                                    IN THE
              ARIZONA COURT OF APPEALS
                                DIVISION ONE


            R.O.I. PROPERTIES LLC, et al., Plaintiffs/Appellants,

                                       v.

                  BETH FORD, et al., Defendants/Appellees.

                             No. 1 CA-TX 18-0001
                               FILED 2-21-2019


                   Appeal from the Arizona Tax Court
                          No. TX2017-000016
               The Honorable Christopher T. Whitten, Judge

                                 AFFIRMED


                                  COUNSEL

Lane & Nach, PC, Phoenix
By Stuart Rodgers
Counsel for Plaintiff/Appellant R.O.I. Properties, LLC

Engelman Berger PC, Phoenix
By Scott B. Cohen, Bradley D. Pack
Counsel for Plaintiff/Appellant Compass Bank

Pima County Attorney’s Office, Tucson
By Andrew L. Flagg
Counsel for Defendants/Appellees Beth Ford, Bill Ford and Pima County
                          ROI, et al. v. FORD, et al.
                           Opinion of the Court



                                  OPINION

Judge Kent E. Cattani delivered the opinion of the Court, in which
Presiding Judge Jennifer B. Campbell and Judge Paul J. McMurdie joined.


C A T T A N I, Judge:

¶1            ROI Properties LLC and Compass Bank (collectively,
“Taxpayers”) appeal the tax court’s judgment dismissing their complaint in
which they asserted claims for refund of property taxes paid, declaratory
judgment, and mandamus relief, all premised on an alleged entitlement to
the charter school exemption for the 2015 tax year. Because the charter
schools previously operating on the property ceased operations in May
2015, the property was not exempt for the 2015 tax year, and we thus affirm.

             FACTS AND PROCEDURAL BACKGROUND

¶2           Under Arizona Revised Statutes (“A.R.S.”) § 42-11104(C)(1),
property owned by a § 501(c)(3) nonprofit organization that operates as a
charter school is exempt from taxation if the property is used for education
and not used or held for profit. Luz Social Services, Inc., a qualifying
nonprofit corporation, owned three parcels of real property (the
“Property”) in Pima County, where it operated nonprofit charter schools.

¶3            Luz filed for bankruptcy protection in April 2014, at which
time the Property became part of the bankruptcy estate, subject to the
automatic bankruptcy stay. See 11 U.S.C. §§ 362(a), 541(a)(1). Compass, one
of Luz’s creditors and the beneficiary of a deed of trust on the Property,
sought leave to pursue a sale of the Property. In February 2015, the
bankruptcy court granted limited stay relief and authorized Compass to sell
the property, but further ordered that the schools could continue to operate
until May 29 and that no sale could be completed before that date.1 As part
of this process, ROI was appointed as receiver with respect to the Property.




1      Taxpayers’ complaint alleged more broadly that the bankruptcy
court’s order “terminat[ed] the automatic stay of 11 U.S.C. § 362(a) with
respect to the Property,” but the order itself reflects more limited stay relief



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                         ROI, et al. v. FORD, et al.
                          Opinion of the Court

¶4            The schools ceased all operations on May 29, 2015. Although
the Pima County Assessor had classified the Property as tax exempt under
the charter school exemption and had applied the exemption through the
2014 tax year (during which time the schools had remained in continuous
operation), the Assessor did not apply the exemption for the 2015 tax year.
Accordingly, 2015 property taxes were fixed, levied, and assessed against
the Property (which remained part of the bankruptcy estate); the taxes went
unpaid, and the first installment became delinquent as of November 2,
2015. See A.R.S. § 42-18052(A)–(B).

¶5           The Property was eventually sold to a third-party on April 28,
2016. The next day, in conjunction with closing the sale (and timely as to
the second installment of 2015 taxes), Luz (through ROI) paid the full
amount of 2015 taxes owed on the Property (including interest on the
delinquent first installment), totaling over $180,000. See A.R.S. § 42-
18052(B) (second installment not delinquent until May 1 after close of tax
year).

¶6            Less than one year later, in April 2017, Taxpayers filed a tax
claim in superior court, asserting that the Property remained entitled to the
charter school exemption for the 2015 tax year, seeking a declaratory
judgment to that effect, and requesting a refund of the 2015 taxes paid.2 See
A.R.S. § 42-11005(A). Taxpayers concurrently filed a petition for a refund
with the Pima County Board of Supervisors, invoking a special
administrative procedure provided by the charter school exemption
statute. See A.R.S. § 42-11104(G) (directing that, upon petition by a
qualifying nonprofit charter school that failed to timely file an eligibility
affidavit but otherwise qualified for the exemption, the county board of
supervisors order the county treasurer to refund property taxes paid within
the previous year and strike from the tax rolls any unpaid taxes, interest,
and penalties). After the Board denied the petition, Taxpayers amended
their tax court complaint to add a special action claim seeking a writ of




tailored only to “Compass’ enforcement of its rights under its deed of trust
on the Property.”

2      The bankruptcy court had previously issued an order confirming
that the bankruptcy stay had terminated with respect to the Property and
that the bankruptcy estate abandoned any interest in the claim for refund
of 2015 property taxes on the Property. Similarly, the receivership was
reopened for ROI to assert the refund claim on Luz’s behalf.


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                           Opinion of the Court

mandamus directing the Board and the County Treasurer to refund the
2015 tax payment.

¶7            The County Defendants (Pima County Treasurer, Pima
County Assessor, and Pima County) then moved to dismiss the complaint,
arguing that (1) the tax court lacked jurisdiction over the illegal-tax claim
because the 2015 taxes had not been paid before delinquency as required by
A.R.S. § 42-11004, (2) the tax court should decline to exercise special action
jurisdiction over the mandamus claim because Taxpayers had access to an
adequate remedy at law (an illegal-tax claim), and (3) in the alternative, the
complaint failed to state a claim for which relief could be granted because,
as a matter of law, the Property was not exempt for the 2015 tax year as it
was used for operation of a charter school only through May 29, 2015.
Relying on the first two grounds, the tax court granted the motion and
dismissed the complaint in its entirety.

¶8            Taxpayers timely appealed the resulting judgment, and we
have jurisdiction under A.R.S. § 12-2101(A)(1).

                               DISCUSSION

¶9             Taxpayers argue that the tax court erred by dismissing the
illegal-tax claim based on Taxpayers’ failure to timely pay the 2015 taxes
and by declining to exercise jurisdiction over the mandamus claim based
on the availability of an alternative remedy at law. We decline to address
these arguments, however, because, even assuming those grounds were
improper, dismissal was nevertheless warranted. As explained below,
based on the allegations of the complaint, the Property lost its exempt status
for the 2015 tax year because the charter schools ceased operations as of
May 29, 2015. The Property therefore was not entitled to the exemption for
the 2015 tax year, and Taxpayers’ illegal-tax and mandamus claims fail as a
matter of law.

I.     Charter School Exemption.

¶10            Article 9, Section 2(2), of the Arizona Constitution authorizes
the Legislature to exempt from taxation “[p]roperty of educational . . .
institutions not used or held for profit,” and the Legislature has crafted such
an exemption for charter schools. Under A.R.S. § 42-11104(C)(1), property
and buildings belonging to a § 501(c)(3) nonprofit organization that
operates as a charter school “are exempt from taxation beginning on the
date the nonprofit organization acquires ownership of the property and
buildings if the property and buildings are used for education and are not
used or held for profit.”


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                           ROI, et al. v. FORD, et al.
                            Opinion of the Court

¶11             To establish entitlement to the exemption, the qualified
charter school must file an initial eligibility affidavit with the county
assessor in the first two months of the tax year, and an additional eligibility
affidavit each year thereafter. See A.R.S. §§ 42-11104(D), -11152(A)(1)–(2), -
11153(A). If a qualified charter school provides the assessor with proof of
its § 501(c)(3) tax exempt status, however, the annual affidavit requirement
is waived “until all or part of the property is conveyed to a new owner or is
no longer used for education,” at which point the organization must notify
the assessor in writing. A.R.S. § 42-11104(E).

¶12             For most taxpayers, failure to timely file an exemption
eligibility affidavit (or acquiring the property after the time to file has
passed) waives entitlement to the exemption. See A.R.S. § 42-11153(A);
Church of the Isaiah 58 Project of Ariz., Inc. v. La Paz County, 233 Ariz. 460, 463,
¶ 10 (App. 2013). The charter school exemption statute, however, provides
a special administrative remedy for charter schools faced with these
circumstances. A qualifying charter school owning property used for
education and “otherwise qualif[ying] for exemption” that fails to timely
file an eligibility affidavit may directly petition the county board of
supervisors to secure the benefit of the charter school exemption. See A.R.S.
§ 42-11104(G); see also A.R.S. § 42-11109(E) (providing a comparable special
administrative remedy with regard to an exemption for religious
organizations). If the charter school meets the requirements for the
exemption, the statute requires the board of supervisors to direct a refund
of any property taxes paid within the preceding year and to forgive any
unpaid property taxes, along with associated interest and penalties. A.R.S.
§ 42-11104(G)(1)–(2).

II.    Entitlement to Exemption.

¶13           The County Defendants urge that based on the allegations of
the complaint, the Property lost its exempt status for the 2015 tax year when
the charter schools ceased operations on May 29, 2015. Although the tax
court did not rule on this basis, we may affirm the court’s dismissal order
on any basis supported by the record. See Sw. Non-Profit Hous. Corp. v.
Nowak, 234 Ariz. 387, 390–91, ¶ 10 (App. 2014).

¶14            Dismissal under Arizona Rule of Civil Procedure 12(b)(6) for
failure to state a claim is proper if, “assum[ing] the truth of all well-pleaded
factual allegations and indulg[ing] all reasonable inferences from those
facts,” plaintiffs nevertheless “would not be entitled to relief under any
interpretation of the facts susceptible of proof.” Coleman v. City of Mesa, 230
Ariz. 352, 356, ¶¶ 8–9 (2012) (citation omitted). We consider de novo


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                          ROI, et al. v. FORD, et al.
                           Opinion of the Court

whether dismissal was warranted for failure to state a claim. Id. at 355, ¶ 7.
We similarly address issues of statutory interpretation de novo, considering
the plain language of the statute as the primary indicator of meaning and
considering the statute as a whole in the context of the broader statutory
scheme. State ex rel. Ariz. Dep’t of Revenue v. Capitol Castings, Inc., 207 Ariz.
445, 447, ¶ 9 (2004); see also Sempre Ltd. P’ship v. Maricopa County, 225 Ariz.
106, 108, ¶ 5 (App. 2010).

¶15           All property in Arizona is subject to taxation unless expressly
exempted. Ariz. Const. art. 9, § 2(13); A.R.S. § 42-11002. Because
exemptions represent a departure from the general rule that all taxpayers
should share the common burden of taxation, statutes granting exemptions
are strictly construed, albeit not so strictly as to destroy the legislative
purpose underlying the exemption. Capitol Castings, 207 Ariz. at 447, ¶ 10.
All ambiguities are construed against exemption, and the taxpayer bears
the burden to establish that the exemption applies. Conrad v. Maricopa
County, 40 Ariz. 390, 393 (1932); Hub Props. Tr. v. Maricopa County, 238 Ariz.
171, 172, ¶¶ 6–7 (App. 2015).

¶16           The charter school provision exempts property and buildings
from taxation if owned by a nonprofit organization that operates as a
charter school, but ownership by a nonprofit charter school is not enough:
the property itself must be “used for education.” A.R.S. § 42-11104(C)(1).
Here, as alleged in Taxpayers’ complaint, the Property was used for
education only through May 29, 2015; the schools ceased operations entirely
as of May 30, 2015. Because the Property was no longer used for education
after that date—before the assessment period for the 2015 tax year was
complete—the Property lost a necessary condition for entitlement to the
charter school exemption, lost its exempt status, and thus as a matter of law
was subject to taxation for the 2015 tax year.

¶17            Taxpayers urge, however, that because the Property was
exempt for the first five months of the year, it was entitled to the exemption
for the entire tax year. We have previously addressed and rejected this
same argument in the context of another tax exemption. In Hub Properties
Trust v. Maricopa County, a private party purchased property from a
municipality in March 2011. 238 Ariz. at 172, ¶ 2. Because government-
owned property is exempt from property taxes, Ariz. Const. art 9, § 2(1);
A.R.S. § 42-11102(A), the private party argued that it was entitled to the
exemption for the 2011 tax year based on the premise that “once property
is exempt, it is exempt for the entire tax year even if there is a change of use
or ownership.” 238 Ariz. at 172–73, ¶ 8. We affirmed the tax court’s
contrary ruling that the property’s period of exemption began the day it


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                         ROI, et al. v. FORD, et al.
                          Opinion of the Court

was acquired by the government and ended the day it was transferred from
the government to private ownership. Id. at 173, ¶ 11. Even though the
property would have been entitled to the exemption during the two months
of the tax year before it was sold, it was no longer exempt for that tax year
once purchased by the private party. Id.

¶18           Taxpayers acknowledge the Hub Properties decision, but
argue that it is not controlling because the government-owned property
exemption at issue in that case operated automatically and depended
entirely on government ownership, whereas the charter school exemption
involves an administrative process at the beginning of the tax year to
determine eligibility. According to Taxpayers, a private purchaser of a
government-owned property would thus have no legitimate expectation to
receive the benefit of the exemption, whereas a charter school that
completed the administrative eligibility process would have both the
expectation and legal entitlement to receive the exemption for that entire
year regardless of a change in use or ownership. Taxpayers assert that
extinguishing the exemption after the close of the administrative eligibility
process (even if the property is no longer used for education) is in effect an
improper retroactive termination of the exemption.

¶19            Taxpayers’ argument conflates the period for filing an
eligibility affidavit (January to March 1 of the tax year)—a procedural
requirement for establishing entitlement to the charter school exemption—
with the substantive requirements of the exemption itself. Compare A.R.S.
§ 42-11104(C)(1), with A.R.S. §§ 42-11104(D)–(E), -11152(A), -11153(A). And
§ 42-11104(C)(1) places no time limit on the requirement that the charter
school exemption be applied only “if the property and buildings are used
for education.” Moreover, even nonprofit charter schools that are relieved
of the obligation to file subsequent annual eligibility affidavits are
nevertheless required to notify the assessor in writing when “all or part of
the property is conveyed to a new owner or is no longer used for
education,” A.R.S. § 42-11104(E), which further suggests that the exemption
may be extinguished by conveyance or change of use. If the exemption is
extinguished mid-year—whether by sale to another entity or by the charter
school retaining ownership but ceasing use for education—the property is
no longer entitled to the exemption for that tax year. In short, the logic
underlying the Hub Properties decision applies here, and Taxpayers’
argument relies on the same faulty premise that we rejected in that case.

¶20          Taxpayers further argue that § 42-11104 does not specify that
the property must be used as a charter school throughout the entire tax year
in order to qualify for the exemption, positing that such a requirement


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                            Opinion of the Court

would be inconsistent with common school breaks such as summer
vacation. Although the statutory requirement that the property be “used
for education” presumably does not require educational use every day of
the year, it expressly conditions the exemption on continued educational
use. And here, the charter schools ceased operations entirely in the middle
of the tax year, before the property taxes were fixed, levied, and assessed
and before those taxes came due. See A.R.S. §§ 42-17151(A), -18052(A). The
Legislature could have authorized the exemption for property that loses its
eligibility mid-year, just as it expressly did for property that gains eligibility
after being acquired by a nonprofit charter school mid-year. See A.R.S. §
42-11104(C)(1), (G); see also S. Fact Sheet (Apr. 7, 2008), H.B. 2330, 48th Leg.,
2d Reg. Sess. (Ariz. 2008); H.R. Bill Summary (Feb. 20, 2008), H.B. 2330, 48th
Leg., 2d Reg. Sess. (Ariz. 2008). But nothing in § 42-11104 suggests that the
benefit of the exemption survives even after the property no longer meets
the substantive eligibility requirements.

¶21           Finally, Taxpayers argue in the alternative that the amount of
property taxes should be prorated to reflect that the Property was exempt
for five months of the tax year. Although the Legislature could have
authorized proration for charter school property that loses its exempt status
mid-year—as it has done expressly in the context of destroyed property, see
A.R.S. § 42-15157—the Legislature did not do so. Section 42-11104 itself
does not authorize proration, and Taxpayers offer no other authority to
support their argument. Accordingly, we conclude that the Property was
not entitled to an exemption for the 2015 tax year because it lost its tax-
exempt status when the charter schools ceased operation and the Property
was no longer used for education. Taxpayers’ mandamus claim and illegal-
tax claims for refund and declaratory relief thus fail as a matter of law, and
dismissal was proper.

III.   Attorney’s Fees on Appeal.

¶22           Taxpayers seek an award of attorney’s fees on appeal under
A.R.S. § 12-2030(A), which directs an award of fees to a private party that
prevails on the merits in a mandamus action, and under A.R.S. § 12-
348(B)(1), which allows an award of fees to a private party that prevails on
the merits of a tax claim. Because Taxpayers have not prevailed, we deny
their request for fees.




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                 ROI, et al. v. FORD, et al.
                  Opinion of the Court

                      CONCLUSION

¶23   For the foregoing reasons, we affirm.




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




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