Mesquite v. Ador

IN THE

SUPREME COURT OF THE STATE OF ARIZONA
MESQUITE POWER, LLC,
Plaintiff/Appellee,

v.

ARIZONA D EPARTMENT OF REVENUE
Defendant/Appellant.

No. CV-23-0016-PR
Filed July 22, 2024

Appeal from the Arizona Tax Court
The Honorable Danielle J. Viola, Judge
No. TX2018-000928
REVERSED AND REMANDED

Opinion of the Court of Appeals, Division One
254 Ariz. 355 (App. 2022)
VACATED

COUNSEL:

Paul J. Mooney (argued), Bart S. Wilhoit, Mooney, Wright, Moore &
Wilhoit, PLLC, Scottsdale, Attorneys for Mesquite Power, LLC

Kristin K. Mayes, Attorney General, Lisa Neuville (argued), Kimberly
Cygan, Jerry A. Fries, Assistant Attorneys General, Arizona Attorney
General’s Office, Phoenix, Attorneys for Arizona Department of Revenue
and County of Maricopa
 MESQUITE V. ADOR
Opinion of the Court

James R. Nearhood, Nearhood Law Offices, PLC, Scottsdale, Attorney for
Amici Curiae WSATR and NAPTR-TEC

Douglas S. John, Frazer Ryan Goldberg & Arnold, LLP, Phoenix, Attorney
for Amicus Curiae Griffith Energy, LLC

Greg Patterson, Arizona Competitive Power Alliance, Tempe; Thomas A.
Denker, Tyler J. Michalowski, Munger, Chadwick & Denker, P.L.C.,
Tucson, Attorneys for Amicus Curiae Arizona Competitive Power Alliance

Bennett Evan Cooper, Dawn R. Gabel, Dickinson Wright PLLC, Phoenix,
Attorneys for Amicus Curiae Arizona Tax Research Association

JUSTICE KING authored the Opinion of the Court, in which CHIEF
JUSTICE TIMMER, VICE CHIEF JUSTICE LOPEZ, and JUSTICES BOLICK
and BEENE joined. *

JUSTICE KING, Opinion of the Court:

¶1 This case involves the proper valuation of an electric
generation facility for property tax purposes. Mesquite Power, LLC
(“Mesquite”) owns the subject property known as Mesquite Power Station
Block 2 (the “Mesquite Power Plant”). Through a “Power Purchase
Agreement” between Mesquite and a group of buyers (the “Buyers”),
Mesquite guarantees the Buyers a specific amount of electrical capacity
during a particular period. In turn, Mesquite receives fixed payments
from the Buyers.

¶2 For tax year 2019, the Arizona Department of Revenue
(“ADOR”) calculated the full cash value of the Mesquite Power Plant under
A.R.S. § 42-14156. Mesquite challenged that statutory valuation in tax
court under A.R.S. § 42-14005(2), relying on the income approach to

* Justice Robert M. Brutinel and Justice William G. Montgomery recused
themselves from this matter.

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valuation. See A.R.S. § 42-16204. The parties dispute whether the income
approach permits consideration of income from the Power Purchase
Agreement when valuing the Mesquite Power Plant for property tax
purposes. We conclude that income from the Power Purchase Agreement
is not automatically and entirely irrelevant to the Mesquite Power Plant’s
valuation under the income approach. Such income may be considered in
the valuation if it is relevant to the calculation of income derivable from the
property itself by continued use as a power plant.

¶3 We further conclude that A.R.S. § 42-11054(C)(1)—which
provides that the property’s “[c]urrent usage shall be included” in the
valuation—does not require consideration of the Power Purchase
Agreement.

BACKGROUND

¶4 Sempra U.S. Gas & Power LLC (“Sempra”) originally built the
Mesquite Power Plant in 2003. In 2015, Sempra sold the facility and its
accompanying business to ArcLight Capital Partners, LLC (“ArcLight”) for
nearly $357,000,000. ArcLight spent over $27,000,000 making capital
improvements to the property. Then, in 2018, ArcLight sold all rights,
titles, and interests in Mesquite’s business, including ownership of the
Mesquite Power Plant, to Southwest Generation Operating Company, LLC
(“Southwest”) for nearly $556,000,000. 1 Southwest currently owns
Mesquite.

¶5 The Mesquite Power Plant is a “base load plant” designed to
run continuously absent maintenance or shutdowns. It is also a
“merchant plant,” meaning that Mesquite sells the electricity that the
Mesquite Power Plant generates to third parties. A power plant’s capacity
is measured in terms of the megawatts it generates. The Mesquite Power
Plant has a net operating capacity of 625 megawatts.

¶6 Southwest’s purchase of the Mesquite Power Plant from
ArcLight included the transfer of the Power Purchase Agreement—an

1 Some of these transactions involved wholly owned subsidiaries of the
entities identified herein. We have omitted reference to the wholly owned
subsidiaries for ease of reference.

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agreement between Mesquite and the Buyers. The Buyers are a collective
group of electric utilities, municipalities, power cooperatives, tribal utility
authorities, irrigation districts, electrical districts, as well as other entities
authorized to sell power to consumers.

¶7 The Power Purchase Agreement guarantees the Buyers a
specific amount of electrical capacity in exchange for the Buyers’ fixed
payments to Mesquite. The Buyers’ payments to Mesquite are mandatory
and remain the same whether the Buyers actually take delivery of any
power. The Power Purchase Agreement does not require that the
Mesquite Power Plant produce the electricity that fulfills Mesquite’s
obligations to the Buyers. Mesquite may purchase power on the open
market or from another source to cover the capacity guarantee to the
Buyers. The Power Purchase Agreement provides that, with the Buyers’
prior approval, the agreement may be severed from the Mesquite Power
Plant and transferred separately.

¶8 The original Power Purchase Agreement was entered into in
2011, and it guaranteed the Buyers up to 241 megawatts of electrical
capacity over a designated period. In 2013, an amended agreement
increased that number to 271 megawatts of electrical capacity. In return,
the Buyers paid Mesquite approximately $34,000,000 per year, as well as
certain operation and maintenance costs for the plant. In 2017, the
agreement was amended again—increasing the Buyers’ guarantee to 475
megawatts of electrical capacity, beginning in 2021 and effective through
2046. In exchange, the guaranteed payments increased to about
$48,000,000 per year in 2021.

¶9 Arizona Revised Statute § 42-14151(A)(4) requires ADOR to
“annually determine the valuation, in the manner prescribed by this article,
of all property, owned or leased, and used by taxpayers in
the . . . [o]peration of an electric generation facility.” Section 42-14156
requires ADOR to use a cost-based approach in the agency’s statutory
valuation of electric generation facilities. See A.R.S. § 42-11001(6) (“‘Full
cash value,’ for property tax purposes, means the value determined as
prescribed by statute.”); see also Griffith Energy L.L.C. v. Ariz. Dep’t of
Revenue, 210 Ariz. 132, 137 ¶ 24 (App. 2005) (“By enacting § 42-14156, the
legislature required ADOR to use a cost approach in valuing electric
generation property for purposes of property taxation, with specified

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adjustments to scheduled depreciation over a five-year period.”).
Section 42-14156 requires, among other things, a determination of the value
of land, real property improvements, and personal property used in
operating the facility by evaluating the “cost” of each. § 42-14156(A).
“Cost” means “the cost of constructing the property or acquiring the
property in an arm’s length transaction.” § 42-14156(A)(6)(a). For tax
year 2019, ADOR valued the property comprising the Mesquite Power
Plant at $196,870,000 based on the formula for electric generation facilities
in § 42-14156.

¶10 Mesquite challenged ADOR’s statutory valuation of the
Mesquite Power Plant in tax court. See § 42-14005(2) (“A property owner
who is not satisfied with the valuation of the owner’s property as
determined by the department may appeal . . . [d]irectly to superior court
pursuant to section 42-16204.”). Mesquite did not argue that ADOR
incorrectly applied the statutory formula when determining the value of
the Mesquite Power Plant under § 42-14156. Instead, Mesquite claimed
that ADOR’s full cash value calculation under § 42-14156 exceeded the
market value of the property in violation of § 42-11001(6) (stating that
“[f]ull cash value shall not be greater than market value regardless of the
method prescribed to determine value for property tax purposes”).

¶11 Mesquite moved for partial summary judgment on whether
the Power Purchase Agreement could be considered in the property
valuation. The tax court entered partial summary judgment for Mesquite,
ruling that the Power Purchase Agreement “is a ‘non-taxable, intangible
asset’ that is separate and severable from the tangible property and the
valuation of Mesquite’s tangible property for property tax purposes cannot
include the value of the [Power Purchase Agreement].” The tax court,
however, denied Mesquite’s motion “as to whether cash flows attributable
to the [Power Purchase Agreement] can be considered as part of the
valuation of Mesquite’s property.”

¶12 Thereafter, the tax court had to decide whether Mesquite had
met its burden of establishing that the statutorily derived full cash value
determined by ADOR exceeded the property’s market value. “Fair
market value is . . . that ‘amount at which property would change hands
between a willing buyer and a willing seller, neither being under any
compulsion to buy or sell and both having reasonable knowledge of the

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relevant facts.’” Bus. Realty of Ariz. v. Maricopa County, 181 Ariz. 551, 553
(1995) (quoting Fair Market Value, Black’s Law Dictionary (6th ed. 1990)).

¶13 In property taxation, market value is “the estimate of value
that is derived annually by using standard appraisal methods and
techniques.” § 42-11001(6). Market value is “determined by use of three
common appraisal approaches:” (1) “capitalizing the income stream”
(income approach), (2) “estimating replacement cost less depreciation”
(cost approach), and (3) “estimating market value by comparable sales”
(market or sales comparison approach). Bus. Realty, 181 Ariz. at 553–54;
see also A.R.S. § 42-16051(B)(1)–(3) (identifying income, market, and cost
approaches to property valuation); Mohave County v. Duval Corp., 119 Ariz.
105, 106 (1978) (“There are three accepted approaches to estimating value:
(1) the reproduction cost of the property, (2) income projected into the
future (capitalization of income), and (3) market data appraisal which is the
comparison of sales of similar property.”); Maricopa County v. Sperry Rand
Corp., 112 Ariz. 579, 581 (1976) (“The three commonly recognized
approaches to value (cost, income, and market) should be
considered . . . .”).

¶14 At trial, Mesquite offered expert testimony that the market
value of the Mesquite Power Plant was $105,000,000. In contrast, ADOR
offered expert testimony that the market value was $432,000,000—a
significant increase from its statutory valuation.

¶15 The experts for ADOR and Mesquite considered the three
standard appraisal approaches but differed as to the weight given to each
approach. ADOR’s expert gave some weight to each of the three
approaches. Mesquite’s expert relied on the income approach, claiming it
is the method most relied on by buyers and sellers in the industry, and did
not give weight to the cost or market approaches.

¶16 Using the income approach, Mesquite’s expert valuation did
not include income from the Power Purchase Agreement. Instead,
Mesquite’s valuation included income from what it considered the taxable
property, constructing a hypothetical income model for the property that
valued the Mesquite Power Plant as a merchant base load plant competing
in the market by selling energy at wholesale prices. In contrast, ADOR’s
expert valuation under the income approach included income from the
Power Purchase Agreement and did not deduct the value of the Power

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Purchase Agreement. The tax court agreed with Mesquite’s valuation,
finding that the value of the property was $105,000,000 for the 2019 tax year.
ADOR appealed.

¶17 The court of appeals disagreed with the tax court, holding
“that where intangible assets enhance the real and tangible property’s
value, a competent appraisal must consider the effect such intangible assets
have on the taxable property’s value.” Mesquite Power, LLC v. Ariz. Dep’t
of Revenue, 254 Ariz. 355, 357 ¶ 2 (App. 2022). Further, “any valuation
approach must appraise the operating unit by its current usage to be
competent,” and “Mesquite’s appraisal is inappropriate under the
circumstances because, by assuming the [Power] Purchase Agreement does
not exist, it does not reflect the property as it is.” Id. at 364 ¶ 51. In sum,
the court concluded that the Power Purchase Agreement “enhances the
value of Mesquite’s taxable property because it contributes to the plant’s
cash flows and current usage. Thus, it must be considered in determining
the property’s value.” Id. at 361 ¶ 35. The court vacated the tax court’s
judgment and remanded with instructions. Id. at 364 ¶ 52.

¶18 We granted review because this case presents recurring issues
of statewide importance. We have jurisdiction pursuant to article 6,
section 5(3) of the Arizona Constitution.

DISCUSSION

¶19 “We review questions of statutory interpretation de novo.”
See State v. Santillanes, 256 Ariz. 480, 484 ¶ 11 (2024) (quoting State v. Jones, 246 Ariz. 452, 454 ¶ 5 (2019)). We also review “mixed questions of law
and fact de novo.” Brush & Nib Studio, LC v. City of Phoenix, 247 Ariz. 269,
278 ¶ 28 (2019).

A. May Income Generated From The Power Purchase Agreement Be
Considered Under The Income Approach To Valuation?

¶20 The Arizona Constitution provides that “[a]ll property in this
state that is not exempt under the laws of the United States or under this
section is subject to taxation as provided by law.” Ariz. Const. art. 9,
§ 2(A); see also A.R.S. § 42-11002 (“All property in this state is subject to
taxation except as provided in article IX, Constitution of Arizona, and
article 3 of this chapter.”). “Four general elements comprise the formula

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by which Arizona measures a property tax: classification, valuation,
assessment ratio, and tax rate.” Aileen H. Char Life Int. v. Maricopa County, 208 Ariz. 286, 291 ¶ 8 (2004). The second element—valuation—is at issue
in this case.

¶21 The statutory valuation that ADOR must annually determine
for electric generation facilities is found in § 42-14156. An “[e]lectric
generation facility” is defined as “all land, buildings and personal property
that is situated in this state and that is used or useful for the generation of
electric power.” § 42-14156(B)(1).

¶22 In a property tax appeal, the valuation approved by ADOR
“is presumed to be correct and lawful.” A.R.S. § 42-16212(B). But a
taxpayer may meet its burden of rebutting the statutory presumption by
presenting “competent evidence” of an excessive valuation. Golder v.
Dep’t of Revenue, 123 Ariz. 260, 263 (1979); see also § 42-16212(B) (allowing
parties to present evidence of any matters related to the valuation of the
property at a hearing). “Evidence is competent for the purposes of
rebutting the statutory presumption and of showing that the Department’s
valuation was excessive when it is derived by standard appraisal methods
and techniques which are shown to be appropriate under the particular
circumstances involved.” Inspiration Consol. Copper Co. v. Ariz. Dep’t of
Revenue, 147 Ariz. 216, 223 (App. 1985), superseded by statute on other grounds,
1990 Ariz. Sess. Laws ch. 360, § 1 (2d Reg. Sess.); see also Golder, 123 Ariz.
at 263 (“Where the taxpayer presents evidence based upon different
methods of assessment than those used by the state, that evidence is not
competent unless the taxpayer can demonstrate that the appraisal methods
used are appropriate in the given circumstances.”); Eurofresh, Inc. v. Graham
County, 218 Ariz. 382, 386 ¶ 17 (App. 2007) (“If the taxpayer uses a different
valuation method than the taxing authority, the taxpayer’s evidence is not
competent unless it demonstrates that its method was appropriate under
the circumstances.”). Therefore, to rebut ADOR’s statutory valuation, a
property owner like Mesquite may use standard appraisal methods that are
appropriate under the particular circumstances.

¶23 As discussed, Arizona law recognizes three standard
appraisal approaches for property valuation. Bus. Realty, 181 Ariz.
at 553–54. In some instances, “it may be error to use only one method
without consideration of the others.” Sperry Rand Corp., 112 Ariz. at 581;
see also id. at 582 (declining to accept “appellants’ position that the cost

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method was the only way to value the property” and noting that the
“evidence offered . . . was to the effect that the cost method was not the
superior method for valuing this property”). But there are other
“instances when only one method or approach to value can be used.” Id.
at 581.

¶24 In sum, § 42-14156 uses a cost-based approach to determine
the full cash value of an electric generation facility. Mesquite does not
claim that ADOR improperly valued the Mesquite Power Plant under
§ 42-14156. Instead, Mesquite argues that ADOR’s statutory value exceeds
the property’s market value in violation of § 42-11001(6). A taxpayer may
use a standard appraisal method like the income approach to rebut ADOR’s
statutory valuation as improperly exceeding the property’s market
valuation, if that approach is “appropriate under the particular
circumstances.” See Inspiration Consol. Copper Co., 147 Ariz. at 223; see also
§ 42-11001(6). It is within that context that we consider how the income
approach should be applied to identify the property’s market value.

¶25 Mesquite’s expert relied on the income approach to valuation
in its appeal challenging ADOR’s statutory valuation. As noted, the
parties disagree whether income from the Power Purchase Agreement may
be considered under the income approach. ADOR claims that the Power
Purchase Agreement impacts Mesquite’s market value and that income
from such an agreement should be considered under the income approach.
Conversely, Mesquite argues that the Power Purchase Agreement is legally
irrelevant and should be entirely disregarded; instead, a hypothetical
income model should be constructed to properly value the property, as
Mesquite’s expert presented to the tax court here.

¶26 A property tax “is against the property itself.” Recreation
Ctrs. of Sun City, Inc. v. Maricopa County, 162 Ariz. 281, 286 (1989). As this
Court explained in Recreation Centers:

Under established Arizona law, property burdened by long
term leases or mortgages is not appraised at its potentially
restricted selling price, but is compared to similar property
without such burdens. Even if such encumbrances make a
particular property more or less desirable to a prospective
buyer, the assessed value for tax purposes is not affected.

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Id. at 285 (internal citations omitted) (citing Steinfeld v. State, 37 Ariz. 389,
393 (1930) (addressing a mortgage), Magna Inv. & Dev. Corp. v. Pima County, 128 Ariz. 291, 294 (App. 1981) (“Appellants correctly recognize that in fixing
the full cash value of land, the effect of existing leases on the value of [sic]
to the owner should not be relied upon”; “the fact that a lease unfavorable
to the owner encumbers the property does not lower its full cash value.”),
and Caldwell v. Dep’t of Revenue, 122 Ariz. 519, 521 (App. 1979) (holding an
unfavorable lease that makes a property less desirable to prospective
buyers does not affect the property’s full cash value)). “[B]ecause the tax
is against the property itself, the fee owner’s personal financial status is
irrelevant.” Id. at 286; see also Maricopa County v. Trs. of Ariz. Lodge No. 2
(“Trustees of Arizona Lodge”), 52 Ariz. 329, 336 (1938) (“In tangibles [sic] like
instruments and securities for the payment of money, such as bonds and
promissory notes, are not the subject of seizure and sale under execution in
the absence of express statutory authority.”).

¶27 On the one hand, the Power Purchase Agreement is an
intangible business contract. If all income from such an agreement is
automatically used to calculate the value of the property in all instances,
this would effectively tax an intangible asset and would skew the property
valuation away from the property itself.

¶28 On the other hand, the income approach to valuation permits
consideration of certain income-related information. As this Court stated
in Duval Corp.:

The “capitalized-income method” of valuation refers to any
procedure whereby the appraiser measures the value of the
property by a calculation or estimate of the income or services
derived or derivable from the property by its present or
potential owner. In its more usual form, it involves a
capitalization or discounted valuation of the realized or
prospective net monetary income derivable by continuous
exploitation rather than by resale.

119 Ariz. at 106 (quoting James Bonbright, Valuation of Property 230 (1st ed.
1937), https://archive.org/details/in.ernet.dli.2015.264371/page/n1/mo
de/2up). Therefore, income generated from an existing agreement is
relevant as it may evidence a facility’s expected income, which the income
approach capitalizes to value the facility. But in that circumstance, the tax

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court should consider other factors bearing on the strength of that evidence
for property valuation purposes, such as whether the agreement is
severable from the subject property, how many other like facilities have
similar agreements, and the facility’s historical role in generating the
product under the agreement. And the taxpayer may demonstrate that
the agreement has independent value that should be subtracted from the
final expected income figure.

¶29 In this case, the core function of the Mesquite Power Plant is
to generate and sell electricity, and its value under the income approach is
closely connected with its ability to generate income from the sale of such
electricity. Mesquite seemingly recognizes this by valuing the Mesquite
Power Plant under the income approach as a base load plant competing in
the market by selling electricity. Indeed, Mesquite’s expert testified that
the income approach is “predicated on the principle of anticipation” and is
based on the “present worth of . . . the anticipated future cash flows.” We
conclude that income from the Power Purchase Agreement may therefore
be considered under the income approach to valuation if it constitutes
income derivable from the Mesquite Power Plant itself as a base load power
plant.

¶30 This approach does not value an intangible contract or the
effect of a property encumbrance like a deed restriction, lease, or mortgage.
See, e.g., Steinfeld, 37 Ariz. at 393; Recreation Ctrs., 162 Ariz. at 285–86.
Instead, it measures the value of the property itself under the
well-established income approach by calculating the income derivable from
the property itself as a base load power plant. See Duval Corp., 119 Ariz.
at 106.

¶31 The tax court must therefore consider whether income from
the Power Purchase Agreement—and what portion—falls within this
category. In doing so, the tax court should consider relevant factors such
as whether the Power Purchase Agreement has value that is separate and
independent from the Mesquite Power Plant; the plant’s historical role in
generating the electricity sold under the agreement, versus another source
providing it; whether the plant operates independently of the agreement;
and whether comparable plants in the market typically operate with similar
agreements in place.

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¶32 This approach permits consideration of income related to the
property itself under the income approach to property valuation. It does
not improperly subject an intangible asset to taxation in conflict with
Trustees of Arizona Lodge, 52 Ariz. at 332–43 (addressing “whether revenue
laws of the state require the owner of intangible personal property to pay
taxes thereon”). Trustees of Arizona Lodge did not have before it, nor did it
consider, the income approach to valuation. Id.

¶33 We recognize that the Power Purchase Agreement is
severable from the Mesquite Power Plant (with the Buyers’ prior approval)
and electricity may be provided from a source other than the Mesquite
Power Plant. But these facts do not conclusively demonstrate that the
agreement is in fact separate and independent from the property itself.
Nor do these facts negate the consideration of income with the agreement
in place as potentially relevant evidence of income derivable from the
property itself. As explained, Mesquite may, in turn, seek to demonstrate
that the agreement has value independent from the plant itself that should
be deducted from the valuation under the income approach. And if the
Buyers’ contractual payments fixed at the time of execution later create a
loss of income (e.g., depending on fluctuating production costs and timing
of delivery), the income approach takes this into consideration. But we
simply cannot say, as a matter of law, that all income generated from an
agreement is automatically and entirely irrelevant under the income
approach to valuation.

¶34 Mesquite claims that the legislature’s cost-based approach to
valuing an electric generation facility under § 42-14156 limits the property
that may be valued to only tangible personal property, real property, and
land. In doing so, it asserts, the legislature precluded income from an
electric generation facility’s agreement from being considered under any
valuation method used in a taxpayer challenge, including the income
approach. We disagree. Section 42-14156 does not address the income
approach to valuation—or restrict the income approach in any way—when
a taxpayer, like Mesquite, uses this approach to challenge ADOR’s statutory
valuation as excessive. Further, the legislature has provided that “[f]ull
cash value shall not be greater than market value regardless of the method
prescribed to determine value for property tax purposes,” and market value
is “the estimate of value that is derived annually by using standard appraisal
methods and techniques.” See § 42-11001(6) (emphasis added); see also
§ 42-16051(B)(1)–(3). Thus, § 42-14156 does not preclude consideration of

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income when the income approach—a standard appraisal method—is used
to challenge ADOR’s statutory valuation in tax court.

¶35 Mesquite further argues that considering the Power Purchase
Agreement’s income would violate the Uniformity Clause of the Arizona
Constitution. Ariz. Const. art. 9, § 1 (“Except as provided by section 18 of
this article, all taxes shall be uniform upon the same class of property within
the territorial limits of the authority levying the tax . . . .”). But this issue
was not preserved for appellate review. Mesquite did not raise the
Uniformity Clause issue in the trial court. After the court of appeals
issued its opinion, Mesquite raised the issue for the first time in a motion
for reconsideration, which was denied without further briefing. Neither
the trial court nor the court of appeals addressed the Uniformity Clause
argument, and we decline to consider it in the first instance. See Weitz Co.
v. Heth, 235 Ariz. 405, 412 ¶ 24 (2014).

B. Does “Current Usage” In § 42-11054(C)(1) Require Consideration Of
The Power Purchase Agreement?

¶36 The court of appeals concluded that the Power Purchase
Agreement must be considered in the valuation because it contributes to
the plant’s “current usage” and “Mesquite cannot, consistent with reality,
be valued as a plant without an in-place agreement providing a fixed
income.” Mesquite Power, 254 Ariz. at 361 ¶ 35, 362 ¶ 39. Mesquite
contests this determination.

¶37 Under § 42-11054(C)(1), “[c]urrent usage shall be included in
the formula for reaching a determination of full cash value” when
“applying prescribed standard appraisal methods and techniques.” See
also London Bridge Resort, Inc. v. Mohave County, 200 Ariz. 462, 466 ¶ 20 (App.
2001) (“In determining the value of property identified for taxation, the
County is required to take into consideration the ‘current usage’ of the
property.”). “Current usage” is defined as “the use to which property is
put at the time of valuation by the assessor or [ADOR].” § 42-11001(4).

¶38 The statutory requirement to consider “current usage”
eliminates the previous requirement to consider the property’s “highest
and best use” for valuation purposes. See Burns v. Herberger, 17 Ariz. App.
462, 466–67 (1972), overruled in part on other grounds by Golder, 123 Ariz.
at 264–65.

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¶39 This Court previously addressed and discussed the meaning
of “current usage” in Golder by providing the following example: “If land is
being used for agricultural purposes in the middle of urban growth,” it
should “be appraised on the basis of current usage.” 123 Ariz. at 265.
More specifically, “[i]f a market data approach were used to appraise the
land, the value of surrounding land would reflect the value for future
housing or commercial use. This anticipated or future use may not be
used in fixing a value for the land being used as a farm.” Id. Thus, when
current use is “considered in assessing the property, the agricultural user is
taxed only to the extent that the land has value for agricultural purposes.”
Id. at 265–66 (emphasis added).

¶40 Recreation Centers also provides clarity. 162 Ariz. at 283.
There, the property had a restrictive covenant stating that the “property
shall be used for the purpose of operating and maintaining a community
center and recreational facilities.” Id. The property also had “various
improvements, including recreation center complexes (each consisting of a
swimming pool, social and meeting halls, auditorium, craft room, and other
facilities), golf courses with pro shops, and a bowling alley.” Id. This
Court held that when considering “current usage,” “the department
must . . . consider the recreational use.” Id. at 290 (emphasis added).

¶41 In Maricopa County v. Viola, 251 Ariz. 276, 279–80 ¶¶ 12, 15
(App. 2021), the court of appeals described the “current use” of low-income
housing tax credit properties “as low-income properties,” not “ordinary
properties” or a “conventional apartment complex.” This was because the
low-income housing tax credit program “restrict[ed] an owner’s use of the
property” and subjected such property “to continuing government
mandates that impose operational and compliance costs, periodic
monitoring, on-site inspections, and compliance reviews” and “limit[ed]
who can live in [such] properties to those with a certain income or who meet
other classifications (i.e., homeless, mentally ill, domestic violence victims,
physically disabled).” Id. at 280 ¶ 15.

¶42 Accordingly, “current usage” addresses the manner in which
the subject property is used at the relevant point in time. See § 42-11001(4);
Golder, 123 Ariz. at 265–66; Recreation Ctrs., 162 Ariz. at 283. Here, the
Mesquite Power Plant’s “current usage” is as a base load power plant. By
its terms, the Power Purchase Agreement requires Mesquite to provide a
certain amount of electrical capacity to the Buyers, but the agreement does

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not alter or restrict the manner in which the Mesquite Power Plant property
is used or what activity occurs on the property. The Power Purchase
Agreement does not implicate how the property is used—as a base load
power plant—at the time of valuation. Because the Power Purchase
Agreement does not implicate “current usage,” § 42-11054(C)(1) does not
mandate consideration of the Power Purchase Agreement.

CONCLUSION

¶43 At the tax court, Mesquite’s expert did not consider income
from the Power Purchase Agreement under the income approach to
valuation. For the reasons discussed, this valuation did not properly rebut
ADOR’s statutory valuation. But we do not decide whether Mesquite has
rebutted ADOR’s valuation at this juncture. In at least one earlier case
involving Mesquite’s property, the tax court ruled that the Power Purchase
Agreement could not be considered. It was therefore entirely
understandable that Mesquite’s expert did not consider the Power Purchase
Agreement when valuing the property. Mesquite should be given that
opportunity now.

¶44 We therefore reverse the tax court’s judgment and remand to
the tax court for further proceedings consistent with this opinion. On
remand, the tax court must give Mesquite an opportunity to offer a new
valuation under the income approach consistent with this opinion, and
ADOR must be given the same opportunity. We vacate the court of
appeals’ opinion.

¶45 Mesquite requested attorney fees, citing only Arizona Rule of
Civil Appellate Procedure 21. Rule 21 “only establishes the procedure for
claiming attorneys’ fees and does not create any substantive right to them.”
ARCAP 21(a)(2). A claim for fees under Rule 21 “must specifically state
the statute, rule, decisional law, contract, or other authority for an award of
attorneys’ fees. If a party fails to comply with this requirement, the
appellate court may decline to award fees on that basis.” Id. We decline
Mesquite’s request for attorney fees because Mesquite did not provide any
legal authority for an award of fees.

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