SUPREME COURT OF ARIZONA
En Banc
CITY OF PEORIA, a municipal ) Arizona Supreme Court
corporation; and CITY OF PHOENIX, ) No. CV-10-0218-PR
a municipal corporation, )
) Court of Appeals
Plaintiffs/Defendants/ ) Division One
Appellees, ) No. 1 CA-TX 09-0001
)
v. ) Arizona Tax Court
) Nos. TX2006-000113
BRINK'S HOME SECURITY, INC., a ) TX2006-000116
Delaware corporation, ) TX2006-000228
) TX2006-000335
Defendant/Plaintiff/ ) (Consolidated)
Appellant. )
)
) O P I N I O N
__________________________________)
Appeal from the Arizona Tax Court
The Honorable Thomas Dunevant, III, Judge
________________________________________________________________
Opinion of the Court of Appeals, Division One
224 Ariz. 278, 229 P.3d 1020 (2010)
VACATED AND REMANDED
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STEPHEN M. KEMP, PEORIA CITY ATTORNEY Peoria
By Cynthia Odom, Assistant City Attorney
Attorneys for City of Peoria
GARY VERBURG, PHOENIX CITY ATTORNEY Phoenix
By James H. Hays, Assistant City Attorney
Attorneys for City of Phoenix
SNELL & WILMER LLP Phoenix
By Barbara J. Dawson
Martha E. Gibbs
Melissa M. Krueger
Robert I. Schwimmer
Attorneys for Brink’s Home Security, Inc.
OSBORN MALEDON, P.A. Phoenix
By Randall C. Nelson
Thomas L. Hudson
Mark P. Hummels
Attorneys for Amici Curiae Arizona-New Mexico Cable
Communications and The Broadband Tax Institute
STEPTOE & JOHNSON LLP Phoenix
By Pat Derdenger
Bennett Evan Cooper
Attorneys for Amicus Curiae Arizona Tax Research Association
________________________________________________________________
B A L E S, Justice
¶1 This case concerns municipal taxation of home-security
services when the provider’s monitoring facility is out of state
and the services include telecommunications. Municipalities are
prohibited from taxing interstate telecommunications services.
Ariz. Rev. Stat. (“A.R.S.”) § 42-6004(A)(2) (2006). The court
of appeals held that the telecommunications involved are
intrastate because they are part of a transmission loop that
begins and ends in Arizona. We reject this theory and conclude
that separate interstate telecommunications cannot be aggregated
and characterized as intrastate. We remand this case for the
court of appeals to consider whether the assessed taxes are
permissible because they are imposed on the monitoring services
and not on telecommunications services.
I.
¶2 Brink’s Home Security (“BHS”) provides home-security
systems and monitoring services to customers throughout Arizona.
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If an alarm is triggered at an Arizona home and not disarmed,
information from the alarm system is transmitted electronically
to BHS’s monitoring station in Texas. Personnel there receive
the automated signal and attempt to contact the customer –
typically by telephone. When appropriate, the monitoring
personnel in Texas call emergency responders in Arizona.
¶3 The Cities of Peoria and Phoenix assessed transaction
privilege taxes against BHS pursuant to Peoria City Code § 12-
470(a)(2)(D) and Phoenix City Code § 14-470(a)(2)(D). Each code
provides for taxation of gross income from providing
“telecommunication services,” which include “[c]harges for
monitoring services relating to a security or burglar alarm
system located within the City where such system transmits or
receives signals or data over a communications channel.” Peoria
City Code § 12-470(a)(2)(D); Phoenix City Code § 14-
470(a)(2)(D). BHS protested the assessments, arguing that it
provides interstate telecommunications services immune from
municipal taxation under A.R.S. § 42-6004(A)(2). The Tax Court
granted summary judgment for the Cities, concluding that the
monitoring services are primarily intrastate and therefore
taxable.
¶4 In a split decision, the court of appeals affirmed.
City of Peoria v. Brink’s Home Sec., Inc., 224 Ariz. 278, 280
¶ 1, 229 P.3d 1020, 1022 (App. 2010). Characterizing BHS’s
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monitoring process as a “transmission loop” that begins and ends
in Arizona, the majority opinion concluded that the services are
intrastate and therefore taxable. Id. at 283 ¶¶ 19–21, 229 P.3d
at 1025. The dissenting opinion viewed the monitoring process
as involving separate interstate communications that are not
subject to municipal taxation. Id. at 286 ¶ 35, 229 P.3d at
1028 (Johnsen, J., dissenting).
¶5 We granted review to consider unresolved issues of
statewide importance concerning municipal taxation of home-
security monitoring services. The Court has jurisdiction under
Article 6, Section 5(3) of the Arizona Constitution and A.R.S.
§ 12-120.24 (2003).
II.
¶6 “[I]t is especially important in tax cases to begin
with the words of the operative statute.” Arizona State Tax
Comm’n v. Staggs Realty Corp., 85 Ariz. 294, 297, 337 P.2d 281,
283 (1959). We read tax provisions “to gain their fair meaning,
but not to gather new objects of taxation by strained
construction or implication.” Id.
¶7 No city, town or special taxing district may tax
“[i]nterstate telecommunications services, which include that
portion of telecommunications services, such as subscriber line
service, allocable by federal law to interstate
telecommunications service.” A.R.S. § 42-6004(A)(2). Neither
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§ 42-6004(A)(2) nor any other Arizona statute defines
“interstate telecommunication services.”
¶8 Another Arizona tax provision defines “intrastate
telecommunications services” as “transmitting signs, signals,
writings, images, sounds, messages, data or other information of
any nature by wire, radio waves, light waves or other
electromagnetic means if the information transmitted originates
and terminates in this state.” A.R.S. § 42-5064(E)(4) (emphasis
added). Although this definition appears in the statutes for
state transaction privilege taxes, rather than municipal, we
agree with the court of appeals that telecommunications services
that are “intrastate” under § 42-5064(E)(4) are not “interstate”
for purposes of § 42-6004(A)(2). See People’s Choice TV Corp.
v. City of Tucson, 202 Ariz. 401, 403–04 ¶ 8, 46 P.3d 412, 414–
15 (2002) (noting the converse relationship between “intrastate”
and “interstate”).
¶9 Arizona cases provide little guidance for
distinguishing between interstate and intrastate
telecommunications services. This Court’s only decision
interpreting § 42-6004(A)(2) is People’s Choice, which
considered whether the City of Tucson could impose transaction
privilege taxes on a television service provider. Upholding the
tax, the court of appeals construed § 42-6004(A)(2) to prohibit
“only the taxation of interstate ‘transmissions’ of information,
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not the taxation of the ‘services ancillary to the interstate
transmission of signals.’” Id. at 403 ¶ 6, 46 P.3d at 414. We
disagreed, holding that “the phrase ‘interstate
telecommunications services’ requires a more expansive meaning”
and § 42-6004(A)(2) prohibits the taxation of both interstate
transmissions and services ancillary to such transmissions. Id.
at 403–04 ¶ 8, 46 P.3d at 414–15.
¶10 Whether a certain telecommunication is intrastate or
interstate was not before us in People’s Choice. The television
service provider there carried both local and out-of-state
programs, and A.R.S. § 42-5064(A) “specifically exempts cable
and microwave television systems from intrastate taxation
because such systems . . . primarily provide interstate
programming.” Id. at 404 ¶ 10, 46 P.3d at 415. In this case,
in contrast, no statutory scheme explicitly exempts home-
security monitoring transmissions from intrastate taxation. We
accordingly reject the conclusion below that People’s Choice
suggests the phrase “intrastate telecommunications services” be
given an “expansive meaning.” Brink’s Home Sec., 224 Ariz. at
283 ¶ 19, 229 P.3d at 1025.
¶11 The triggering of the home-alarm systems at issue in
this case may result in three separate transmissions. First,
the home-security system in Arizona sends a transmission to the
Texas monitoring facility. Second, when the automated signal is
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received, personnel at the monitoring facility call the Arizona
customer to determine whether the original transmission is a
false alarm or an emergency situation. If it is a false alarm,
the monitoring process ends. If it is an emergency, BHS’s
personnel call local emergency responders — a third
transmission. Each of these transmissions is made from one
state to another. See Brink’s Home Sec., 224 Ariz. at 286
¶¶ 37–38, 229 P.3d at 1028 (Johnsen, J., dissenting).
¶12 These separate transmissions cannot be characterized
as “intrastate” by describing them as involving “information”
that both originates and terminates in Arizona. The court of
appeals correctly observed that the monitoring process may
involve communications that begin with an alarm signal here and
end with a call received by an Arizona emergency responder. 224
Ariz. at 283 ¶ 21, 229 P.3d at 1025. But the “loop” involves
separate transmissions that relay different information. Thus,
like the dissenting judge, we conclude that the
telecommunications involved are not “intrastate” under A.R.S.
§ 42-5064(E)(4).
III.
¶13 The Cities argue that even if the telecommunications
involved in the home-security monitoring services are not
“intrastate,” the municipal taxes are still permissible because
(1) A.R.S. § 42-6004(A)(2) does not apply to this kind of
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interstate telecommunication service, or (2) the taxes are
imposed on “monitoring services” rather than telecommunications
services.
A.
¶14 The Cities maintain that A.R.S. § 42-6004(A)(2) only
prohibits municipal taxation of services that federal law
defines as interstate telecommunications services. When first
adopted, § 42-6004(A)(2) simply prohibited municipal taxation of
“interstate telecommunications services.” 1990 Ariz. Sess.
Laws, ch. 5, § 1 (3d Spec. Sess.). The section was amended in
1991 to prohibit taxes on “[i]nterstate telecommunications
services, which include that portion of telecommunication
services, such as subscriber line service, allocable by federal
law to interstate telecommunications service.” 1991 Ariz. Sess.
Laws, ch. 28, § 1.
¶15 The Cities contend that the 1991 amendment added a
restrictive clause, requiring “interstate telecommunications
services” to be defined with reference to federal law. But, the
insertion of the comma that precedes “which include” makes the
clause non-restrictive; that is, services “allocable by federal
law to interstate telecommunications service” are among those to
which § 42-6004(A)(2) applies, but they do not completely define
the scope of the statute. Neither the language nor the
legislative history supports the Cities’ restrictive reading.
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B.
¶16 The Cities also argue that the taxes are not assessed
on “telecommunications services.” Although the city codes
expressly list “monitoring services” among the
“telecommunication services” subject to municipal taxes, Peoria
City Code § 12-470(a)(2)(D), Phoenix City Code § 14-
470(a)(2)(D), the Cities maintain that the taxes are assessed on
the monitoring services, not on the telecommunications, which
they characterize as merely incidental to the services.
¶17 The City presented this argument below, but the court
of appeals majority did not discuss it. (The dissenting opinion
rejected it. See Brink’s Home Sec., 224 Ariz. at 288–89 ¶¶ 46–
48, 229 P.3d at 1030–31 (Johnsen, J., dissenting)). We
therefore remand to the court of appeals to consider this issue
in the first instance. Because this issue is unresolved, we
also do not address BHS’s argument that if the municipal taxes
apply to its services, the Commerce Clause of the federal
constitution requires the taxes to be fairly apportioned to the
Arizona component of its activities.
IV.
¶18 For the reasons stated, we vacate the opinion of the
court of appeals and remand to that court for further
proceedings. We deny BHS’s request for an award of attorney
fees pursuant to A.R.S. § 12-348 without prejudice to its
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renewing this request below if it ultimately prevails.
_____________________________________
W. Scott Bales, Justice
CONCURRING:
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Rebecca White Berch, Chief Justice
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Andrew D. Hurwitz, Vice Chief Justice
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A. John Pelander, Justice
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Robert M. Brutinel, Justice
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