IN THE



## A RIZONA 

## C OURT OF 

## A PPEALS

D IVISION O NE

BSI HOLDINGS LLC , Plaintiff/Appell ee ,

v.

ARIZONA DEPARTMENT OF TRANSPORTATION , Defendant/Appell ant

.
No. 1 CA

- TX 20

- 0005

Appeal from the Arizona Tax Court No. TX2014

- 000444 The Honorable Christopher T. Whitten
, Judge

AFFIRMED

COUNSEL
Ryan Rapp Underwood & Pacheo
, PLC , Phoenix By Christopher T. Rapp, Lesli M. H. Sorensen Counsel for Plaintiff/Appell ee
Arizona Attorney General’s Office
, Phoenix By Benjamin H. Updike C ounsel for Defendant/Appell ant FILED 8-12-2021BSI v. ADOT Opinion of the Court

2 OPINION
Judge Lawrence F. Winthrop 1 delivered the opinion of the Court, in which Presiding Judge Paul J. McMurdie and Judge Cynthia J. Bailey joined.

W I N T H R O P , Judge:

¶1 Arizona authorizes the imposition of a state license tax on nonresident aircraft owners equal to one

- tenth of one per cent of the fair market value of the aircraft. A.R.S. § 28

- 8336. An aircraft subject to this tax (1) must not be engaged in any intrastate commercial activity and (2) must be “ based in ” Arizona “ for more than ninety days but less than two hundred ten days in a calendar year .” Id

. ¶2 At issue in this tax appeal is how to calculate the number of days such an aircraft is based in Arizona, which requires determining the meaning of the terms “based in” and “day” used in A.R.S. § 28

- 8336. The tax court concluded the se terms a re ambiguous, construed the m in favor of the taxpayer, BSI Holdings
, LLC (“BSI”), and granted summary judgment in favor of BSI. The Arizona Department of Transportation (“ADOT”) appeals that ruling, arguing the tax court should have applied a “domiciliary analysis” to the definition of the term “based in ” and applied a “totality of the circumstances” standard to that domiciliary analysis

. To do so here
, however, would require us to craft a new weighted

- factor test based on non

- statutory language and previously un announced factors
, a nd would thus deprive BSI of the clear notice that should be afforded any taxpayer

. Accordingly, we conclude th e tax court did not err in declining
to adopt a domiciliary analysis in this case and in finding the statutory text irreconcilably ambiguous as applied to BSI

. W e therefore affirm the tax court ’s judgment in favor of BSI

.

1 Judge Lawrence F. Winthrop was a sitting member of this court when the matter was assigned to this panel of the court. He retired effective June 30, 2021. In accordance with the authority granted by Article 6, Section 3, of the Arizona Constitution and p ursuant to Arizona Revised Statutes (“A.R.S.”) section 12

- 145, the Chief Justice of the Arizona Supreme Court has designated Judge Winthrop as a judge pro tempore in the Court of Appeals, Division One, for the purpose of participating in the resolution of cases assigned to this panel during his term in office.BSI v. ADOT Opinion of the Court

3 FACT S AND PROCEDURAL HISTORY

¶3 BSI is a n Oregon limited liability company formed to own a Gulfstream dual

- engine turbo jet , FAA tail number N608BG (“the aircraft”)

. BSI purchased the aircraft in 2003 for the personal use of Richard Taylor Burke, Sr.
, an Arizona resident

. BSI listed its address and base of operations as Portland, Oregon , and has since received mail from ADOT at that address.

¶4 BSI re gistered the aircraft i n Arizona and regularly fl ew in and out of Scottsdale Airport

. From 2004 to 2012, BSI maintain ed a monthly tie

- down/hangar agreement at th at a irport , but the aircraft also travel ed outside of Arizona , and BSI had similar agreements in other states during that time

. At no point did BSI have a ny such agreement in Oregon , nor did the aircraft fl y to Oregon after BSI purchase d it

. ¶5 Arizona assesses a variable rate license tax against owners of p rivate a ircraft based on residency and the number of days the plane is based in Arizona. ADOT’s Aeronautics Division auditors take the position that the nonresident license tax rate under A.R.S. § 28

- 8336 cannot apply to

an owner of an aircraft that is based in Arizona m ore than 2 09 days in any given calendar year . T h u s, ADOT treats aircraft that are based in Arizona for at least 210 days each calendar year as subjecting the aircraft owner to the license tax rate under A.R.S. § 28

- 833 5(B), which is five times greater tha n the tax rate applicable under A.R.S. § 28

- 8336

. ¶6 Through 20 12, BSI claim ed nonresident tax status under A.R.S. § 28

- 8336

. In its annual filings, BSI represented the aircraft was not based in Arizona for more than 209 days each year.

¶7 A DOT first challenged BSI’s claimed tax status in 2003

. Eventually
, the parties entered a settlement agreement where in BSI paid no license tax for 2003

. BSI then paid the nonresident tax rate under § 28

- 8336 for 2004 and claimed the same rate from 200 5 through 20 12

. ¶8 In 20 13 , ADOT audit ors concluded the BSI aircraf t had been in Arizona for more than 210 days each year from 2004 through 2012 and therefore was subject to the full license tax rate prescribed in A.R.S. § 28

- 8335 during the audit period. B ased on data available on Flightwise, a third

- party flight tracking website, ADOT calculated the BSI aircraft was inBSI v. ADOT Opinion of the Court

4 Arizona for a t least 2 17 days each year from 2005 t hrough 2012

. 2 On that basi s, ADOT assessed BSI an additional $161,004 and recorded a lien against the aircraf t.
¶9 BSI brought an unsuccessful administrative appeal that focused on the definition of what constituted a “day

. ” T he administrative law judge (“ALJ”) adopted ADOT’s interpretation that a “day” as used in the statute meant any calendar day during which an aircraft spent any time on the ground in Arizona

. ¶10 BS I then brought this action in the tax court. T he tax court considered the residency/ tax rate issue on c ross

- motions for summary judgment that focused on the correct interpretation of the word “day” in A.R.S. § 28

- 8336

. BSI contended a “day” under § 28

- 8336 meant a continuous 24

- hour period from one midnight to the ensuing midnight. Consistent with its previous argument and the ALJ’s decision, ADOT asserted a “day” meant any calendar day during which an aircraft spent any time on the ground in Arizona. The legal question, theref ore, turned at that point on what constituted a “day” under § 28

- 8336

. ¶11 After learning that no statute, formal administrative rule
, or written ADOT policy existed interpreting the statute or providing definitions for the statutory term inology , t he t ax c ourt granted summary judgment in favor of BSI . The court reason ed that “the legislature did not define the word ‘day,’ nor did it define what being ‘based in’ Arizona

means

. . . . The Court simply has nothing before it to indicate whether the legislature intended for ‘ day ’ to mean an entire 24

- hour period or some lesser portion of it.” The tax court found § 28

- 8336 ambiguous and , as a result, construed it in favor of the taxpayer, BSI

. ¶12 On appeal, this court found the statute ambiguous, but adopted ADOT’s interpretation , thus effectively ruling in favor of the agency pending resolution on remand of the number of days the aircraft was in Arizona

. See BSI Holdings, LLC v. Ariz

. Dep’t of Trans p

. (“ BSI I ”) , 242 Ariz. 621
, 624

- 25 , ¶ ¶ 1 4

- 20 (App. 2017)

. The Arizona Supreme Court

2 The aircraft’s pilot logs subsequently indicated the BSI aircraft was in Arizona for all or a portion of at least 232 days each year from 2005 through 2012

. ADOT calculated these totals by considering any time the aircraft spent on the ground during a calendar day to constitute a “day,” a definition later rejected by our supreme court. See BSI Holdings, LLC v. Ariz

. Dep’t of Trans p

. (“ BSI II ”), 244 Ariz. 17
, 18, ¶ 1 (2018)

.BSI v. ADOT Opinion of the Court

5 accepted review, vacated th is court ’s opinion, and remanded the case to the
tax court. See BSI II

, 244 Ariz. at 18, ¶ 1

. ¶13 In BSI II

, our s upreme c ourt reject ed both interpretations of the word “day” posited by the parties

. Instead, t he c ourt found the word “day” ambiguous and depend ent on context. Id

. at 2 0 , ¶¶ 13

- 14

. The court also stated ADOT ’s interpretation was not owed any deference because the
term “day” i s not a technical term that requir es expertise to construe , and ADOT’s position had not “been reduced to written policy, much less a considered and established rule

. ” Id

. at 21, ¶ 17. The court further stated
, however, that “[d] etermining the meaning of the word ‘day’ [] cannot dispose of the issue in this case because the statute cannot be meaningfully applied without also knowing what ‘based in’ means.” Id

. at ¶ 19. The
court then noted :

In the tax court, ADOT said it “makes its determination of whether an aircraft is ‘based in this state’ by inspecting the totality of the circumstances, including: day count, the aircraft ’ s use, and tie

- down and hangar agreements.” But it never explained how it applies those factors. Indeed , BSI disputes that ADOT has used any other criteria other than a day count. Because the matter was decided on summary judgment, the tax court made no factual findings on this issue.

Id

. at ¶ 21 (emphasis added)

. ¶14 T he supreme court next discussed various d efinitions of the word “base,” while noting that “[t]hose definitions imply more of a domiciliary analysis rather than physical presence alone.” Id

. at ¶ 22. 3 Recognizing that “ ’ base ’ may have a technical meaning in this statutory or factual context, ” the court concluded that it could not determine the word’s meaning on the record before the court and therefore c ould n ot fully resolve the case without further proceedings. BSI II , 244 Ariz. at 21, ¶ 22.

¶15 The supreme court directed the tax court on remand to determine what “based in ” this state for a “ day ” mean s under § 28

- 8336 and then to apply such definition s to the facts presented

. Id

. at 2 2 , ¶ 24. The supreme court stated that, in making its determinations, the tax court

3 Cf. DeWitt v. McFarland , 112 Ariz. 33, 33

- 34 (1975) (recognizing that “one is never without a domicile somewhere” and referring to a domicile as the place one “intend[s] to make . . . his home for the time at least” (citations omitted)).BSI v. ADOT Opinion of the Court

6 should “count all days or fractions of a day when the aircraft was based in the state, even if it was not physically present there .” I d

. (emphasis added). The court further cautio ned, however, that the tax court “ should not count days that the aircraft landed momentarily in Arizona when it was not based there .” Id

. (emphasis added). The supreme c ourt said that if resolution was impossible and the tax court determined the statute was still ambiguous after it performed the mandated analysis
, the court should construe the
statute in favor of BSI. I d

. at ¶ 25 ( citing Harris Corp. v. Ariz

. Dep ’ t of Revenue
, 233 Ariz. 377 , 384, ¶ 23 (App. 2013) ; State ex rel. Ariz. Dep’t of Revenue v. Capitol Castings, Inc. , 207 Ariz. 445, 447, ¶ ¶ 9

- 10 (2004) )

. ¶16 On remand, A DOT proposed a domiciliary

- type analysis as discusse d by our supreme court in BSI II . BSI did not offer a contrary interpretation but continued to argue § 28

- 8336 was ambiguous and therefore did not give it or other taxpayers sufficient required notice. After renewed cross

- motions for summary judgment
, the tax court declined to adopt ADOT’s new domiciliary analysis. In part, the tax court reasoned:

The commo n dictionary definition of “base,” suggests “more of a domiciliary analysis rather than physical presence alone.” This does not leave the terms’ meaning any less nebulous. It might imply a “totality of the circumstances” standard, as urged by ADOT. The manner in which ADOT has historically applied such a standard, however, is neither clear nor consistent. It seems to have been a purely subjective decision made by very experienced auditors who apply standards which have not ever been reduced to writing o r published

. (Emphasis added.)

¶17 The tax court held that § 28

- 8336 remained ambiguous and

was too vague to give the taxpayer the type of “ clear notice ” that tax statutes are required to provide to promote compliance. A ccordingly , as the supreme court had directed
, the tax court construed the statutory language in favor of the taxpayer and ruled in favor of BSI.

¶18 Following entry of a final judgment
, ADOT filed a timely notice of appeal

. We have jurisdiction under A.R.S. § § 12

- 170(C) and

- 2101(A)(1).

ANALYSIS

¶19 ADOT argues the tax court erred in declining to appl y a domiciliary analysis using the totality of the circumstances to define theBSI v. ADOT Opinion of the Court

7 term “based in

. ” ADOT argues that, had the tax court done so, it would have surely found the factors proposed by ADOT weighed in ADOT’s favor.

I. Standard of Review and Applicable Law

¶20 We review de novo questions of statutory construction and the tax court’s grant of summary judgment
, including whether the court properly applied the law

. BMO Harris Bank, N.A. v. Wildwood Creek Ranch, LLC , 236 Ariz. 363, 365, ¶ 7 (2015); Duke Energy Arlington Valley, LLC v. Ariz. Dep’t of Revenue , 219 Ariz. 76, 77, ¶ 4 (App. 2008)

. Summary judgment is appropriate when “ there is no genuine dispute as to any material fact and the moving party is entitled to judgment as a matter of law .” Ariz. R. Civ. P. 56(a)

. ¶21 Statutory analysis generally begins with the language of the
statute. See Sempre Ltd. P’ship v. Maricopa Cnty. , 225 Ariz. 106, 108, ¶ 5 (App. 2010) (recognizing that the language used is “the most reliable indicator” of its meaning). “When the statute’s language is clear and unambiguous, we must give effect to that language without employing other rules of statutory
constru ction.” Parsons v. Ariz. Dep’t of Health Servs. , 242 Ariz. 320, 323, ¶ 11 (App. 2017) (citing Indus. Comm’n v. Old Republic Ins. Co. , 223 Ariz. 75, 77, ¶ 7 (App. 2009)). When the language is ambiguous, however, courts “look to the ‘rules of statutory construction’ and ‘consider the statute’s context; its language, subject matter, and historical background; its effects and consequences; and its spirit and purpose.’” Stein v. Sonus USA, Inc. , 214 Ariz. 200, 201, ¶ 3 (App. 2007) (citations omitted).

I I

. A.R.S. § 28

- 833 6 and ADOT’s Proposed Domiciliary A nalysis

¶22 Sections 28

- 8335 and

- 8336 control Arizona’s annual aircraft licensing tax. Unless a statutory ex ception appl i es, an annual license tax is impose d on the owners of all private aircraft registered in this state. See A.R.S. § 28

- 8335(A); see also Ariz. Const. art. 9, § 15. The full annual tax rate is “one

- half per cent” of the average fair market value of the aircraft. A.R.S. § 28

- 8335(B). Under A.R.S. § 28

- 8336
, the owner of a nonresident’s aircraft may receive the more favorable tax rate of “one

- tenth of one per cent” of the aircraft’s average fair market value. S ee also A.R.S. §§ 28

- 8322,

- 8335(B). At issue here is the interpretation of the n onresident license tax rate exception in § 28

- 8336.

¶23 Section 28

- 8336 provides as follows :BSI v. ADOT Opinion of the Court

8 The license tax for a nonresident whose aircraft is based in this

s tate 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.
(E mphasis added

. )

¶24 As discussed , t he aircraft licensing statutes do not define the
terms “day” or “based in.” We need not dive deeply into an analysis of the word “day” at this point, as our supreme court has already determined that
term is contextual. See BSI II , 244 Ariz. at 2 1 , ¶ 19 ( “D etermining the meaning of the word ‘day’ [] cannot dispose of the issue in this case because the statute cannot be meaningfully applied without also knowing what ‘based in’ means.” )

. Our review focuses, therefore, on the “based in” language that was the core issue the supreme court directed the tax court to resolve on remand . Accordingly, we will examine whether ADOT’s proposed domiciliary analysis might satisfactorily resolve the issue

. ¶25 In attempting to determine the meaning of the term “based in,” our s upreme c ourt in BSI II and the tax court on remand considered the ordinary meaning of “based in” and various statutory construction tools

— including dictionary definitions, legislative intent, the statutory scheme
, the term’s contextual use, and policy considerations

— and found them unavailing. See id

. at 2 1

- 22 , ¶¶ 1 9

- 24

. Based on the record before it, e ach court found the statute’s language and underlying policy ambiguous. See i d

. Although the supreme court surmised that the term might have a technical meaning not immediately apparent in the statutory or factual context, id

. at 21, ¶ 22, on remand neither party presented anything showing that “based in” has a technical meaning, fo r example, one commonly used by the FAA. See generally U.S. Parking Sys. v. City of Phoenix , 160 Ariz. 210, 211

- 12 (App. 1989); A.R.S. § 1

- 213 (“Technical words and phrases and those which have acquired a peculiar and appropriate meaning in the law shall be construed according to such peculiar and appropriate meaning .”)

. Accordingly, the tax court found no support for such a conclusion.

¶26 Like the supreme court and the tax court examining this issue before us, our de novo application of the various means of statutory construction reveals no clear answer to the term’s meaning. A s the parties recognize, there is no legislative record that lends an understanding of the legislature’s meaning of the term “based in
, ” and nothing supports the notion that “based in” is a technical term meriting deference to ADOT.BSI v. ADOT Opinion of the Court

9 ¶27 On remand and before this court, ADOT seizes upon the supreme court’s observation that certain dictionary definitions of the word “base” “imply more of a domiciliary analysis rather than physi cal presence alone,” BSI II

, 244 Ariz. at 21, ¶ 22, to argue we should resolve the ambiguity in A.R.S. § 28

- 8336 by using a domiciliary analysis to interpret the term “based in.” ADOT asserts a domiciliary analysis “ is a reasonable interpretation of the s tatute” and maintains it established that BSI’s aircraft

was “ based in ” Arizona for at least some period during each year of the audit period under such an analysis

. 4 ADOT further argues that although

a n aircraft might have multiple bases from which it o perates during a year
, we should use a domiciliary analysis to presume the aircraft’s base never changed from Arizona during the audit period
, a presumption ADOT maintains BSI bore the burden of dis proving but d id not meet

. ¶28 E ven assuming without deciding that a domiciliary analysis might be consistent with the text of the statu t e and the statutory scheme

a nd that it could be used to resolve the ambiguity in A.R.S. § 28

- 8336, such an analysis would first require a method for de termining the domicile of an aircraft

. ADOT does not have any written regulation 5 or formal or informal written policies interpreting “based in” ( or “days” ) in the statute a nd has apparently n ever provided notice to BSI or other taxpayers as to how it de fines th ose terms. Not only has ADOT never before publicly interpreted the statute to require a domiciliary approach, it likewise has never informed taxpayers that it would retroactively apply a “totality of the circumstances”
test to its proposed domiciliary analysis

. ¶29 The record is not clear
, more ver, that ADOT actually relied in BSI’s case on the factors it now argues should be part of its totality of the circumstances standard for determining domicile, the weight it gave (if any) to such factors, and the extent to which the factors are supported by the record. Although ADOT could have sought to clarify these issue s on

4 N o question exists that BSI was “based in” Arizona for at least some period during each of the audit years. The supreme court recognized this when it stated, “BSI conceded it was ‘based in’ Arizona for the 24

- hour periods it was on the ground during th e years in question, a concession it may not now relitigate.” BSI II , 244 Ariz. at 21, ¶ 20.

5 Although the Arizona Administrative Code (“A.A.C.”) contains a variety of rules and regulations relevant to ADOT and “Transportation Aeronautics,” including a list of definitions, see A.A.C. R17

- 2

- 101, none addresses the terms at issue here.BSI v. ADOT Opinion of the Court

10 remand, it did not do so. Instead , as the tax court found, ADOT’s view of whether a n aircraft is “based in” Arizona appears to be “a purely subjective decision made by very experienced auditors who apply standards which have not ever been reduced to writing or published.” That finding is supported by the record developed before the tax court

. ¶30 Consequently , o n this record, ADOT has not justified its proposed domiciliary analysis and totality of the circumstances test. Adopting such an analysis would require us to fashion some type of weighted

- average test still not clearly defined or explained by ADOT
, using factors not previously d isclosed to BSI. Although ADOT invites this court to fashion such a test, it is not our province to act as a legislative body or to develop administrative rules or other guidance

. As importantly, the factors ADOT claims “experienced auditors” would use to make the determination are not listed in published rule, regulation, or department policy, and there is nothing that gives a taxpayer notice of how the statute is going to be interpreted or applied. Having exhausted a ll other tools of statutory construction , we conclude § 28

- 8336 remains too ambiguous to apply to a taxpayer. See BSI II

, 2 44 Ariz. at 22, ¶ 25. 6

¶31 As our supreme court has recognized, ambiguities in

“ revenue statute [s] should be construed liberally in favor of the taxpayer and strictly against the state.” Ebasco Servs. Inc. v. Ariz. State Tax Comm’n
, 105 Ariz. 94, 97 (1969) (citations omitted) ; accord Capitol Castings
, 207 Ariz.
at 447, ¶ 10 ( recognizing that when legislative intent cannot be determined, the statute is to be construed liberally in favor of the taxpayer).

¶32 “T ax statutes should provide clear notice of obligations so that taxpayers may comply and order their affairs accordingly.” BSI II , 244 Ariz. at 22, ¶ 25 ; accord City of Phoenix v. Orbitz Worldwide Inc.
, 247 Ariz. 234, 244, ¶ 37 (2019). On this record, and given the absence of any defining written rule, regulation, or departmental policy, § 28

- 8336 does not provide the “clear notice” to aircraft o wners necessary for compliance and tax planning purposes

. On a going

- forward basis, however, the legislature can easily amend the statute to correct or clarify its ambiguous language. Alternatively, ADOT can propose, adopt, and publish rule s or other

6 Because we resolve the matter based on the statutory ambiguity, we need not and do not address other issues the parties’ briefs raise

. See Kondaur Cap

. Corp. v. Pinal C n ty. , 235 Ariz. 189, 193 , ¶ 8 (App. 2014).BSI v. ADOT Opinion of the Court

11 gui dance that provide clarity and the requisite notice to taxpayers such as BSI

. 7

III. Costs and Attorneys’ Fees on Appeal

¶33 BSI requests costs and attorneys’ fees on appeal pursuant to A.R.S. § § 12

- 342 and 12

- 348. BSI is the successful party on appeal
, and we grant taxable costs and an award of attorneys’ fees to BSI upon compliance with A rizona Rule of Civil Appellate Procedure 21.

CONCLUSION

¶34 For the above reasons, we affirm the tax court ’s judgment

.

7 Absent the clear notice that only legislat ive or agency clarification can provide , we seriously question whether and, if so, to what extent ADOT can enforce this statute and/or disprove taxpayers’ claims of nonresident
tax status. Further, with those factors clearly identified and published, ADOT will also be in a better position to demonstrate in any future
assessment proceeding how it has applied those factors in evaluating residency/tax status under the statute.