                             IN THE
          ARIZONA COURT OF APPEALS
                          DIVISION ONE


  SCOTTSDALE/101 ASSOCIATES, LLC, an Arizona limited liability
company; SCOTTSDALE 101 RETAIL, LLC, a Delaware limited liability
                company, Plaintiffs/Appellants,

                                v.

 MARICOPA COUNTY, a political subdivision of the State of Arizona,
                     Defendant/Appellee.
             _________________________________
SCOTTSDALE 101 RETAIL, LLC, a Delaware limited liability company,
                      Plaintiff/Appellant,

                                v.

MARICOPA COUNTY, a political subdivision of the State of Arizona,
                   Defendant/Appellee.
           _________________________________
 VESTAR DRM-OPCO, LLC, a Delaware limited liability company,
                    Plaintiff/Appellant,

                                v.

MARICOPA COUNTY, a political subdivision of the State of Arizona,
                  Defendant/Appellee.

                      No. 1 CA-TX 14-0003
                          1 CA-TX 14-0008
                          1 CA-TX 14-0011
                          1 CA-TX 14-0012
                           (Consolidated)
                       FILED 9-29-2015
                  Appeal from the Arizona Tax Court
           No. TX2008-000518, TX2009-000091, ST2008-000083,
                  TX2008-000519, and TX2009-000041
                            (Consolidated)
                  The Honorable Dean M. Fink, Judge

                     REVERSED AND REMANDED


                                COUNSEL

Ballard Spahr, LLP, Phoenix
By Brian W. LaCorte, Brunn W. Roysden, III
Counsel for Plaintiffs/Appellants

Helm, Livesay, Worthington, Ltd., Tempe
By Roberta A. Livesay, Raushanah Daniels
Counsel for Defendant/Appellee



                                OPINION

Presiding Judge Kent E. Cattani delivered the opinion of the Court, in
which Judge Lawrence F. Winthrop and Judge Randall M. Howe joined.


C A T T A N I, Judge:

¶1             This consolidated appeal involves a challenge to the property
tax classification of properties located on state-owned land. The tax court
granted summary judgment in favor of Appellee Maricopa County,
concluding that the County properly assessed the properties as shopping
centers. For reasons that follow, we conclude that the properties may
qualify for mixed-use assessment, and we thus reverse and remand to the
tax court for further proceedings consistent with this decision.

             FACTS AND PROCEDURAL BACKGROUND

¶2            The properties in question are commercial developments
located in north Phoenix. Appellants Scottsdale/101 Associates, Inc. and
Scottsdale 101 Retail, LLC own Scottsdale 101, a development on state trust
land that includes retail shops, restaurants, and a large movie theater
complex.     Appellant Vestar DRM-OPCO, LLC owns Desert Ridge
Marketplace, which is also located on state trust land and consists of retail


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                        Opinion of the Court

shops, restaurants, and a theater complex. We refer to Scottsdale 101 and
Desert Ridge Marketplace collectively as “Properties” and to
Scottsdale/101 Associates, Inc., Scottsdale 101 Retail, LLC, and Vestar
DRM-OPCO, LLC collectively as “Taxpayers.”

¶3           For tax year 2008, Taxpayers filed claims pursuant to Arizona
Revised Statutes (“A.R.S.”) § 42-16203,1 which provides a process for
challenging (within 60 days) the Board of Equalization’s
valuation/classification decision. For tax years 2004 through 2007,
Taxpayers filed error correction claims pursuant to § 42-16254(G), which
provides a means for contesting classification decisions from prior years.
See CNL Hotels & Resorts, Inc. v. Maricopa County, 230 Ariz. 21, 25, ¶¶ 22–23,
279 P.3d 1183, 1187 (2012).

¶4             In all four cases, Taxpayers alleged that the County Assessor
(“Assessor”) improperly classified the movie theaters that are part of the
shopping centers as Class One, rather than Class Nine, properties. Class
One properties include “real and personal property of shopping centers,”
A.R.S. § 42-12001(8); Class Nine properties include improvements on
government property that are “used exclusively for convention activities or
athletic, recreational, entertainment, artistic or cultural facilities.” A.R.S. §
42-12009(A)(1)(b).

¶5             Class One properties are taxed at a higher rate than Class
Nine properties; Class Nine provides for preferential tax treatment for
specified kinds of private development on government-owned land. See
Scottsdale Princess P’ship v. Maricopa County, 230 Ariz. 425, 428, ¶ 12, 286 P.3d
174, 177 (App. 2012). For the years in question, under A.R.S. § 42-12001,
Class One property had a statutory assessment ratio ranging from 23 ½
percent to 25 percent. A.R.S. § 42-15001(1)–(4). Under § 42-12009, Class
Nine property was assessed at one percent. A.R.S. § 42-15009.

¶6           The tax court granted the County’s motions for summary
judgment on the basis that the movie theaters met the requirements for
treatment as Class One properties, and Taxpayers timely appealed.
Because these four cases raise the same legal issue, we consolidated them
on appeal.




1     Absent material revisions after the relevant date, we cite a statute’s
current version unless otherwise indicated.


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               SCOTTSDALE/101 et al. v. MARICOPA CO.
                       Opinion of the Court

                               DISCUSSION

¶7             We review de novo the tax court’s grant of summary
judgment. Wilderness World, Inc. v. Dep’t of Revenue, 182 Ariz. 196, 198, 895
P.2d 108, 110 (1995). We likewise review de novo the tax court’s
construction of applicable statutes. Ariz. Dep’t of Revenue v. Cent.
Newspapers, Inc., 222 Ariz. 626, 629, ¶ 9, 218 P.3d 1083, 1086 (App. 2009).
“[W]e liberally construe statutes imposing taxes in favor of taxpayers and
against the government.” State ex rel. Ariz. Dep’t of Revenue v. Capitol
Castings, Inc., 207 Ariz. 445, 447, ¶ 10, 88 P.3d 159, 161 (2004). And, we
resolve any ambiguities in such statutes in favor of the taxpayer. People’s
Choice TV Corp. v. City of Tucson, 202 Ariz. 401, 403, ¶ 7, 46 P.3d 412, 414
(2002); see also City of Phoenix v. Borden Co., 84 Ariz. 250, 252–53, 326 P.2d
841, 843 (1958) (statutes establishing property tax liability—in contrast to
those creating an exemption—are “most strongly construed against the
government and in favor of the taxpayer”). At issue here is (1) whether
categorization for valuation purposes dictates the same categorization for
assessment purposes, and (2) if an assessment categorization differs from
valuation, how to categorize property that satisfies two separate statutory
assessment provisions.

I.      The Assessed Valuation Process.

¶8           Valuation and classification are two factors that together
produce a property’s “assessed valuation” for property tax purposes.
A.R.S. § 42-11001(1).2 The role of these two factors is depicted on the
Assessor’s website as follows:

     County Assessor        State Legislature

         Establishes             Enacts



     Full Cash Value   X    Assessment Ratio = Assessed Valuation3


2      Assessed valuation means “the value derived by applying the
applicable percentage prescribed by chapter 15, article 1 of [] title 2 to the
full cash value or limited property value of the property, as applicable.”
A.R.S. § 42-11001(1).
3      An Overview of Arizona’s Property Tax System, Maricopa County
Assessor’s Office, http://mcassessor.maricopa.gov/wp-



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               SCOTTSDALE/101 et al. v. MARICOPA CO.
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The Assessor determines the first factor, valuation, by applying a statutory
formula or by estimating the market value of the property. A.R.S. § 42-
11001(6). The Legislature determines the second factor, classification, by
enacting statutes that determine a property’s legal class and corresponding
assessment ratio. See A.R.S. §§ 42-12001 to -12009; A.R.S. §§ 42-15001 to -
15009.

II.    Valuation and Classification Are Separate Determinations.

¶9             The County argues that, because the Properties were valued
in their entirety as shopping centers, they should similarly be classified as
shopping centers for assessment purposes. We disagree because valuation
and classification, although related, are separate factors in the property tax
equation.

¶10           Chapter 13 of the tax code addresses the “valuation of locally
assessed property,” and Article Five of that chapter specifically addresses
the “valuation of shopping centers.” See A.R.S. §§ 42-13201 to -13206. By
its own terms, the definition of a shopping center for valuation purposes is
limited to Chapter 13, Article Five. See A.R.S. § 42-13201 (“In this article,
unless the context otherwise requires, ‘shopping center’ means an area that
is comprised of three or more commercial establishments . . . .”) (emphasis
added). Classification, in contrast, is determined under Chapter 12, Article
One, without a comparable definitional standard. See A.R.S. §§ 42-12001 to
-12009; A.R.S. §§ 42-15001 to -15009. We thus conclude that categorization
for valuation purposes does not necessarily establish categorization for
assessment purposes.

III.   Mixed-Use Assessment.

¶11          Most properties have a single use, and the Assessor thus
assigns one classification and applies one corresponding assessment ratio
to the property. See A.R.S. § 42-15010(A) (2006). Other properties have
multiple uses and the Assessor assigns more than one classification and
applies a mixed-use assessment ratio. See A.R.S. § 42-15010(B) (2006).

¶12          The Legislature explained the application of mixed-use
assessment ratios to mixed-use properties as follows:

       If a parcel of property has more than one percentage applied
       to its full cash value under this section due to multiple uses,

content/uploads/Overview_of_Arizonas_Property_Tax_System.pdf (last
visited Sept. 21, 2015).


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               SCOTTSDALE/101 et al. v. MARICOPA CO.
                       Opinion of the Court

       the assessor shall apply the percentages to the limited
       property value of the parcel in the same proportion and in the
       same manner as to the parcel’s full cash value.

A.R.S. § 42-15010(B) (2006).4

¶13         The Arizona Department of Revenue’s Assessment
Procedures Manual (2011) (“Manual”) includes a chapter devoted to mixed-
use assessment. That chapter provides, in relevant part, as follows:

       Many properties are used for more than one purpose
       simultaneously. These properties, referred to as “mixed-
       use” properties, must be classified proportionally in the
       appropriate legal classification, or legal class, for each use
       occurring on a property. That part of a property that is used
       for each purpose must be valued and assessed according to
       the statutory standards for each category of property use.
       Care must be exercised in calculating the assessment ratios
       that are applied to full cash values (FCVs) and limited
       property values (LPVs) when dealing with a property to
       which two or more legal classifications apply. Caution must
       also be taken in order to avoid any erroneous overall
       assessment ratios being applied to mixed-use properties.

(Emphasis added.)5

¶14           As part of shopping centers, the theaters satisfied Class One
requirements. But as entertainment venues on government land, the movie
theaters also satisfied Class Nine requirements. Under the circumstances,
we conclude that the movie theaters were entitled to tax treatment most



4       This statute was amended in 2013 to conform to the provisions of
Proposition 117, which set a limit on the annual increase in limited property
value. A.R.S. § 42-15010 (2015); 2013 Ariz. Sess. Laws, ch. 66, § 12 (1st Reg.
Sess.). Because the valuations at issue predate the amendment, we apply
the prior version of the statute.
5       The Legislature has given the Arizona Department of Revenue (the
“Department”) general oversight responsibilities for Arizona’s property tax
system. A.R.S. § 42-1004; A.R.S. §§ 42-11051 to -11056; A.R.S. § 42-13002; see
also Aileen H. Char Life Interest v. Maricopa County, 208 Ariz. 286, 294, ¶ 19,
93 P.3d 486, 494 (2004) (explaining the court’s reliance upon one of the
Department’s manuals).


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               SCOTTSDALE/101 et al. v. MARICOPA CO.
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favorable to the taxpayer, and thus should have been treated as Class Nine
properties.

¶15           We note that there appears to be no question that if there were
a movie theater on government land adjacent to a shopping center, the
movie theater would be taxed as a Class Nine property. We see no reasoned
basis for treating a movie theater within a shopping center parcel
differently than a theater on an adjacent parcel.

¶16           Moreover, the record establishes that the Assessor has
applied mixed-use assessment ratios to shopping centers under similar
circumstances; the County agrees, for example, that day-care centers have
been classified as Class Four properties, notwithstanding their location
within a shopping center. Contrary to the County’s argument, there is no
viable basis for concluding that mixed-use assessment can be applied to a
day-care center within a shopping center, but not to a movie theater within
a shopping center.

¶17            The County further argues that the tax court’s decision in this
case should be upheld as consistent with Nordstrom, Inc. v. Maricopa County,
207 Ariz. 553, 88 P.3d 1165 (App. 2004). In Nordstrom, a department store
built on a parcel of land adjacent to a shopping center sought to be valued
as a shopping center. Id. at 557, ¶ 11, 88 P.3d at 1169. This court upheld the
tax court’s decision that a single store did not meet the definition of
shopping center. Id. at 555, ¶ 1, 88 P.3d at 1167. Here, we are not faced with
that question, and in any event, Nordstrom dealt with valuation, not
classification. Thus, that decision is not controlling on the issue before us.

¶18           The County also relies on Scottsdale Princess Partnership in
arguing that Class Nine property cannot be included in a mixed-use
assessment. 230 Ariz. 425, 286 P.3d 174. In Scottsdale Princess Partnership,
the property owner sought Class Nine assessment for an entire hotel on the
basis that the hotel was primarily used for convention activities. See id. at
426, ¶ 1, 286 P.3d at 175. This court affirmed the tax court’s decision that
the hotel did not qualify for Class Nine treatment, reasoning in part:
“[B]ecause Taxpayer’s records did not separate convention income from
other admitted, non-convention group income, the Taxpayer failed to meet
its burden that the Property was used primarily for convention activities
under A.R.S. § 42-12009(A)(1)(b).” Id. at 432, ¶ 33, 286 P.3d at 181. The hotel
owner did not seek a mixed-use assessment and did not present evidence
that a stand-alone portion of the property qualified for Class Nine
assessment. Accordingly, the court did not address whether a discrete




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               SCOTTSDALE/101 et al. v. MARICOPA CO.
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portion of a property might qualify for Class Nine treatment, and Scottsdale
Princess Partnership is thus inapposite.

¶19            Given that the County has applied mixed-use assessment
treatment to certain businesses (day-care centers) within a shopping center,
and given our obligation to interpret tax statutes in the light most favorable
to the taxpayer, we conclude that the tax court erred by holding that movie
theaters within a shopping center on government property must be
classified as Class One properties.

¶20            We note that a statutory amendment has rendered this issue
moot for tax years after 2009. After adopting legislation amending the
definition of Class Nine to include property leased to charter schools, the
Legislature simultaneously amended the definition of Class One property
to specifically exclude from that category any portion of shopping center
property that qualifies for Class Nine treatment. 2009 Ariz. Sess. Laws ch.
87. The statute defining Class One now provides as follows:

       For purposes of taxation, class one is established consisting of
       the following subclasses:

       ...

       Real and personal property of shopping centers that are
       valued at full cash value or pursuant to chapter 13, article 5 of
       this title, as applicable, other than property that is included
       in class nine.

A.R.S. § 42-12001(8) (2015) (emphasis added).

¶21            We recognize that the Legislature’s change to § 42-12001(8)
was arguably unnecessary under our interpretation of the 2006 statute. But
the amendment clarified the statutory ambiguity that this opinion
addresses and made clear the Legislature’s intent that Class Nine property
be classified as such, notwithstanding its location within a shopping center.

¶22            Finally, Taxpayers request an award of attorney’s fees on
appeal pursuant to A.R.S. § 12-348, which authorizes us to award attorney’s
fees to parties who bring an action challenging the assessment or collection
of taxes. See A.R.S. § 12-348(B). In the exercise of that discretion, we award
Taxpayers their reasonable attorney’s fees on appeal subject to the
limitation imposed by § 12-348(E)(5).




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              SCOTTSDALE/101 et al. v. MARICOPA CO.
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                            CONCLUSION

¶23           For the foregoing reasons, we reverse and remand to the tax
court to determine whether the movie theaters in these consolidated cases
qualify as Class Nine properties.




                                :ama




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