                               IN THE
            ARIZONA COURT OF APPEALS
                            DIVISION ONE


                BSI HOLDINGS, LLC, Plaintiff/Appellee,

                                   v.

ARIZONA DEPARTMENT OF TRANSPORTATION, Defendant/Appellant.

                         No. 1 CA-TX 16-0003
                           FILED 7-13-2017


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

                    VACATED AND REMANDED


                              COUNSEL

Ryan Rapp & Underwood, PLC, Phoenix
By Christopher T. Rapp
Counsel for Plaintiff/Appellee

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



                                 OPINION

Presiding Judge Margaret H. Downie delivered the opinion of the Court, in
which Judge Kenton D. Jones and Judge Donn Kessler1 joined.



D O W N I E, Judge:

¶1            The Arizona Department of Transportation (“ADOT”)
appeals the tax court’s entry of summary judgment in favor of BSI
Holdings, LLC (“BSI”). We hold that, in calculating the annual license tax
due for a non-resident aircraft based in Arizona, the word “day” in Arizona
Revised Statutes (“A.R.S.”) section 28-8336 means any calendar day during
which the aircraft was on the ground in Arizona for any period of time.
Because the tax court applied a materially different definition, we vacate its
judgment and remand for further proceedings consistent with this opinion.

                 FACTS AND PROCEDURAL HISTORY

¶2            BSI is an Oregon limited liability company that was formed to
purchase, operate, and maintain a dual engine turbo-jet (the “Jet”). During
the period relevant to this appeal, the Jet was based in Arizona and
regularly flew in and out of the Scottsdale Airport, where BSI maintained a
tie-down arrangement/hangar agreement. For the period of time at issue,
the Jet was used exclusively by Arizona resident (and BSI member) Richard
Burke for personal purposes, including “family trips, transportation to
family events, drop-off and pick-up of family and friends.”

¶3             In 2004, BSI and ADOT executed a “Closing Agreement” that
settled a dispute between them regarding the aircraft license tax due for
2003 and 2004. Under the terms of the Closing Agreement, BSI paid no tax
for 2003. For 2004, it paid the non-resident rate applicable to aircraft that
are present in Arizona for more than 90 days but fewer than 210 days. BSI
thereafter paid that same rate for tax years 2005 through 2012.




1      The Honorable Donn Kessler, Retired Judge of the Arizona Court of
Appeals, Division One, has been authorized to sit in this matter pursuant
to Article VI, Section 3 of the Arizona Constitution.


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                            Opinion of the Court

¶4             ADOT conducted an audit and concluded the Jet had been
based in Arizona for more than 209 days each audited year and that BSI
should therefore have paid the resident tax rate. ADOT issued an
assessment for $161,004. ADOT also notified the Federal Aviation
Administration of the assessment, and a lien was recorded against the Jet.
See A.R.S. § 28-8330(A) (“The license tax, registration fee and penalty
constitute a lien on the aircraft on which they are due from the due date.”).

¶5             After an unsuccessful administrative appeal, BSI filed a
complaint in the tax court, alleging ADOT improperly applied the tax rates
set forth in A.R.S. § 28-8336 and was estopped from imposing assessments
for tax years 2004 through 2012. BSI subsequently moved for partial
summary judgment, arguing: (1) the Closing Agreement barred the 2004
assessment; (2) ADOT was equitably estopped from imposing assessments
for tax years 2004 and 2005; and (3) the lien against the Jet was illegal.
ADOT responded to BSI’s motion and cross-moved for summary judgment
as to the validity of the lien and the assessment for the eight tax years at
issue. BSI responded to ADOT’s motion and cross-moved for summary
judgment, arguing the assessment was invalid for all tax years.

¶6            The tax court granted BSI’s cross-motion for summary
judgment, ordering that the assessment be vacated and abated. The court
concluded the Jet was present in Arizona “for more than 90 days, but less
than 210 days, in each of the subject tax years” and was thus eligible for the
non-resident tax rate BSI had previously paid. The court also awarded BSI
attorneys’ fees and costs. After the court issued a final judgment, ADOT
timely appealed. We have jurisdiction pursuant to A.R.S. §§ 12-120.21(A)(1)
and -170(C).

                               DISCUSSION

¶7             An “annual license tax is imposed on all aircraft based in this
state and required to be registered” unless an exemption applies. A.R.S.
§ 28-8335; see also Ariz. Const. art. IX, § 15. Aircraft owned by Arizona
residents are taxed at .5% of the “average fair market value” of the aircraft.
See A.R.S. § 28-8335(B). Aircraft owned by non-residents may receive more
favorable tax treatment, depending on the number of days they are based
in Arizona:




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                            Opinion of the Court

         Based in Arizona      Tax Rate
         1-90 days             Exempt from tax
         91-209 days           .1% of average fair market value
                               .5% of average fair market value
         210-365 days
                               (resident rate)


A.R.S. §§ 28-8322, -8336, -8335(B).

¶8             The parties dispute whether the Jet was based in Arizona for
more than 209 days within the meaning of A.R.S. § 28-8336. We review
issues of statutory interpretation, as well as grants of summary judgment,
de novo. See Ariz. Dep’t of Revenue v. Salt River Project Agric. Improvement &
Power Dist., 212 Ariz. 35, 38, ¶ 13 (App. 2006). Ordinarily, an administrative
agency’s interpretation of a statute it implements is given great weight. See
Baca v. Ariz. Dep’t of Econ. Sec., 191 Ariz. 43, 45–46 (App. 1998). “However,
the agency’s interpretation is not infallible, and courts must remain the final
authority on critical questions of statutory construction.” U.S. Parking Sys.
v. City of Phoenix, 160 Ariz. 210, 211 (App. 1989).

I.     A.R.S. § 28-8336

¶9           We begin with the plain language of the statute, which is “the
most reliable indicator” of its meaning. Sempre Ltd. P’ship v. Maricopa
County, 225 Ariz. 106, 108, ¶ 5 (App. 2010). Section 28-8336 states:

       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.

¶10          BSI concedes the Jet was based in Arizona for more than 90
days during each of the tax years at issue, and the parties agree the Jet was
not engaged in intrastate commercial activity. The parties disagree, though,
about how to calculate the number of days the Jet was “based in this state.”

¶11         BSI contends the word “day” in § 28-8336 means a 24-hour
period “beginning on one midnight and ending on the next ensuing
midnight.” According to BSI, if the Jet landed outside Arizona during that




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                               BSI v. ADOT
                            Opinion of the Court

24-hour period, it was not based in Arizona for that particular day.2
Applying that standard, BSI calculates the following day counts for the Jet:

     Tax Year     2004 2005 2006 2007 2008 2009 2010 2011 2012
    Day Count     173   152    150    159    190    206   162    187    162

¶12           ADOT, on the other hand, argues “day” means “any part or
portion of a day or any amount of time” the Jet spends on the ground in
Arizona. Relying on that definition, ADOT contends the Jet was based in
Arizona for more than 209 days each tax year:

     Tax Year     2004 2005 2006 2007 2008 2009 2010 2011 2012
    Day Count
                  229   232    234    249    259    274   260    276    293
     Pilot Logs
    Day Count
                  228   217    218    235    243    236   236    247    236
    Flightwise3


¶13           In adopting BSI’s interpretation of the statute, the tax court
noted that the legislature has not defined “day” and that the parties
presented nothing “to indicate whether the legislature intended for ‘day’ to
mean an entire 24-hour period or some lesser portion of it.” Concluding
that the statutory ambiguity “must be construed in the taxpayer’s favor,”
the tax court ruled that the word “day” in § 28-8336 means “any period of
twenty four hours.”

¶14            We agree with the tax court that the statute is ambiguous. See
Hayes v. Cont’l Ins. Co., 178 Ariz. 264, 268 (1994) (A statute is ambiguous if
its text “allows for more than one rational interpretation.”). We disagree,
however, that the ambiguity persists after applying recognized tools of
statutory construction. See id. (if the meaning of a statute is uncertain,
courts may employ tools of statutory interpretation). Although courts
“liberally construe statutes imposing taxes in favor of the taxpayers and
against the government,” Salt River Project, 212 Ariz. at 38, ¶ 14, that tenet
applies only if a statute remains ambiguous after utilizing tools of statutory

2      Although its briefing suggested that simply leaving Arizona
airspace was sufficient, BSI conceded at oral argument before this Court
that the Jet is properly considered based in Arizona on a particular day if it
has not landed outside the state during that day.
3     Flightwise is an aviation application designed to track flights.



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                                BSI v. ADOT
                             Opinion of the Court

interpretation. See Harris Corp. v. Ariz. Dep’t of Revenue, 233 Ariz. 377, 384,
¶ 23 (App. 2013) (The maxim that ambiguous statutes are construed in favor
of taxpayers applies only “after considering the interpretive guidance
provided by the legislature, and applying standard rules of construction.”).

¶15             “[T]he law takes no notice of fractions of a day and deems any
fraction of a day to be a ‘day.’” Maciborski v. Chase Serv. Corp. of Ariz., 161
Ariz. 557, 562 (App. 1989); see also Lagandaon v. Ashcroft, 383 F.3d 983, 985,
991, 993 (9th Cir. 2004) (interpreting a statute requiring aliens to be
“physically present in the United States for a continuous period of not less
than 10 years” to include any portion of a day, noting that, “[i]n the space
of a day all the twenty four hours are usually reckoned; the law generally
rejecting all fractions of a day, in order to avoid disputes”); Talbott v. Caudill,
58 S.W.2d 385, 386 (Ky. 1933) (“It is the common-law rule that judicially a
day is the whole or any part of the period of twenty-four hours, from
midnight to midnight.”); cf. State v. Carnegie, 174 Ariz. 452, 454 (App. 1993)
(rejecting contention a defendant must be in custody “for a full twenty-four
hours” to receive pre-sentence incarceration credit for a particular day).
ADOT’s interpretation of “day” is consistent with this principle, and no
legislative history suggests an intention to deviate from this long-standing
common-law concept.

¶16            ADOT’s interpretation also furthers the implicit goals of the
statutory scheme. See Hayes, 178 Ariz. at 268 (courts attempt to interpret
statutes in a manner that furthers perceived goals). In evaluating legislative
intent, we consider the statute’s context, its language, subject matter and
historical background, its effects and consequences, and its spirit and
purpose. Id.

¶17           During all of the tax years at issue here, the statutory scheme
governing aircraft registration and taxation mandated that aircraft license
tax assessments go directly into the state aviation fund (“Fund”) “for use in
the construction, development and improvement of airports.” A.R.S. § 28-
8345. Fund expenditures cover items such as construction and maintenance
of runways, taxiways, and aprons where aircraft park; lighting; aircraft
guidance systems; weather observation and reporting equipment; and
signage. BSI did not controvert ADOT employee Susan J. Wylezik’s
affidavit regarding how aircraft based in Arizona use airport infrastructure
and services:

       Aircraft that conduct aircraft operations use an airport’s
       guidance signage, heliports, rotating beacon, runway
       extension and strengthening, Medium Intensity Runway


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                                BSI v. ADOT
                             Opinion of the Court

       Lighting and High Intensity Runway Lighting, Visual
       Guidance System, taxiway, weather observation system,
       wildlife deterrent fencing, and wind cone equipment.
       Aircraft that fly in and out also benefit from the removal of
       hazards that are located within navigable airspace.

¶18             The graduated license tax scheme for non-resident aircraft
suggests a legislative intent to increase the tax rate as the use of Arizona
airport facilities increases, not to decrease the rate the more a non-resident
owner uses Arizona airports. Applying BSI’s definition would frustrate
such a purpose and lead to anomalous (if not absurd) results. See, e.g., State
v. Estrada, 201 Ariz. 247, 251, ¶17 (2001) (Courts avoid interpreting statutes
in a manner leading to an absurd result, meaning one “so irrational,
unnatural, or inconvenient that it cannot be supposed to have been within
the intention of persons with ordinary intelligence and discretion.”).

¶19              Moreover, elsewhere in the same title, chapter, and article as
§ 28-8336, the legislature identifies “full” time periods when it intends such
a measure. See, e.g., A.R.S. § 28-8324(B)(1) (“The license tax for that year on
the aircraft shall be reduced by one-twelfth for each full month of the
calendar year that has expired.” (emphasis added)). The legislature also
understands how to override the common law definition discussed supra,
¶ 15, and define a 24-hour period as a “day” when it wishes to do so. See,
e.g., A.R.S. §§ 11-1601(9) (“‘Working day’ means a twenty-four hour period
. . . .”), 48-3641(8) (same); see also “Day,” Black’s Law Dictionary (10th ed.
2014) (offering various definitions for “day,” and stating that, “A statute
referring to an entire day contemplates a 24-hour period beginning and
ending at midnight.”).

¶20           We hold that an aircraft is based in Arizona within the
meaning of A.R.S. § 28-8336 for any day during which it is physically
present on the ground in this state for any period of time. Applying this
definition, evidence of record strongly suggests the Jet was based in
Arizona for more than 209 days during each tax year at issue. At oral
argument before this Court, however, BSI would not concede that fact.
Therefore, on remand, the tax court must resolve that factual issue,
applying the definition of “day” adopted herein.

¶21           Finally, we disagree with BSI’s contention that ADOT
impermissibly adopted and uniformly applied a policy affecting its
substantive or procedural rights without following the requirements of
A.R.S. §§ 41-1091, -1091.01 or the Administrative Procedures Act, A.R.S.
§§ 41-1001, et seq. BSI’s reliance on Ariz. State Univ. v. Ariz. State Ret. Sys.,


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                                BSI v. ADOT
                             Opinion of the Court

237 Ariz. 246 (App. 2015), is unavailing. In that case, the state retirement
system adopted a policy concerning newly promulgated statutes regarding
employer termination incentive programs that affected employers’
substantive rights. Id. at 248–49, ¶¶ 5–8. The policy involved a “complex
calculation with subjective components,” id. at 251, ¶ 19, requiring the
exercise of substantial “judgment and discretion.” Id. at 252, ¶ 21. No
comparable policy is at issue here. We simply have an agency interpreting
a term in a statute. Administrative agencies need not (and indeed, could
not realistically) define, disclose, and codify their interpretations of every
Arizona statute relevant to their duties. Furthermore, it is the statute itself,
as opposed to ADOT’s interpretation and implementation of it, that has
affected BSI’s rights.

II.    Estoppel

¶22           We do not reach BSI’s estoppel claims because the tax court
has not yet considered them. On remand, the court may further address
those claims.

                                CONCLUSION

¶23            We vacate the entry of summary judgment in favor of BSI, as
well as the award of attorneys’ fees and costs to BSI. We remand to the tax
court for further proceedings consistent with this opinion. ADOT is entitled
to recover its taxable costs on appeal, if any, upon compliance with Arizona
Rule of Civil Appellate Procedure 21.




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




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