.
See A.A.C. $ Rl5-24-2002; see also A.R.S. 5 42-5002.
The AzSTA Tax is imposed on all rental car companies leasing vehicles within
Maricopa County, Arizona. ,See A.R.S. $ 5-S39(C). It applies exclusively to íntrastate
car rental transactions, and then only to those rented in Maricopa County, and draws
absolutely no distinction between car rental companies headquartered in Arizona (such as
Plaintiffs) and those domiciled in any other state, but doing business here. See id.
Furthermore, the AzSTA Tax is levied consistently and evenhandedly without regard to
the residence of lessees. The AzSTA Tax does not distinguish between Arizonaresidents
and out-of-state residents in any manner or application.
Nor is the AzSTA Tax the type of economically isolationist or protectionist
legislation with which the Dormant Commerce Clause is concerned. The AzSTA Tax is
levied to support the building and maintenance of facilities which are available for use,
are used by, and benefit both Arizona residents and out-oÊstate visitors alike. ,See A.R.S.
$$ 5-807, 5-808, 5-809 (setting forth various activities of AzSTA).
Plaintifß nonetheless ask the Court to invalidate the AzSTA Tax by ignoring its
legal incidence and even-handed application. They demand relief based on speculative
suppositions of a stadium planning task force as well as proponents of the ballot measure
that a substantial portion of the AzSTA Tax would be borne ultimately by tourists, rather
than Arizona residents. See Counter-Motion at 4-5. Applying the governing legal
standards-rather than indulging in Plaintiffs' speculative enterprise-the Court must
deny Plaintiffs' Dormant Commerce Clause claim and enter judgment in Defendants'
favor.
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il. PLAINTIFFS DO N ISH STANDING TO CHA
While Plaintiffs, as the taxpayers upon whom the AzSTA Tax is levied, may be the
appropriate parties to challenge the constitutionality of the AzSTA Tax in a general sense,
they fail to establish theìr standing in this case to raise the Commerce Clause challenge
they make. As explained more fully in Defendants' Motion, the prudential requirement of
standing in Arizona courts requires Plaintiffs to establish a particularized injury to
themselves. See Motion at9-lI (citing Bennett v. Brownlow,2ll Ariz. 193, t95,I 14,
119 P.3d 460, 462 (2005). Plaintiffs allege no discriminatory injury to themselves.
Instead, they attempt to boot-strap standing based on an alleged (and unproven) injury to
their customers, who are not subject to the AzSTA Tax. See Counter-Motion at 15-16.
Plaintiffs rely largely on Bacchus Imports, Ltd. v. Dias,458 U.S. 263 (1984) for the
proposition that they may base standing on their customers' alleged "injuriss"-injuries
wholly and voluntarily inflicted by Plaintiffs, alone. See id. Bacchus Imports is
inapposite. In Bacchus Imporfs, the Court held that plaintiff wholesalers of liquor in
Hawaii had standing to challenge a Hawaiian taxfhat exempted locally-produced liquors
from taxation. Notably, the Court's ruling as to the plaintiffs' standing was premised on
the fact that "even if the tax is completely and successfully passed on fto customers] it
increases the price of þlaintiffs'] products as compared to the exempted beverages, and
the wholesalers are surely entitled to litigate whether the discriminatory tax has had an
adverse competitive impact on their business." See íd. at 267. The Bacchus Imports
plaintiffs had an injury. Such is not the case here.
The AzSTA Tax does not exempt any car rental companies from its provisions.
^See A.R.S. $ 5-839(C). Every car rental company operating in Maricopa County is
subject to the same surcharges under the AzSTA Tax, which draws no distinction between
Arizonacar rental businesses and their out-of-state competitors. Nor does the AzSTA Tax
exempt vehicles rented by Arizona customers while taxing those rented to out-of-state
customers. Further, the AzSTA Tax does not increase Plaintiffs' costs or burden them in
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a manner that is not equally borne by all of Plaintiffs' competitors. As such, there can be
no question that the AzSTA Tax does not provide any competitive advantage to intrastate
car rental companies to the detriment of their out-of-state competitors.
Contrary to Plaintiffs' assertions, Bacchus Imports does not stand for the broad'
proposition that standing may be derived from an alleged injury to Plaintiffs' customers,
but stands, instead for the proposition that even if a taxpayer passes the tax to its
customers, ataxpayer who suffers injury in fact from the unequal imposition of a tax may
challenge the tax. See Bacchus Imports, 458 U.S. at267. While Plaintiffs are the ones
legally required to pay the AzSTA Tax such that they may be the proper parties to bring
suit, they have no injury because all car rental companies pay the same tax on the same
activities.
ilI. URT MUST IN TO THE PRACT F'ECT OF THE
Under Complete Auto Transit v. Brady, 430 U.5.274,279 (1977) and its progeny,
ignored by Plaintiffs, courts faced with Dormant Commerce Clause challenges to state
taxes must inquire into the "practical effect" of the challenged tax to determine whether it
violates that clause. Applying Complete Auto, the AzSTA Tax must be upheld so long as
it "is applied to an activity with a substantial nexus with the taxing State, is fairly
apportioned, does not discriminate against interstate commerce, and is fairly related to the
services provided by the State." See Complete Auto,430 U.S. at 279. Failing as they do
to even acknowledge this controlling authority, Plaintiffs also fail to establish the requisite
threshold issue-that the AzSTA Tax has the effect of discriminating against interstate
com-erce.'
Nonetheless, Plaintifß briefly argue the AzSTA Tax has a discriminatory effect.
A.
2 Rather than repeat the arguments -reg-arding the fourPlaintiffs do nof even address-Defendants incorporatefrom their Motion.
^See Motion at 12-23.
Comnlete Auto factors-whichby ïeference those arguments
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See Counter-Motion at27-28. Plaintiffs' argument, however, is premised on the unproven
allegation that 85o/o to 90o/o of the AzSTA Tax is borne by out-of-state visitors. This
allegation, even if true, is constitutionally irrelevant for purposes of Plaintiffs' Dormant
Commerce Clause challenge. See Commonwealth Edison Co. v. Montana,453 U.S. 609
(1e81).
The mere fact that a tax may be borne primarily by out-of-state consumers is
insuff,rcient to establish a discriminatory effect for purposes of the Dormant Commerce
Clause, and the Supreme Court has long rejected this very argument. See íd. at 617-618.
In Commonwealth Edison Co., the Court was asked to invalidate pursuant to the Dormant
Commerce Clause a Montana tax on the removal of coal. See id. at 612. The appellants
(in,state coal producers and their out-oÊstate customers) asserted that Montana's
severance tax discriminated against interstate commerce on the ground that "90%o of
Montana coal is shipped to other States under contracts that shift the tax burden primarily
to non-Montana utility companies and thus to citizens of other States." See id. ar 617 -618.
The Court applied Complete Auto to determine whether the challenged tax
impermissibly discriminated against interstate commerce. See id. at 612. Noting that "the
gravamen of appellants' claim is that a state tax must be considered discriminatory for
purposes of the Commerce Clause if the tax burden is borne primarily by out-of-state
consumers," the Supreme Court flatly rejected the appellants' argument. See id. at 618'
The Court further stated its "misgivings about judging the validity of a state tax by
assessing the State's . . . 'exportation' of the tax burden out of State." See íd. Finally,
reviewing Montana's coal tax, the Court concluded that the tax was "computed at the
same rate regardless of the final destination of the coal" and held that the challenged tax
did not involve "the type of differential tax treatment of interstate and intrastate commerce
Like the coal tax at issue in Commonwealth Edison Co., the AzSTA Tax is
computed even-handedly without regard to whether the taxpayer is an Arizona company
or an out-of-state competitor. ^See A.R.S. S-539(B). Even assuming Plaintiffs pass
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through the rental car surcharge to their customers, there is no discrimination in the
AzSTA Tax for the simple reason that the AzSTA Tax makes no distinction whatsoever
between Arizona cat rental customers and out-of-state car rental customers. See
generally, A.R.S. $ 5-839.
Finally, Plaintifß' allegation that 85o/o to 90%o of the AZSTA Tax is paid by out-of-
state visitors is incorrect as a matte.r of law. As is more fully explained in Defendants'
Motion and discussed earlier in this Reply, the AzSTA Tax is a transaction privilege tax
the legal incidence of which falls on car rental companies, not their customers. See
lviotion at 8-9. That Plaintiffs may choose to pass through to their customers the rental car
surcharge is of no import, as the legal incidence of the AzSTA Tax is the critical inquiry
under the Dormant Commerce Clause . See Commonwealth Edison Co.,453 U.S. at 625.
B. Cornpl¿1e,4ølo Governs Plaintiffs' Dormant Commerce Clause Claim.
Plaintifß devote the substantial majority of their Cross-Motion to arguing that the
AzSTA Tax "purposely" discriminates against interstate commerce. See Counter-Motion
af 17-28. Plaintiffs largely ignore the governing standard for evaluating Dormant
Commerce Clause challenges to state taxes and provide no answer to Defendants'
authorities that the AzSTA Tax must be sustained under the test in Complete Auto.3
As Plaintifß' own authorities make clear, Complete Au,to's practical effect test
governs resolution of their Dormant Commerce Clause claim: "Over the past twenty
years, the [United States Supreme] Court has resolved challenges to the validity of state
taxes that affect interstate commerce by applying a four-part test first announced in
Complete Auto Transit, Inc. v. Brady." See Choper, Jesse H. and Yin, Tung, "State
Taxation and the Dormant Commerce Clause: The Object-Measure Approach," 1998
Sup. Cr. Rev. 193; see also Cross-Motion at 7-8 (citing Choper and Yin with approval).
Ovemrling a more formalistic inquiry into whether state taxing provisions offend
3 Plaintiffs also ignore the standard under which this Court must evaluate the AzSTA Tax.See Longv. Napolítano,203 Ari2.247,253,I 16, 53 P.3d 172, 178 (App. 2002),(notingthat courts müst interpret legislative enactments to give them a reasonable andconstitutional meaning);-see also Hall v. A.N.R. Freight Sys.,149 Ariz. 130, 133, 717 P.2d43 4, 437 ( I 9 86) (noting presumption of constitutionality).
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the Dormant Commerce Clause, Complete Auto "instead considered the prøctical effects
of state tuxes on interstøte commeFce." See Choper and Yin, 1998 Sup. Cr. Rnv. at 195-
96; see also Complete Auto,430 U.S. at279. Indeed, Plaintiffs' own authorities confirm
that the constitutionality of state taxes must be measured based on their effect. See SDDS,
Inc. v. South Dakota,47 F.3d263,267 (8th Cir. 1995) (reasoning that in the absence of
facial discrimination courts must "examine the overall effect of the challenged
ffieasures"); see also Lewís v. BT Inv. Managers, Inc. 447 U.5.27,37 (1980) ("[t]he
principal focus of inquiry must be the practical operation of the statute, since the validity
of state laws must be judged chiefly in terms of their probable effects").
Moreover, since 1978, the Supreme Court has applied Complete Auto to analyze
the vast majority of Dormant Commerce Clause challenges to state taxes. See, e.g.,
Oklahoma Tax Comm'n v Jefferson Lines, 514 U.S. 175 (1995) (superseded by statute);
Barclays Bank PLC v Franchíse Tax Board,512 U.S. 2gS (lgg4); Itet Containers Int'l
Corp. v Huddleston, 507 U.S. 60 (1993); Trivonia Corp. v Michigan Dept. of Treasury,
498 U.S. 358 (1991); Amerada Hess Corp. v Director, 490 U.S. 66 (1989); Goldberg v
Sweet,488 U.S. 252 (1959); D. n. Holmes Co. v McNamara, 486 U.S. 24 (1988);
Container Corp. v Franchise Tax Board,463 U.S. 159 (1983); Commonwealth Edison
Co. v Montana,453 U.S. 609 (1981) ("In reviewing Commerce Clause challenges to state
taxes, our goal has . . . been to 'establish a consistent and rational method of inquiry'
focusing on 'the practical effect of a challenged tax."'); Department of Revenue v
Assocíation of Washington Stevedoring Cos.,435 U.S. 734 (1978).
Absent intervening authority that invalidates Complete Auto, there is no question
but that that case provides the applicable standard for evaluating Plaintiffs' Dormant
Commerce Clause claim. Consequently, because the AzSTA Tax has no discriminatory
Further, Plaintiffs' allegations regarding the purported "discriminatory effect" lack
C.ommerce.
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any evideîtiary support. Plaintiffs concede that a state tax has a discriminatory effect "ifit favors in-state economic interests while burdening out-of-state interests." See id. at27.
In this case, there is no evidence of such a discriminatory effect as all car rental
companies leasing cars in Maricopa County pay the AzSTA Tax, irrespective of whether
they are local businesses or foreign companies. See A.R.S. $ 5-839(C).
Sidestepping the fact that the legal incidence of the AzSTA Tax is levied even-
handedly on all car rental businesses engaged in leasing transactions in Arizona without
regard to their states of incorporation, Plaintiffs assert that "the State admits that 85-95%
of the Taxes are borne by out-of-state visitors." See Counter-Motion at28. Importantly,
Plaintiffs provide no citation to any competent evidence that out-of-state visitors to
Arizona actually do pay this percentage of the AzSTA Tax. See id.
Moreover, for this alleged statistical "evidence," Plaintiffs cite to the January 2000
"Final Report" of the "Governor's Stadium Plan 'B' Advisory Task Force." See
Plaintiffs' Responsive and Supporting Statement of Facts ("PSOF") at2,13. Even if this
Report were properly authenticated-it is nota-the projections cited by Plaintiffs are
entirely speculative. Such speculative evidence is, of course, inadmissible at summary
judgment and lacks any probative value as to the alleged discriminatory effect of the
AzSTA Tax. See In re 1996 Nissan Sentra,20l Ariz. 114, 1[ 6,32P.3d39, a2 (App.
2001) (noting that unsworn and unproven assertions in a memorandum are not facts
"admissible in evidence" for purposes of summary judgment).
Notably, the Report cited by Plaintiffs is not part of the legislative record and was
prepared more than one year beþre the AzSTA Tax was enacted and roughly ten years
before Plaintiffs initiated this action. It strains credibility to suggest, as Plaintiffs do, that
this Report somehow provides evidence of the discriminatory effect of subsequently
enacted legislation.
o Even assuming the documents submitted by Plaintiffs with their Counter-Motion havebeen "part of thãpublic record" (see CounterjMotion at2l), this alone does not mean thatthey afe properlyãuthenticated fôr purposes of admissibility. ,See Rule 902, Ariz. R Evid.(seítine forth ttíe requirements for selÊauthenticating doiuments). Nor áoes Plaintiffs'òounsãl's affidavit satis¡, the requirements of authentícation.
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IV.
Against the great weight of authority applying Complete Auto's "practical effect"
analysis of state tax provisions, Plaintiffs rely on a handful of opinions addressing patently
protectionist legislative enactments that have been invalidated under the Dorrnant
Commerce Clause. These cases have no application here because the AzSTA Tax was not
premised on any such protectionist purpose. Arguing to the contrary, Plaintifß attempt to
distort the purposes underlying the Dormant Commerce Clause.
The Dormant Commerce Clause is intended to protect the free flow of goods in
interstate commerce against legislation borne of gross economic protectionism on the part
of the several states. See United Haulers Ass'n v. Oneída-Herkimer Solíd Waste Mgm't
Auth.,550 U.S. 330,338 (2007); see also Dep't of Revenue v. Davís, 553 U.S.328,338
(2008). As the Supreme Court noted, the Commerce Clause was implemented as a means
of cementing federal power over interstate commerce so as to prevent the several states
from retreating into economic isolationism and balkanization. See Davis,550 U.S. at 338.
Plaintiffs argue the AzSTA Tax purposefully discriminates against interstate
cornmerce premised on the allegation that the rental car surcharge "targets" out-of-state
visitors. See Counter-Motion at 22-27. Even if this allegation were proven true, that
would not invalidate the AzSTA Tax. This is because, unlike the cases in which federal
courts found an unconstitutional "discriminatory purpose," the AzSTA Tax does not
purposefully (or in practical effect) favor Arizonaproducts or markets, impede a free flow
of goods into Arizona, or erect impermissible barriers around A¡izona's resources. In
short, the AzSTA Tax does not implicate in any manner the underlying purposes and
concerns of the Dormant Commerce Clause. Thus, the cases Plaintiffs cite are inapposite.
In 1984 the Supreme Court struck down a Hawaiian sales tax pursuant to the
Dormant Commerce Clause. In Bacchus Imports, the Hawaiian legislature "sought to
A.
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Meanins Of 'oDiscri
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encourage development of the Hawaiian liquor industry." See id. at265. The legislature
amended Hawaii's liquor tax to exempt two liquors produced in the state: okolehao-"a
brandy distilled from the root of the ti plant, an indigenous shrub of Hawaii"; and fruit
wine-made only from pineapple. In effect, these exemptions favored liquor products
manufactured only in Hawaii. See id. at268.
The Court stated "[a] cardinal rule of Commerce Clause jurisprudence is that no
State may impose a tax which discriminates against interstate commerce...by
providing a direct commercial advantage to local business." Id. Noting the Hawaiian
liquor tax exemptions appeared to be facially discriminatory, the Court went on to address
the claim that the exemptions were unconstitutional because of their discriminatory
p.rrpose.s See íd. at270 (internal quotations omifted). The Court reasoned:
The legislature's reason for exempting ti root okolehao from the alcohol taxwas to encourase and promote thè eslablishment of a new industry . . . andthe exemption õf fruit wine manufactured in the State F9n] pro¿ucts.grownin the Staie was intended to help in stimulating the local fruit wine industry.
Id. (intenal quotations omitted). The Court went on to reason: "we need not guess at the
legislature's motivation, for it is undisputed that the purpose of the exemption was to aid
Hawaiian industry." Id. at 27I. It held the Hawaiian tax, adopted for the purpose of
benef,rting or protecting local products to the detriment of out-oÊstate products has "both
the purpos e ønd effect" of discriminating against interstate commerce in violation of the
Dormant Commerce Clause. Id. at273.
It is, of course, an entirely different matter to argue as Plaintiffs do here that a
facially-neutral state tax that is even-handedly collected from in-state and out-of-state
businesses is invalid under the Dormant Commerce Clause simply because the legislative
body adopting it expected out-of-state individuals might effectively bear the lion's share
5 In fashionine this "discriminatory purpose" inquiry, the Court relied on Hunt v'
Woinl"sloi Àipt, Advertising Comm'n, [32 U.S. i33; _352-353 (1977). Notably, Iluntoredatei Comblete Auto and il not a tax case. Nor did Hunt hold the statute at issue there'"ir"ãñrtit"tióáât U""árm. of discriminatory pu{pose. Rather, in dicta, the Court reasoned
tttãt iñJ áppt"-labeling statute at issue ii Huitt probably would not pass constitutionalmuster beõáuse of its discriminatory purpose'
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of the tax. If Plaintiffs' argument that such knowledge constitutes an impermissible
discriminatory purpose, then the Montana severance tax at issue in Commonwealth Edison
would have been invalidated because the Montana legislature undoubtedly knew and
intended its tax would fall primarily on out-of-state utilities and their customers.
The other authorities on which Plaintiffs rely-none of which concern challenges
to taxes such that Complete Auto properly would have been applied-also concem
patently protectionist motives bearing no resemblance to the purposes underlying the
AzSTA Tax (e.g., generating revenue to fund the building of professional sports stadiums
and youth and amateur sports facilities). For instance, in Jones v. Gale,470 F.3d 1261,
1270 (Sfh Cir. 2006), the Eighth Circuit invalidated a Nebraska law that limited ownership
of Nebraska farm or ranch land to Nebraska residents. Similarly, SDD^S, Inc.,47 F.3d at
268, the Eighth Circuit invalidated a South Dakota law, the express purpose of which was
to prevent operation of a solid waste facility that "imported" garbage from out of state.
The AzSTA Tax evinces no such "discriminatory purpose." It does not promote
local car rental businesses over their out-of-state competitors. ^See A.R.S. $ 5-839(C).
Nor does the AzSTA Tax create an impermissible economic boundary around Arizona
and/or Arizona consumers because even Arizona companies pay the AzSTA Tax' Thus,
even assuming the "discriminatory purpose" test advocated by Plaintiffs were applicable
in this case-but because Complete Auto govems, it is not-it is plain that the
"discriminatory purposes" with which the Dormant Commerce Clause is concerned bear
no relation to the legitimate purposes of the AzSTA Tax.
B. Plaintiffs Produce No Evidence Of Relevant Discriminatory PurDose.
To prevail on their claim that the AzSTA Tax violates the Dormant Commerce
Clause, Plaintiffs bear the burden of establishing that the rental car surcharge was enacted
for impermissible protectionist purposes or for the purpose of favoring local industry.
This, Plaintiffs have faited to do because there is no such evidence.
As an initial matter, Plaintiffs quarrel with Defendants' construction of the Arizona
Rules of Evidence and assert that none of Defendants' objections to this evidence are
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valid. While Defendants do not concede Plaintiffs' evidence of "discriminatory purpose"
is admissible as a matter of law, it is noteworthy that Plaintiffs' evidence does not evince
any "discriminatory purpose" as that term is understood in the context of Dormant
Commerce Clause Jurisprudence. Simply put, there is no evidence-and Plaintiffs cite to
none-that the AzSTA Tax was enacted to protect or isolate Arizona markets or products
or to raise barriers to the free flow of goods and persons in interstate commerce.
Rather, the statutory language reveals the purpose of the AzSTA Tax was to
promote tourism (and particularly sports tourism) and develop professional sports
facilities as well as community youth sports and recreation centers in Arizona. See
generally, A.R.S. $$ 5-807, 5-808, 5-809. Indeed these purposes are set forth in the very
documents Plaintifß present in support of their "discriminatory purpose" argument. See
PSOF, Exh. F-4 (noting AzSTA was established by law to "promote tourism" and develop
sports facilities). As such, the facilities supported by the AzSTA Tax benefil the very
tourists who travel here to use those very facilities.6
Plaintifß' assertion that the Arizona legislature purposely crafted an "exemption"
to the AzSTA Tax for Arizona residents is meritless.T ,See Counter-Motion at 23.
Plaintiffs allege in an effort to conceal their alleged discriminatory motive and "[a]fter
concluding that most fArizona] residents rented cars while their own cars were in a repair
facility, the Legislature created an express exemption for such situations." The present
AzSTA Tax, which Plaintifß challenge, does not contain any "express exemption." See
A.R.S. $ 8-539(8). Both the rental car surcharge of 3.25% of the rental contract price as
well as the so-called "exemption" for replacement vehicles (e.g., the flat surcharge of
$2.50 per lease) apply without regard to an individual lessee's state of residence. See id.
6 The Court may take judicial notice that the University of Phoenix Stadium, among otherfacilities maintâined
-by the AzSTA Tax, regularly hosts sporting events that do notinvolve Arizona francliises--such as the 200f and'2011 BCS Bowl games, 2008 NFLSuperbowl, and 2009 NCAA@ Division I Men's Basketball West Regionals. ,See Rule201(b), Ariz. R. Evid.7 Defendants maintain their objection to Plaintiffs' reliance on statements of legislators asevidence of "discriminatory púrpose" as such statements are inadmissible under Arizonalaw. See Golder v. Dep't of Revènue,123 Ari2.260,265,599 P.2d216,221 (1979).
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Whether the full rental car surcharge or the rate for replacement vehicles pending repairs
applies depends not on the state of citizenship of the lessee but on the circumstances under
which she requires a rental car. Assuming Plaintiffs and their competitors elect to pass
through to their customers the cost of the replacement vehicle surcharge (e.g., 52.50 per
lease), that same surcharge would apply to an Arizona resident requiring vehicle repairs
and to any out-of-state visitor who traveled to Arizona in his car and required use of a
rental car while his vehicle was repaired in Arizona. Plaintiffs' so-called "exemption" is,
thus, wholly non-discriminatory.
Furthermore, Plaintiffs' suggestion that this nonexistent "exemption" is evidence of
the state legislature's discriminatory purpose is patently insupportable. To the contrary,
the Arizona legislature amended the AzSTA Tax in 2002 to add the differential tax for
replacement vehicles and, in so doing, entírely elíminated any exemption from the AzSTA
Tax. See Defendants' concurrently f,rled Responsive Statement of Facts, fl 6.
Finally, having failed to provide the Court with any admissible evidence regarding
a discriminatory purpose as that term is understood under the Dormant Commerce Clause,
Plaintiffs assert (without any legal support) that Defendants have admitted that the AzSTA
Tax unlawfully discriminates against interstate commerce. See Counter-Motion at 25-26.
Plaintiffs' arguments are factually and legally meritless.
In support of these supposed "admissions," Plaintifß cite to motion papers and
briefs frled by Defendants in the prior case of Long v. Napolítano. Under Arizona law,
these statements in prior pleadings are not, as Plaintiffs suggest, judicial admissions with
conclusive force. See Bank of Am. Nat'l Trust & Sav. Ass'n v. Maricopa County, 196
Ariz. 173,993 P.2d 1137 (1999).
Nor should they be given any binding effect. First, the Long litigation did not
specifically challenge the AzSTA Tax on any groùrtds, but rather concerned special laws
and constitutional debt limitation challenges to the "legislation creating and implementing
the [AzSTAf)' See Long v. Napolitano,203 Ati2.247,251, T 1, 53 P.3d 172, 176 (App.
2002). To suggestthat Defendants' statements in the Long litigation should be given any
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weight (or accorded any relevance) simply strains credulity.
Further, as evidence of alleged discriminatory pu{pose, Plaintiffs appear to rely on
Defendants' statements regarding A.R.S. ç 48-4234(D), a different tax from the AzSTA
Tax. ,See Counter-Motion at 25:19-25. That tax, however, has been in place without
challenge since 1998, and is not at issue here.
Finally, Plaintiffs' facile assertions that the AzSTA Tax facially discriminates
against interstate commerce are unavailing. See Counter-Motion at 17. Plaintiffs argue
that the AzSTA Tax is facially discriminatory because it "purports to exclude in state [sic]
residents from paying for the car rental taxes under their most likely circumstance (rental
of a car while their own vehicle is unavailable)." Id.
This strained interpretation of "facial" invalidity is not borne out by the plain
language of the AzSTA Tax. Plaintiffs once again ignore the plain and undisputed fact
that the incidence of the AzSTA Tax is borne by car rental companies, not their
customers. See Commonwealth Edison Co., 453 U.S. at 625 (noting "operating
incidence" of tax is decisive for Dormant Commerce Clause purposes) (internal
quotations omitted). Plaintiffs and their competitors leasing vehicles within Arizona -whether in-state or out-of-state companies-must pay the AzSTA Tax. See American
Trucking Associations, Inc. v. Míchigan Pub. Svc. Comm., 545 IJ.S. 42g, 434 (2005)
(finding no facial discrimination in flat fee imposed on all trucks making domestic
journeys within Michigan); see also A.R.S. $ 5-839(C).
Furthermore, without conceding the AzSTA Tax's impact on out-of-state car rental
customers is even relevant, it is clear the statute does not facially discriminate against
such customers. The AzSTA Tax does not distinguish in any fashion between Arizona
and out-of-state individuals. ^See A.R.S. $ 8-359(B). As noted in Section IV(B) supra,
both the 3.25% lease surcharge and the $2.50 rate for replacement vehicles are levied on
the taxpayers without regard to whether the individuals engaged in those transactions are
THE AZSTA TAX DOES N
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VI.
Arizona residents or visitors from other states. See id.
discrimination are patently without merit. See id.
Plaintiffs' allegations of facial
Failing to establish the AzSTA Tax violates the Dormant Commerce Clause,
Plaintiffs turn to a strained interpretation of Article 9 to suggest that the AzSTA Tax
violates the Arizona Constitution. Specif,rcally, Plaintiffs' argue the AzSTA Tax must be
construed as "relating to registration, operation, or use of vehicles on the public highways
or streets." See Counter-Motion at 29. Plaintiffs ignore the substantial burden they bear
to establish the AzSTA Tax is unconstitutional. The AzSTA Tax enjoys a strong
presumption of constitutionality, and the Court must resolve any uncertainty in favor of
upholding it. See Hall v. A.N.R. Freight Sys., 149 Atiz. 130, 133, 71,7 P'zd 434,437
( 1 9S6); s ee also Kotterman v. Kíllian, 193 Ariz.' 27 3, 284 n 3 l, 97 2 P .2d 606, 617 (1999).
In an effort to bring the AzSTA Tax within the prohibitions of Article 9, Plaintiffs
launch two equally unavailing arguments. First, Plaintiffs urge the Court to adopt a broad
interpretation of the phrase "related to" contained in Article 9 to find that the AzSTA Tax
violates the Arizona Constitution. This argument assumes that Article 9 is ambiguous,
stretches the plain language of Article 9, anóignores the settled nature of the AzSTA Tax.
Under well-settled principles, a constitutional provision which is unambiguous
requires no interpretation. See U.S. West Communs., Inc. v. Arí2. Corp. Comm'n,20I
Artz. 242,245,1 10, 34 P.3d 35 1,354 (2001). Because Article 9 is such an unambiguous
provision, Plaintifß' reliance on dictionaries and other courts' interpretations of the
phrase "related to" are not warranted.
Furthermore, the parties agree the AzSTA Tax is a transaction privilege tax. See
Counter-Motion at 29. By its own terms, the AzSTA Tax is not based in any manner on
the operation or use of vehicles. Rather, it is levied based on "the business of leasing or
renting" motor vehicles. ,See A.R.S. $ 5-S39(C). As noted, the AzSTA Tax is not a sales
tax, but a tax on the privilege of engaging in certain business in the state. ,See Section I
ZSTA TAX DO ..RELATE TO'' OR OPERATI
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supra; see also Ariz. Dept. of Rev. v. Mountain States Tel. & TeL Co., 1 13 Ariz. 467 , 468,
556 P.2d 1129, I 130 (1976) (construing tax provisions and noting, "ths tax imposed is a
tax on the privilege or right to engage in business and is not a sales tax").
As a tax on Plaintiffs' privilege of engaging in the business of renting motor
vehicles, it is unsurprising that the AzSTA Tax applies irrespective of what the lessee of a
vehicle subsequently does with that vehicle. That is, the transaction privilege tax applies
whether or not a leased vehicle is subsequently operated or used on the public streets or
highways of Arizona. Because the AzSTA Tax is levied based on the business activity of
leasing-and not upon the leased property itself-it is wholly unrelated to the use of
vehicles on public property. See Mountain States Tel. & Tel. Co., ll3 Ariz. at 468, 556
P.2dat I130.
Moreover, it is telling that the legislature has not amended its definition of highway
user revenues (which include funds collected pursuant to Article 9) to include the AzSTA
Tax, any transaction privilege taxes, or any tax on leasing vehicles. See A.R.S. $ 2S-
6501; see also A.R.S. $ 28-6533. Rather suchrevenues are defined as "monies received
in this state from licenses, taxes, penalties, and interest and fees authorized" by several
