Bsi v. Adot

IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE

BSI HOLDINGS LLC, Plaintiff/Appellee,

v.

ARIZONA DEPARTMENT OF TRANSPORTATION, Defendant/Appellant.

No. 1 CA-TX 20-0005
FILED 8-12-2021

Appeal from the Arizona Tax Court
No. TX2014-000444
The Honorable Christopher T. Whitten, Judge

AFFIRMED

COUNSEL

Ryan Rapp Underwood & Pacheo, PLC, Phoenix
By Christopher T. Rapp, Lesli M. H. Sorensen
Counsel for Plaintiff/Appellee

Arizona Attorney General’s Office, Phoenix
By Benjamin H. Updike
Counsel for Defendant/Appellant
 BSI v. ADOT
Opinion of the Court

OPINION

Judge Lawrence F. Winthrop1 delivered the opinion of the Court, in which
Presiding Judge Paul J. McMurdie and Judge Cynthia J. Bailey joined.

W I N T H R O P, Judge:

¶1 Arizona authorizes the imposition of a state license tax on
nonresident aircraft owners equal to one-tenth of one per cent of the fair
market value of the aircraft. A.R.S. § 28-8336. An aircraft subject to this tax
(1) must not be engaged in any intrastate commercial activity and (2) must
be “based in” Arizona “for more than ninety days but less than two
hundred ten days in a calendar year.” Id.

¶2 At issue in this tax appeal is how to calculate the number of
days such an aircraft is based in Arizona, which requires determining the
meaning of the terms “based in” and “day” used in A.R.S. § 28-8336. The
tax court concluded these terms are ambiguous, construed them in favor of
the taxpayer, BSI Holdings, LLC (“BSI”), and granted summary judgment
in favor of BSI. The Arizona Department of Transportation (“ADOT”)
appeals that ruling, arguing the tax court should have applied a
“domiciliary analysis” to the definition of the term “based in” and applied
a “totality of the circumstances” standard to that domiciliary analysis. To
do so here, however, would require us to craft a new weighted-factor test
based on non-statutory language and previously unannounced factors, and
would thus deprive BSI of the clear notice that should be afforded any
taxpayer. Accordingly, we conclude the tax court did not err in declining
to adopt a domiciliary analysis in this case and in finding the statutory text
irreconcilably ambiguous as applied to BSI. We therefore affirm the tax
court’s judgment in favor of BSI.

1 Judge Lawrence F. Winthrop was a sitting member of this court
when the matter was assigned to this panel of the court. He retired effective
June 30, 2021. In accordance with the authority granted by Article 6, Section
3, of the Arizona Constitution and pursuant to Arizona Revised Statutes
(“A.R.S.”) section 12-145, the Chief Justice of the Arizona Supreme Court
has designated Judge Winthrop as a judge pro tempore in the Court of
Appeals, Division One, for the purpose of participating in the resolution of
cases assigned to this panel during his term in office.

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 BSI v. ADOT
Opinion of the Court

FACTS AND PROCEDURAL HISTORY

¶3 BSI is an Oregon limited liability company formed to own a
Gulfstream dual-engine turbo jet, FAA tail number N608BG (“the aircraft”).
BSI purchased the aircraft in 2003 for the personal use of Richard Taylor
Burke, Sr., an Arizona resident. BSI listed its address and base of operations
as Portland, Oregon, and has since received mail from ADOT at that
address.

¶4 BSI registered the aircraft in Arizona and regularly flew in
and out of Scottsdale Airport. From 2004 to 2012, BSI maintained a monthly
tie-down/hangar agreement at that airport, but the aircraft also traveled
outside of Arizona, and BSI had similar agreements in other states during
that time. At no point did BSI have any such agreement in Oregon, nor did
the aircraft fly to Oregon after BSI purchased it.

¶5 Arizona assesses a variable rate license tax against owners of
private aircraft based on residency and the number of days the plane is
based in Arizona. ADOT’s Aeronautics Division auditors take the position
that the nonresident license tax rate under A.R.S. § 28-8336 cannot apply to
an owner of an aircraft that is based in Arizona more than 209 days in any
given calendar year. Thus, ADOT treats aircraft that are based in Arizona
for at least 210 days each calendar year as subjecting the aircraft owner to
the license tax rate under A.R.S. § 28-8335(B), which is five times greater
than the tax rate applicable under A.R.S. § 28-8336.

¶6 Through 2012, BSI claimed nonresident tax status under
A.R.S. § 28-8336. In its annual filings, BSI represented the aircraft was not
based in Arizona for more than 209 days each year.

¶7 ADOT first challenged BSI’s claimed tax status in 2003.
Eventually, the parties entered a settlement agreement wherein BSI paid no
license tax for 2003. BSI then paid the nonresident tax rate under § 28-8336
for 2004 and claimed the same rate from 2005 through 2012.

¶8 In 2013, ADOT auditors concluded the BSI aircraft had been
in Arizona for more than 210 days each year from 2004 through 2012 and
therefore was subject to the full license tax rate prescribed in A.R.S. § 28-
8335 during the audit period. Based on data available on Flightwise, a
third-party flight tracking website, ADOT calculated the BSI aircraft was in

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Opinion of the Court

Arizona for at least 217 days each year from 2005 through 2012.2 On that
basis, ADOT assessed BSI an additional $161,004 and recorded a lien
against the aircraft.

¶9 BSI brought an unsuccessful administrative appeal that
focused on the definition of what constituted a “day.” The administrative
law judge (“ALJ”) adopted ADOT’s interpretation that a “day” as used in
the statute meant any calendar day during which an aircraft spent any time
on the ground in Arizona.

¶10 BSI then brought this action in the tax court. The tax court
considered the residency/tax rate issue on cross-motions for summary
judgment that focused on the correct interpretation of the word “day” in
A.R.S. § 28-8336. BSI contended a “day” under § 28-8336 meant a
continuous 24-hour period from one midnight to the ensuing midnight.
Consistent with its previous argument and the ALJ’s decision, ADOT
asserted a “day” meant any calendar day during which an aircraft spent
any time on the ground in Arizona. The legal question, therefore, turned at
that point on what constituted a “day” under § 28-8336.

¶11 After learning that no statute, formal administrative rule, or
written ADOT policy existed interpreting the statute or providing
definitions for the statutory terminology, the tax court granted summary
judgment in favor of BSI. The court reasoned that “the legislature did not
define the word ‘day,’ nor did it define what being ‘based in’ Arizona
means. . . . The Court simply has nothing before it to indicate whether the
legislature intended for ‘day’ to mean an entire 24-hour period or some
lesser portion of it.” The tax court found § 28-8336 ambiguous and, as a
result, construed it in favor of the taxpayer, BSI.

¶12 On appeal, this court found the statute ambiguous, but
adopted ADOT’s interpretation, thus effectively ruling in favor of the
agency pending resolution on remand of the number of days the aircraft
was in Arizona. See BSI Holdings, LLC v. Ariz. Dep’t of Transp. (“BSI I”), 242
Ariz. 621, 624-25, ¶¶ 14-20 (App. 2017). The Arizona Supreme Court

2 The aircraft’s pilot logs subsequently indicated the BSI aircraft was
in Arizona for all or a portion of at least 232 days each year from 2005
through 2012. ADOT calculated these totals by considering any time the
aircraft spent on the ground during a calendar day to constitute a “day,” a
definition later rejected by our supreme court. See BSI Holdings, LLC v. Ariz.
Dep’t of Transp. (“BSI II”), 244 Ariz. 17, 18, ¶ 1 (2018).

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 BSI v. ADOT
Opinion of the Court

accepted review, vacated this court’s opinion, and remanded the case to the
tax court. See BSI II, 244 Ariz. at 18, ¶ 1.

¶13 In BSI II, our supreme court rejected both interpretations of
the word “day” posited by the parties. Instead, the court found the word
“day” ambiguous and dependent on context. Id. at 20, ¶¶ 13-14. The court
also stated ADOT’s interpretation was not owed any deference because the
term “day” is not a technical term that requires expertise to construe, and
ADOT’s position had not “been reduced to written policy, much less a
considered and established rule.” Id. at 21, ¶ 17. The court further stated,
however, that “[d]etermining the meaning of the word ‘day’ [] cannot
dispose of the issue in this case because the statute cannot be meaningfully
applied without also knowing what ‘based in’ means.” Id. at ¶ 19. The
court then noted:

In the tax court, ADOT said it “makes its determination
of whether an aircraft is ‘based in this state’ by inspecting the
totality of the circumstances, including: day count, the
aircraft’s use, and tie-down and hangar agreements.” But it
never explained how it applies those factors. Indeed, BSI disputes
that ADOT has used any other criteria other than a day count.
Because the matter was decided on summary judgment, the
tax court made no factual findings on this issue.

Id. at ¶ 21 (emphasis added).

¶14 The supreme court next discussed various definitions of the
word “base,” while noting that “[t]hose definitions imply more of a
domiciliary analysis rather than physical presence alone.” Id. at ¶ 22.3
Recognizing that “’base’ may have a technical meaning in this statutory or
factual context,” the court concluded that it could not determine the word’s
meaning on the record before the court and therefore could not fully resolve
the case without further proceedings. BSI II, 244 Ariz. at 21, ¶ 22.

¶15 The supreme court directed the tax court on remand to
determine what “based in” this state for a “day” means under § 28-8336 and
then to apply such definitions to the facts presented. Id. at 22, ¶ 24. The
supreme court stated that, in making its determinations, the tax court

3 Cf. DeWitt v. McFarland, 112 Ariz. 33, 33-34 (1975) (recognizing that
“one is never without a domicile somewhere” and referring to a domicile
as the place one “intend[s] to make . . . his home for the time at least”
(citations omitted)).

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 BSI v. ADOT
Opinion of the Court

should “count all days or fractions of a day when the aircraft was based in
the state, even if it was not physically present there.” Id. (emphasis added). The
court further cautioned, however, that the tax court “should not count days
that the aircraft landed momentarily in Arizona when it was not based there.”
Id. (emphasis added). The supreme court said that if resolution was
impossible and the tax court determined the statute was still ambiguous
after it performed the mandated analysis, the court should construe the
statute in favor of BSI. Id. at ¶ 25 (citing Harris Corp. v. Ariz. Dep’t of Revenue,
233 Ariz. 377, 384, ¶ 23 (App. 2013); State ex rel. Ariz. Dep’t of Revenue v.
Capitol Castings, Inc., 207 Ariz. 445, 447, ¶¶ 9-10 (2004)).

¶16 On remand, ADOT proposed a domiciliary-type analysis as
discussed by our supreme court in BSI II. BSI did not offer a contrary
interpretation but continued to argue § 28-8336 was ambiguous and
therefore did not give it or other taxpayers sufficient required notice. After
renewed cross-motions for summary judgment, the tax court declined to
adopt ADOT’s new domiciliary analysis. In part, the tax court reasoned:

The common dictionary definition of “base,” suggests
“more of a domiciliary analysis rather than physical presence
alone.” This does not leave the terms’ meaning any less
nebulous. It might imply a “totality of the circumstances”
standard, as urged by ADOT. The manner in which ADOT has
historically applied such a standard, however, is neither clear nor
consistent. It seems to have been a purely subjective decision made
by very experienced auditors who apply standards which have not
ever been reduced to writing or published.

(Emphasis added.)

¶17 The tax court held that § 28-8336 remained ambiguous and
was too vague to give the taxpayer the type of “clear notice” that tax
statutes are required to provide to promote compliance. Accordingly, as
the supreme court had directed, the tax court construed the statutory
language in favor of the taxpayer and ruled in favor of BSI.

¶18 Following entry of a final judgment, ADOT filed a timely
notice of appeal. We have jurisdiction under A.R.S. §§ 12-170(C) and
-2101(A)(1).

ANALYSIS

¶19 ADOT argues the tax court erred in declining to apply a
domiciliary analysis using the totality of the circumstances to define the

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 BSI v. ADOT
Opinion of the Court

term “based in.” ADOT argues that, had the tax court done so, it would
have surely found the factors proposed by ADOT weighed in ADOT’s
favor.

I. Standard of Review and Applicable Law

¶20 We review de novo questions of statutory construction and the
tax court’s grant of summary judgment, including whether the court
properly applied the law. BMO Harris Bank, N.A. v. Wildwood Creek Ranch,
LLC, 236 Ariz. 363, 365, ¶ 7 (2015); Duke Energy Arlington Valley, LLC v. Ariz.
Dep’t of Revenue, 219 Ariz. 76, 77, ¶ 4 (App. 2008). Summary judgment is
appropriate when “there is no genuine dispute as to any material fact and
the moving party is entitled to judgment as a matter of law.” Ariz. R. Civ.
P. 56(a).

¶21 Statutory analysis generally begins with the language of the
statute. See Sempre Ltd. P’ship v. Maricopa Cnty., 225 Ariz. 106, 108, ¶ 5 (App.
2010) (recognizing that the language used is “the most reliable indicator” of
its meaning). “When the statute’s language is clear and unambiguous, we
must give effect to that language without employing other rules of statutory
construction.” Parsons v. Ariz. Dep’t of Health Servs., 242 Ariz. 320, 323, ¶ 11
(App. 2017) (citing Indus. Comm’n v. Old Republic Ins. Co., 223 Ariz. 75, 77,
¶ 7 (App. 2009)). When the language is ambiguous, however, courts “look
to the ‘rules of statutory construction’ and ‘consider the statute’s context;
its language, subject matter, and historical background; its effects and
consequences; and its spirit and purpose.’” Stein v. Sonus USA, Inc., 214
Ariz. 200, 201, ¶ 3 (App. 2007) (citations omitted).

II. A.R.S. § 28-8336 and ADOT’s Proposed Domiciliary Analysis

¶22 Sections 28-8335 and -8336 control Arizona’s annual aircraft
licensing tax. Unless a statutory exception applies, an annual license tax is
imposed on the owners of all private aircraft registered in this state. See
A.R.S. § 28-8335(A); see also Ariz. Const. art. 9, § 15. The full annual tax rate
is “one-half per cent” of the average fair market value of the aircraft. A.R.S.
§ 28-8335(B). Under A.R.S. § 28-8336, the owner of a nonresident’s aircraft
may receive the more favorable tax rate of “one-tenth of one per cent” of
the aircraft’s average fair market value. See also A.R.S. §§ 28-8322, -8335(B).
At issue here is the interpretation of the nonresident license tax rate
exception in § 28-8336.

¶23 Section 28-8336 provides as follows:

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 BSI v. ADOT
Opinion of the Court

The license tax for a nonresident whose aircraft is based in this
state for more than ninety days but less than two hundred ten
days in a calendar year is equal to one-tenth of one per cent of
the average fair market value of the particular make, model
and year of aircraft if the aircraft is not engaged in any
intrastate commercial activity.

(Emphasis added.)

¶24 As discussed, the aircraft licensing statutes do not define the
terms “day” or “based in.” We need not dive deeply into an analysis of the
word “day” at this point, as our supreme court has already determined that
term is contextual. See BSI II, 244 Ariz. at 21, ¶ 19 (“Determining the
meaning of the word ‘day’ [] cannot dispose of the issue in this case because
the statute cannot be meaningfully applied without also knowing what
‘based in’ means.”). Our review focuses, therefore, on the “based in”
language that was the core issue the supreme court directed the tax court
to resolve on remand. Accordingly, we will examine whether ADOT’s
proposed domiciliary analysis might satisfactorily resolve the issue.

¶25 In attempting to determine the meaning of the term “based
in,” our supreme court in BSI II and the tax court on remand considered the
ordinary meaning of “based in” and various statutory construction tools—
including dictionary definitions, legislative intent, the statutory scheme, the
term’s contextual use, and policy considerations—and found them
unavailing. See id. at 21-22, ¶¶ 19-24. Based on the record before it, each
court found the statute’s language and underlying policy ambiguous. See
id. Although the supreme court surmised that the term might have a
technical meaning not immediately apparent in the statutory or factual
context, id. at 21, ¶ 22, on remand neither party presented anything showing
that “based in” has a technical meaning, for example, one commonly used
by the FAA. See generally U.S. Parking Sys. v. City of Phoenix, 160 Ariz. 210,
211-12 (App. 1989); A.R.S. § 1-213 (“Technical words and phrases and those
which have acquired a peculiar and appropriate meaning in the law shall
be construed according to such peculiar and appropriate meaning.”).
Accordingly, the tax court found no support for such a conclusion.

¶26 Like the supreme court and the tax court examining this issue
before us, our de novo application of the various means of statutory
construction reveals no clear answer to the term’s meaning. As the parties
recognize, there is no legislative record that lends an understanding of the
legislature’s meaning of the term “based in,” and nothing supports the
notion that “based in” is a technical term meriting deference to ADOT.

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 BSI v. ADOT
Opinion of the Court

¶27 On remand and before this court, ADOT seizes upon the
supreme court’s observation that certain dictionary definitions of the word
“base” “imply more of a domiciliary analysis rather than physical presence
alone,” BSI II, 244 Ariz. at 21, ¶ 22, to argue we should resolve the ambiguity
in A.R.S. § 28-8336 by using a domiciliary analysis to interpret the term
“based in.” ADOT asserts a domiciliary analysis “is a reasonable
interpretation of the statute” and maintains it established that BSI’s aircraft
was “based in” Arizona for at least some period during each year of the
audit period under such an analysis.4 ADOT further argues that although
an aircraft might have multiple bases from which it operates during a year,
we should use a domiciliary analysis to presume the aircraft’s base never
changed from Arizona during the audit period, a presumption ADOT
maintains BSI bore the burden of disproving but did not meet.

¶28 Even assuming without deciding that a domiciliary analysis
might be consistent with the text of the statute and the statutory scheme
and that it could be used to resolve the ambiguity in A.R.S. § 28-8336, such
an analysis would first require a method for determining the domicile of an
aircraft. ADOT does not have any written regulation5 or formal or informal
written policies interpreting “based in” (or “days”) in the statute and has
apparently never provided notice to BSI or other taxpayers as to how it
defines those terms. Not only has ADOT never before publicly interpreted
the statute to require a domiciliary approach, it likewise has never informed
taxpayers that it would retroactively apply a “totality of the circumstances”
test to its proposed domiciliary analysis.

¶29 The record is not clear, morever, that ADOT actually relied in
BSI’s case on the factors it now argues should be part of its totality of the
circumstances standard for determining domicile, the weight it gave (if any)
to such factors, and the extent to which the factors are supported by the
record. Although ADOT could have sought to clarify these issues on

4 No question exists that BSI was “based in” Arizona for at least some
period during each of the audit years. The supreme court recognized this
when it stated, “BSI conceded it was ‘based in’ Arizona for the 24-hour
periods it was on the ground during the years in question, a concession it
may not now relitigate.” BSI II, 244 Ariz. at 21, ¶ 20.

5 Although the Arizona Administrative Code (“A.A.C.”) contains a
variety of rules and regulations relevant to ADOT and “Transportation
Aeronautics,” including a list of definitions, see A.A.C. R17-2-101, none
addresses the terms at issue here.

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 BSI v. ADOT
Opinion of the Court

remand, it did not do so. Instead, as the tax court found, ADOT’s view of
whether an aircraft is “based in” Arizona appears to be “a purely subjective
decision made by very experienced auditors who apply standards which
have not ever been reduced to writing or published.” That finding is
supported by the record developed before the tax court.

¶30 Consequently, on this record, ADOT has not justified its
proposed domiciliary analysis and totality of the circumstances test.
Adopting such an analysis would require us to fashion some type of
weighted-average test still not clearly defined or explained by ADOT, using
factors not previously disclosed to BSI. Although ADOT invites this court
to fashion such a test, it is not our province to act as a legislative body or to
develop administrative rules or other guidance. As importantly, the factors
ADOT claims “experienced auditors” would use to make the determination
are not listed in published rule, regulation, or department policy, and there
is nothing that gives a taxpayer notice of how the statute is going to be
interpreted or applied. Having exhausted all other tools of statutory
construction, we conclude § 28-8336 remains too ambiguous to apply to a
taxpayer. See BSI II, 244 Ariz. at 22, ¶ 25.6

¶31 As our supreme court has recognized, ambiguities in
“revenue statute[s] should be construed liberally in favor of the taxpayer
and strictly against the state.” Ebasco Servs. Inc. v. Ariz. State Tax Comm’n,
105 Ariz. 94, 97 (1969) (citations omitted); accord Capitol Castings, 207 Ariz.
at 447, ¶ 10 (recognizing that when legislative intent cannot be determined,
the statute is to be construed liberally in favor of the taxpayer).

¶32 “Tax statutes should provide clear notice of obligations so
that taxpayers may comply and order their affairs accordingly.” BSI II, 244
Ariz. at 22, ¶ 25; accord City of Phoenix v. Orbitz Worldwide Inc., 247 Ariz. 234,
244, ¶ 37 (2019). On this record, and given the absence of any defining
written rule, regulation, or departmental policy, § 28-8336 does not provide
the “clear notice” to aircraft owners necessary for compliance and tax
planning purposes. On a going-forward basis, however, the legislature can
easily amend the statute to correct or clarify its ambiguous language.
Alternatively, ADOT can propose, adopt, and publish rules or other

6 Because we resolve the matter based on the statutory ambiguity, we
need not and do not address other issues the parties’ briefs raise. See
Kondaur Cap. Corp. v. Pinal Cnty., 235 Ariz. 189, 193, ¶ 8 (App. 2014).

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Opinion of the Court

guidance that provide clarity and the requisite notice to taxpayers such as
BSI.7

III. Costs and Attorneys’ Fees on Appeal

¶33 BSI requests costs and attorneys’ fees on appeal pursuant to
A.R.S. §§ 12-342 and 12-348. BSI is the successful party on appeal, and we
grant taxable costs and an award of attorneys’ fees to BSI upon compliance
with Arizona Rule of Civil Appellate Procedure 21.

CONCLUSION

¶34 For the above reasons, we affirm the tax court’s judgment.

AMY M. WOOD • Clerk of the Court
FILED: AA

7 Absent the clear notice that only legislative or agency clarification
can provide, we seriously question whether and, if so, to what extent ADOT
can enforce this statute and/or disprove taxpayers’ claims of nonresident
tax status. Further, with those factors clearly identified and published,
ADOT will also be in a better position to demonstrate in any future
assessment proceeding how it has applied those factors in evaluating
residency/tax status under the statute.

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