SUPREME COURT OF ARIZONA
En Banc
PEOPLE'S CHOICE TV CORPORATION, ) Arizona Supreme Court
INC., a Delaware corporation, ) No. CV-01-0156-PR
)
Plaintiff/Appellee, ) Court of Appeals
) Division One
v. ) No. 1 CA-TX 00-0010
)
CITY OF TUCSON, a municipal corporation, ) Arizona Tax Court
an agency of the State of Arizona, ) No. TX 97-00391
)
Defendant/Appellant. )
__________________________________________) OPINION
Appeal from the Arizona Tax Court
The Honorable Jeffrey S. Cates, Judge
AFFIRMED
Opinion of the Court of Appeals, Division One
199 Ariz. 570, 20 P.3d 1151 (2001)
VACATED
Snell & Wilmer, L.L.P. Phoenix
By: Barbara J. Dawson
Martha E. Gibbs
Charles A. Pulaski, Jr.
Attorneys for People’s Choice TV Corporation, Inc.
Tucson City Attorney’s Office, Civil Division Tucson
By: Michael D. House
David L. Deibel
Attorneys for City of Tucson
Andrew Kreig Washington, D.C.
Attorney for Amicus Curiae Wireless Communications
Association International
League of Arizona Cities and Towns Tempe
By: David R. Merkel
- and -
Martinez & Curtis, P.C. Phoenix
By: Anja K. Wendel
- and -
City of Phoenix Phoenix
By: Sandra K. McGee
- and -
Ryan, Woodrow & Rapp, P.L.C. Phoenix
By: Francis Migray
- and -
Mesa City Attorney Mesa
By: Alfred J. Smith
- and -
Margrave Celmins, P.C. Scottsdale
By: Lat J. Celmins
Attorneys for Amicus Curiae League of Arizona Cities
and Towns (City of Yuma, City of Gilbert, City of
Mesa, City of Phoenix, and City of Williams)
______________________________________________________________________________
DRUKE, Judge
¶1 This appeal by People’s Choice TV Corporation, Inc. (PCTV), challenges the imposition
of a transaction privilege tax on its telecommunications services by the City of Tucson. PCTV asserts
that, properly interpreted, Arizona Revised Statutes (A.R.S.) § 42-6004 prohibits the City’s imposition
of the tax.1 The tax court agreed with PCTV, but the court of appeals reversed after reaching a contrary
interpretation of the statute. People’s Choice TV Corp. v. City of Tucson, 199 Ariz. 570, 20 P.3d 1151
(App. 2001). Disagreeing with that interpretation, we accepted review.
¶2 The facts giving rise to this appeal are undisputed. From 1992 to 1996, PCTV provided
microwave television services to its customers in Tucson and the surrounding area. To do so, PCTV
1
A.R.S. § 42-6004 was previously numbered A.R.S. § 42-1453. See 1997 Ariz. Sess. Laws,
ch. 150, § 140. This opinion refers to the statute’s current number.
2
received both local and out-of-state programs at its facility outside Tucson and then transmitted the
programs to its customers using microwave frequencies. The customers, in turn, received these
transmissions through microwave antennae provided and installed by PCTV for a fee. PCTV offered
its customers various programming packages at different monthly fees, and all packages contained
both local and out-of-state programs. PCTV also charged an additional fee for each pay-per-view program
its customers ordered.
¶3 In 1997, the City conducted a tax audit of PCTV’s income from 1992 to 1996 and, based
on Tucson City Code (Code) § 19-470, assessed a transaction privilege tax and interest totaling
$220,178.60. PCTV protested the assessment and, after exhausting its administrative remedies, filed
an action in the tax court pursuant to A.R.S. § 12-163. Both parties moved for summary judgment,
and the tax court granted judgment in favor of PCTV, finding that § 42-6004 precluded the City’s
imposition of “transaction privilege taxes on any category of income of interstate telecommunications
services.” The City appealed to the court of appeals pursuant to A.R.S. § 12-170.
¶4 As it did in the tax court, the City argued that § 42-6004 did not prohibit the City’s
taxation of PCTV’s revenue from its telecommunications services. The City contended it had imposed
the tax pursuant to Code § 19-470(a)(2)(a) and (c), which authorize a two percent tax on the gross
income from “[a]ll fees for connection to a telecommunication system” and “[f]ees charged for access
to or subscription to or membership in a telecommunication system or network.” Relying primarily
on Sonitrol of Maricopa County v. City of Phoenix, 181 Ariz. 413, 891 P.2d 880 (App. 1994), the City
asserted that it had not imposed “a tax on the actual transmissions [by PCTV] but only on the fees
charged for subscription, access, or connection to [its] telecommunication service.”
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¶5 PCTV responded by first pointing out that it provided mainly interstate telecommunications
services and, thus, fell within the provisions of § 42-6004(A)(2). The statute provides that “[a] city,
town or special taxing district shall not levy a transaction privilege, sales, use or other similar tax on
. . . [i]nterstate telecommunications services.” PCTV also claimed its customers did “not subscribe,
gain access to, or become members in a telecommunications system” but, rather, they ordered and
paid for certain “programming” from PCTV. “In other words,” argued PCTV, its “customers pa[id]
for transmissions and they only receive[d] those transmissions (that programming), which they ha[d]
contracted to receive.”
¶6 But the court of appeals agreed with the City’s position, holding that § 42-6004(A)(2)
“did not preclude imposition of the telecommunications services tax pursuant to Code section 19-
470(a)(2)(c).” People’s Choice, 199 Ariz. 570, ¶26, 20 P.3d 1151, ¶ 26. In so holding, the court noted
that § 42-6004(A)(2) did not define “interstate telecommunications services” and, thus, the court applied
the definition for “intrastate telecommunications services” found in a related statute, A.R.S. § 42-
5064(C)(3). That statute 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.” Based on this definition, the court interpreted § 42-6004(A)(2) as prohibiting only the taxation
of interstate “‘transmissions’” of information, not the taxation of the “services ancillary to the interstate
transmission of signals.” People’s Choice, 199 Ariz. 570, ¶19, 20 P.3d 1151, ¶19. And, relying on
Sonitrol, the court determined that the City’s taxation of system access, subscription, or membership
under Code § 19-470(a)(2)(c) “does not tax ‘transmissions’ at all; it taxes the provision of services
that use telecommunication. Accordingly, [that code provision] does not impose a prohibited tax on
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‘interstate telecommunications services’ within the meaning of [§ 42-6004(A)(2)].” People’s Choice,
199 Ariz. 570, ¶23, 20 P.3d 1151, ¶ 23. We believe the phrase “interstate telecommunications services”
requires a more expansive meaning than the court of appeals gave it when interpreting § 42-6004(A)(2).
¶7 We review de novo the interpretation of a statute. Arizona Dep’t of Revenue v. Dougherty,
200 Ariz. 515, ¶7, 29 P.3d 862, ¶7 (2001). Our primary goal when interpreting a statute is to discern
and give effect to legislative intent. Mail Boxes, Etc., U.S.A. v. Industrial Comm’n, 181 Ariz. 119,
121, 888 P.2d 777, 779 (1995). To that end, “[w]e construe the statute as a whole, and consider its
context, language, subject matter, historical background, effects and consequences, and its spirit and
purpose.” State ex rel. Arizona Dep’t of Revenue v. Phoenix Lodge No. 708, Loyal Order of Moose,
Inc., 187 Ariz. 242, 247, 928 P.2d 666, 671 (App. 1996). And, when interpreting tax statutes, we resolve
ambiguities in favor of the taxpayer. Wilderness World, Inc. v. Arizona Dep’t of Revenue, 182 Ariz.
196, 199, 895 P.2d 108, 111 (1995); Cable Plus Co. v. Arizona Dep’t of Revenue, 197 Ariz. 507, ¶10,
4 P.3d 1050, ¶10 (App. 2000).
¶8 Here, the language of § 42-6004(A)(2) makes clear that the legislature intended to prohibit
cities, towns, and special taxing districts from taxing interstate telecommunications services. Less
clear, however, is the breadth of that intended prohibition because the statute does not define “interstate
telecommunications services.” Consequently, we “look to statutes on the same subject matter to determine
legislative intent and to maintain statutory harmony.” In re Robert A., 199 Ariz. 485, ¶8, 19 P.3d 626,
¶8 (App. 2001); see also State ex rel. Larson v. Farley, 106 Ariz. 119, 122, 471 P.2d 731, 734 (1970).
In this case, as did the court of appeals, we look to § 42-5064, which establishes the telecommunications
classification for imposing a transaction privilege tax on intrastate telecommunications services and
provides a definition on a similar subject. Because § 42-5064(C) defines “intrastate telecommunications
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services” as the “transmitting” of information by electromagnetic means, § 42-5064 appears to impose
the tax only on the transmission of information, not on related services. But this impression is dispelled
by the provisions of § 42-5064(B). It generally provides that “[t]he tax base for the telecommunications
classification is the gross proceeds of sales or gross income derived from the business, including the
gross income derived from tolls, subscriptions and services on behalf of subscribers.” Thus, when
construed as a whole, § 42-5064 permits the imposition of a transaction privilege tax on the gross income
received by businesses engaged in electromagnetically transmitting intrastate information, and that
includes income from sales, tolls, subscriptions, and subscriber services. Adopting this construction
for interpreting § 42-6004(A)(2), we conclude that it conversely prohibits cites, towns, and special
taxing districts from imposing transaction privilege taxes on the gross income that such interstate
businesses receive from sales, tolls, subscriptions, and subscriber services.
¶9 This prohibition against taxing interstate telecommunications services likely finds its
genesis in the Communications Act of 1934, ch. 652, 48 Stat. 1064 (codified as amended at 47 U.S.C.
§§ 151 through 615(b)).2 The Act establishes a dual federal and state system of regulating interstate
and intrastate telecommunications services by specifically granting the Federal Communications
Commission jurisdiction over “all interstate and foreign” telecommunications services, but expressly
exempting from its authority “intrastate communication service.” 47 U.S.C. § 152(a) and (b). See
Louisiana Public Serv. Comm’n v. FCC, 476 U.S. 355, 360, 106 S. Ct. 1890, 1894, 90 L. Ed. 2d 369,
2
Although the Act initially applied only to telephone and telegraph services, it has since been
amended to cover telecommunications services generally. See 47 U.S.C. § 153(46) (defining “telecom-
munications service” as “the offering of telecommunications for a fee directly to the public, . . .
regardless of the facilities used”).
6
376 (1986) (recognizing both a dual regulatory system over telecommunications services and the
Commission’s plenary and preemptive power over such interstate services).
¶10 We believe the statutes at issue here reflect this duality. Section 42-5064 generally
allows the imposition of a transaction privilege tax on businesses “providing intrastate telecommunications
services.” The statute’s express language thus limits its application to intrastate telecommunications
services and, by implication, prohibits the taxation of interstate telecommunications services. See
Cable Plus Co., 197 Ariz. 507, ¶17, 4 P.3d 1050, ¶17 (finding § 42-5064 implicitly precludes taxation
of interstate telecommunications services). In accordance with that prohibition, § 42-5064(A) specifically
exempts cable and microwave television systems from intrastate taxation because such systems, like
PCTV, primarily provide interstate programming. See United States v. Southwestern Cable Co., 392
U.S. 157, 168-69, 88 S. Ct. 1994, 2000-01, 20 L. Ed. 2d 1001, 1010-11 (1968) (observing that cable
systems generally engage in interstate communication); TV Pix, Inc., v. Taylor, 304 F. Supp. 459, 463
(D. Nev. 1968), aff’d without opinion, 396 U. S. 556, 90 S. Ct. 749, 24 L. Ed. 2d 746 (1970) (community
antenna system constitutes “one continuous interstate transmission to the viewer’s television set”).
And, consistent with the Act’s dual regulatory scheme, § 42-6004(A)(2) categorically prohibits cities,
towns, and special taxing districts from levying a transaction privilege tax on interstate
telecommunications services. As to those governmental entities, § 42-6004(A)(2) makes explicit what
§ 42-5064 merely implies.3
3
We note that, absent this statutory prohibition, federal law would not necessarily preclude
the taxation of interstate telecommunications services. See Goldberg v. Sweet, 488 U.S. 252, 260-68,
109 S. Ct. 582, 588-92, 102 L. Ed. 2d 607, 616-21 (1989) (holding that Commerce Clause does not
prohibit state taxation of interstate telecommunications provided state has substantial nexus with telecom-
munications reached by tax, and tax is fairly apportioned, does not discriminate against interstate com-
merce, and relates to services that state provides to taxpayer).
7
¶11 Accordingly, we conclude that § 42-6004(A)(2) prohibits the City from imposing a
transaction privilege tax on PCTV’s gross income from connection, access, subscription, or membership
fees. And, although relied on by the court of appeals, Sonitrol does not alter our conclusion. That
case involved a city’s taxation of intrastate telecommunications services and, thus, did not concern,
as here, the prohibition in § 42-6004(A)(2) against taxing interstate telecommunications services.
¶12 We therefore vacate the decision of the court of appeals and affirm the decision of the
tax court. In our discretion, we deny PCTV’s request for attorney’s fees on appeal made pursuant
to A.R.S. § 12-348(B).
____________________________________
WILLIAM E. DRUKE, Judge*
CONCURRING:
__________________________________________
CHARLES E. JONES, Chief Justice
__________________________________________
RUTH V. McGREGOR, Vice Chief Justice
__________________________________________
STANLEY G. FELDMAN, Justice
__________________________________________
THOMAS A. ZLAKET, Justice (retired)
*Due to a vacancy on the court, and pursuant to article VI, § 3, of the Arizona Constitution, the Honorable
William E. Druke, Judge of the Court of Appeals, Division Two, was designated to sit on this case.
8