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appeal

jurisdictionsustained

Related Cases

City of Tucson v. Tucson Hotel Equity Ltd. Partnership, 196 Ariz. 551, 2 P.3d 110, 320 Ariz. Adv. Rep. 74

Facts

Doubletree operates a hotel in Tucson and provides various guest services, including interstate telephone calls, facsimile transmissions, and laundry services. During an audit period from August 1, 1992, to July 31, 1996, Doubletree mistakenly reported its revenues from these services under the wrong tax classification, leading to disputes over tax refunds. The City audited Doubletree's records and determined that while some taxes were overpaid, others were correctly assessed, leading to the appeal.

Doubletree operates a hotel in Tucson. Among the guest services that Doubletree provides are interstate telephone calls from guests' rooms, facsimile transmissions, and laundry services. During the audit period beginning August 1, 1992, through July 31, 1996, Doubletree marked up its charges for laundry and facsimile services by 9.5%, which corresponded to the state and city transient rental taxes of 5.5% and 4.0% respectively.

Issue

1. Whether Doubletree was entitled to refunds of excess taxes paid on receipts from facsimile services mistakenly reported as taxable at 4% rather than 2% and on non-taxable laundry services mistakenly reported as taxable at 4%; 2. Whether that portion of Doubletree's gross business receipts represented by the difference between Doubletree's guest charges for interstate long distance calls and its own costs for those calls is taxable under the telecommunication services classification defined by Tucson City Code section 19–470; 3. If the answer to issue 2 is yes, whether Arizona law nevertheless precludes imposition of the Tucson telecommunication services tax on those amounts.

1. Whether Doubletree was entitled to refunds of excess taxes paid on receipts from facsimile services mistakenly reported as taxable at 4% rather than 2% and on non-taxable laundry services mistakenly reported as taxable at 4%; 2. Whether that portion of Doubletree's gross business receipts represented by the difference between Doubletree's guest charges for interstate long distance calls and its own costs for those calls is taxable under the telecommunication services classification defined by Tucson City Code section 19–470; and 3. If the answer to issue 2 is yes, whether Arizona law nevertheless precludes imposition of the Tucson telecommunication services tax on those amounts.

Rule

Tucson City Code section 19–250(a)(1) requires that a taxpayer who collects city taxes from a customer in excess of the amount actually due must remit the excess to the city tax collector. Tucson City Code section 19–470(c) exempts from taxation all gross receipts from providing interstate telecommunication services.

Tucson City Code section 19–250(a)(1) provides that a taxpayer who collects city taxes from a customer in excess of the amount actually due must remit the excess to the city tax collector. Tucson City Code Reg. 19–250.1 provides: If a taxpayer collects taxes in excess of the combined tax from any customer in any transaction, all such excess tax shall be paid to the taxing jurisdictions in proportion to their effective rates.

Analysis

The court found that Doubletree 'collected' taxes on facsimile and laundry services, regardless of whether guests were aware of the tax component in the single charges. The court also determined that Doubletree's charges for interstate calls were exempt from the city's telecommunications tax, as they constituted a resale of services rather than taxable access or connection charges. The court emphasized that the nature of the transaction did not support the City's argument for taxing the profit portion of the charges.

By factoring taxes into its single-amount charges for facsimile and laundry services and then requiring its customers to pay those charges, Doubletree 'collected' those taxes whether its customers knew it or not. T.C.C. section 19–250(a)(1) required Doubletree to remit the taxes to the City. The tax court correctly held that Doubletree was not entitled to get them back.

Conclusion

The court affirmed the tax court's ruling regarding the non-refundable excess taxes on facsimile and laundry services but reversed the assessment of tax on Doubletree's interstate telecommunications services, concluding that these were exempt from taxation.

The tax court correctly sustained the City's refusal to refund Doubletree's tax overpayments relating to facsimile and laundry services. The tax court was mistaken in sustaining the City's assessment against Doubletree under Tucson City Code section 19–470.

Who won?

The City of Tucson prevailed in part, as the court upheld the determination that Doubletree could not recover excess taxes on facsimile and laundry services. However, the City lost on the issue of the telecommunications tax, which was deemed exempt.

The City determined that Doubletree's gross receipts from its guests' interstate calls, less Doubletree's own costs for each call, were taxable under the telecommunication services classification, T.C.C. section 19–470.

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