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SUPREME COURT OF ARIZONA En Banc CITY OF PEORIA, a municipal ) corporation; and CITY OF PHOENIX, ) a municipal corporation, ) ) Plaintiffs/Defendants/ ) Appellees, ) ) v. ) ) BRINK'S HOME SECURITY, INC., a ) Delaware corporation, ) ) Defendant/Plaintiff/ ) Appellant. ) ) ) __________________________________) Arizona Supreme Court No. CV-10-0218-PR Court of Appeals Division One No. 1 CA-TX 09-0001 Arizona Tax Court Nos. TX2006-000113 TX2006-000116 TX2006-000228 TX2006-000335 (Consolidated) 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 ________________________________________________________________ STEPHEN M. KEMP, PEORIA CITY ATTORNEY By Cynthia Odom, Assistant City Attorney Attorneys for City of Peoria Peoria GARY VERBURG, PHOENIX CITY ATTORNEY By James H. Hays, Assistant City Attorney Attorneys for City of Phoenix Phoenix SNELL & WILMER LLP By Barbara J. Dawson Martha E. Gibbs Melissa M. Krueger Robert I. Schwimmer Attorneys for Brink s Home Security, Inc. Phoenix OSBORN MALEDON, P.A. By Randall C. Nelson Thomas L. Hudson Mark P. Hummels Attorneys for Amici Curiae Arizona-New Mexico Cable Communications and The Broadband Tax Institute Phoenix 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). of appeals held that the telecommunications The court 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. 2 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. the automated typically by signal and attempt telephone. When Personnel there receive to contact the customer 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 § 12470(a)(2)(D) and Phoenix City Code § 14-470(a)(2)(D). Each code provides providing for taxation telecommunication monitoring services of services, relating gross income from which include [c]harges to a security or burglar for alarm system located within the City where such system transmits or receives signals or data over a communications channel. City Code § 470(a)(2)(D). provides 12-470(a)(2)(D); Phoenix City Code Peoria § 14- BHS protested the assessments, arguing that it interstate telecommunications services municipal taxation under A.R.S. § 42-6004(A)(2). immune from 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). 3 Characterizing BHS s monitoring process as a transmission loop that begins and ends in Arizona, the majority opinion concluded that the services are intrastate and therefore taxable. at 1025. as Id. at 283 ¶¶ 19 21, 229 P.3d The dissenting opinion viewed the monitoring process involving separate interstate subject to municipal taxation. communications that are not Id. at 286 ¶ 35, 229 P.3d at 1028 (Johnsen, J., dissenting). ¶5 We statewide granted review importance to consider concerning security monitoring services. unresolved municipal issues taxation of of home- 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). but not We read tax provisions to gain their fair meaning, to gather new objects construction or implication. special taxation by strained Id. ¶7 of No [i]nterstate city, town or telecommunications taxing services, district which may include tax that portion of telecommunications services, such as subscriber line service, allocable by telecommunications service. federal law to interstate A.R.S. § 42-6004(A)(2). 4 Neither § 42-6004(A)(2) nor any other Arizona statute defines interstate telecommunication services. ¶8 Another telecommunications Arizona tax services provision as defines transmitting intrastate 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. added). state A.R.S. § 42-5064(E)(4) (emphasis Although this definition appears in the statutes for 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 distinguishing between telecommunications interpreting cases § provide little interstate services. This 42-6004(A)(2) is guidance and Court s People s for intrastate only decision 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, 5 not the taxation of the services ancillary to the interstate transmission of signals. disagreed, holding Id. at 403 ¶ 6, 46 P.3d at 414. that the phrase We 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. service provider there carried both local The television and out-of-state programs, and A.R.S. § 42-5064(A) specifically exempts cable and microwave because such television systems . systems . . from primarily intrastate provide programming. Id. at 404 ¶ 10, 46 P.3d at 415. in no contrast, statutory scheme explicitly taxation interstate In this case, exempts home- security monitoring transmissions from intrastate taxation. accordingly reject the conclusion below that People s We 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 6 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 is monitoring personnel process call transmission. local ends. If it emergency an emergency, responders BHS s a third 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. appeals correctly observed that the monitoring The court of process may involve communications that begin with an alarm signal here and end with a call received by an Arizona emergency responder. Ariz. at 283 ¶ 21, 229 P.3d at 1025. But the loop involves separate transmissions that relay different information. like the dissenting judge, we 224 conclude Thus, 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 7 not apply to this kind of 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 defines as interstate telecommunications services. federal law When first adopted, § 42-6004(A)(2) simply prohibited municipal taxation of interstate telecommunications services. Laws, ch. 5, § 1 (3d Spec. Sess.). 1991 to prohibit services, which taxes include on 1990 Sess. The section was amended in [i]nterstate that Ariz. portion of telecommunications 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 legislative history supports the Cities restrictive reading. 8 the B. ¶16 on The Cities also argue that the taxes are not assessed telecommunications expressly list services. Although monitoring the services city codes 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. rejected it. 48, 229 P.3d (The dissenting opinion See Brink s Home Sec., 224 Ariz. at 288 89 ¶¶ 46 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 court For the reasons stated, we vacate the opinion of the of appeals proceedings. fees pursuant and remand to that court for further We deny BHS s request for an award of attorney to A.R.S. § 12-348 9 without prejudice to its renewing this request below if it ultimately prevails. _____________________________________ W. Scott Bales, Justice CONCURRING: _____________________________________ Rebecca White Berch, Chief Justice _____________________________________ Andrew D. Hurwitz, Vice Chief Justice _____________________________________ A. John Pelander, Justice _____________________________________ Robert M. Brutinel, Justice 10