IN THE

ARIZONA COURT OF APPEALS

DIVISION ONE

JONES OUTDOOR ADVERTISING, INC., an Arizona corporation,

Plaintiff/Appellant,

v.

ARIZONA DEPARTMENT OF REVENUE, an agency of the State of Arizona,

Defendant/Appellee.

No. 1 CA-TX 14-0006

Appeal from the Arizona Tax Court

No. TX2013-000017

The Honorable Dean M. Fink, Judge

REVERSED AND REMANDED

COUNSEL

DeConcini McDonald Yetwin & Lacy, P.C., Tucson 

By James M. Susa, Sesaly O. Stamps

Counsel for Plaintiff/Appellant

Arizona Attorney General’s Office, Phoenix

By Jerry A. Fries, Raj Saker, Benjamin H. Updike 

Counsel for Defendant/Appellee
JONES OUTDOOR v. ADOR

Opinion of the Court

2

OPINION

Judge Peter B. Swann delivered the opinion of the court, in which Presiding Judge 

Kent E. Cattani and Judge Lawrence F. Winthrop joined.

S W A N N, Judge:

¶1 Jones Outdoor Advertising, Inc. (“Jones”) appeals from the tax 

court’s grant of summary judgment in favor of the Arizona Department of 

Revenue (“Department”), finding Jones liable for transaction privilege tax (“TPT”) 

on its sale of billboard advertising under A.R.S. § 42–5071(A). For the following 

reasons, we reverse.

FACTS AND PROCEDURAL HISTORY

¶2 Jones is an outdoor advertising company that owns billboards 

throughout the state of Arizona. Jones contracts with customers that pay to 

display their messages on the billboards.

¶3 The Department audited Jones’s income arising from its billboard 

advertising business for the period from January 2008 to March 2011. The 

Department determined that Jones’s business fell within the scope of A.R.S. § 42–

5071(A), which imposes TPT on the leasing or renting of tangible personal 

property, and assessed TPT and interest against Jones in the amount of 

$275,047.20. After exhausting its administrative remedies, Jones filed a complaint 

in tax court. The parties filed cross-motions for summary judgment, and the tax 

court ruled in favor of the Department. Jones timely appeals from the tax court’s 

judgment. 

DISCUSSION

¶4 Arizona’s TPT is an “excise tax on the privilege or right to engage in 

an occupation or business in the State of Arizona.” Ariz. Dep’t of Revenue v. 

Mountain States Tel. & Tel. Co., 113 Ariz. 467, 468, 556 P.2d 1129, 1130 (1976). It is 

not a sales tax, but rather a tax on the gross receipts of an entity’s business 

activities. See A.R.S. § 42–5008.

¶5 The issue in this case is whether Jones’s sale of billboard advertising 

constitutes “leasing or renting tangible personal property for a consideration.” Id. 

The question requires us to interpret § 42–5071(A) and our review therefore is de 

novo. Energy Squared, Inc. v. Ariz. Dep’t of Revenue, 203 Ariz. 507, 509, ¶ 15, 56 P.3d 
JONES OUTDOOR v. ADOR

Opinion of the Court

3

686, 688 (App. 2002). Any ambiguity surrounding the scope and meaning of the 

statute must be resolved in favor of the taxpayer. City of Phoenix v. Borden Co., 84 

Ariz. 250, 252–53, 326 P.2d 841, 843 (1958).

I. RENTING OR LEASING REQUIRES POSSESSION AND CONTROL.

¶6 A.R.S. § 42-5071(A) provides: “The personal property rental 

classification is comprised of the business of leasing or renting tangible personal 

property for a consideration.”

¶7 Under our holding in Arizona Dep’t of Revenue v. Ariz. Outdoor 

Advertisers, Inc., billboards are personal property. 202 Ariz. 93, 102, ¶ 51, 41 P.3d 

631, 640 (App. 2002).

1

 See also City of Scottsdale v. Eller Outdoor Adver. Co. of Ariz., 

119 Ariz. 86, 92, 579 P.2d 590, 596 (App. 1978) (“Eller’s ownership interest in the 

billboards both before and after the taking as between it and its landlord, was 

personal property ownership.”) Because there is no dispute that Jones’s customers 

pay consideration for the advertising, the issue in this case is whether Jones is 

“leasing or renting” the billboards to its customers. 

¶8 The terms “leasing” and “renting” are not defined by statute, and we 

therefore look to their ordinary definitions. Arizona State Tax Comm’n v. First Bank 

Bldg. Corp., 5 Ariz. App. 594, 601, 429 P.2d 481, 488 (1967). In State Tax Commission 

v. Peck, our supreme court interpreted the terms “leasing” and “renting” to 

determine whether TPT applied to income derived from a self-service laundromat 

and a self-service car wash.2 106 Ariz. 394, 395, 476 P.2d 849, 850 (1970). The court 

relied upon the following definition of “to rent” from Webster’s Third 

 

1 The Department relies upon our decision in Arizona Outdoor Advertisers for 

the proposition that billboard advertising is taxable under § 42-5071. However, as 

the tax court noted below, that case, “while generally instructive, does not address 

the primary question presented here, which is the nature of the transaction 

between the billboard owner and the advertiser.” Arizona Outdoor Advertisers did 

not address whether the transaction between a billboard owner and its customers 

constitutes leasing or renting -- the transaction in question was that between the 

billboard owner and the owner of the land on which the billboard was constructed. 

Arizona Outdoor Advertisers, 202 Ariz. at 102, ¶ 51, 41 P.3d at 640. In that case, the 

taxpayer never raised the issue of what constituted “renting or leasing” and 

apparently conceded that its business was subject to TPT under A.R.S. § 42-

5071(A). Id. at 95, ¶ 10, 41 P.3d at 633. 

2 In Peck, the court applied a statutory predecessor to § 42-5071, which also 

assessed a tax on the activity of “[l]easing or renting tangible personal property 

for a consideration.” Peck, 106 Ariz. at 395, 476 P.2d at 850.
JONES OUTDOOR v. ADOR

Opinion of the Court

4

International Dictionary: “‘(1) to take and hold under an agreement to pay rent,’ 

or ‘(2) to obtain the possession and use of a place or article for rent.’” Id. at 396, 

476 P.2d at 851. 

¶9 Applying this definition, the court in Peck concluded that both the 

laundromat and the car wash were in the business of renting tangible personal 

property and therefore subject to TPT. Peck, 106 Ariz. at 396, 476 P.2d at 851. 

Notably, the court reasoned that:

There is no question that when customers use the equipment on the 

premises of the plaintiffs herein, such customers have an exclusive 

use of the equipment for a fixed period of time and for payment of a 

fixed amount of money. It is also true that the customers themselves 

exclusively control all manual operations necessary to run the 

machines. In our view such exclusive use and control comes within 

the meaning of the term ‘renting’ as used in the statute.

Id. (emphasis added).

¶10 Since the supreme court’s decision in Peck, this court has twice 

addressed the question of what constitutes the leasing or renting of tangible 

personal property. See Energy Squared, Inc. v. Ariz. Dep't of Revenue, 203 Ariz. 507, 

56 P.3d 686 (App. 2002); City of Phoenix v. Bentley-Dille Gradall Rentals, Inc., 136 

Ariz. 289, 665 P.2d 1011 (App. 1983). In both Energy Squared and Bentley-Dille, this 

court’s focus was on whether the business owner gave up possession and control 

of the tangible personal property. In Energy Squared, we concluded that income 

from a tanning salon was not subject to TPT because the business owner “reserves 

overall control over its customers’ use of tanning devices not merely by virtue of 

its control over its premises, but rather as a part of the business design by which it 

provides artificial tanning.” 203 Ariz. at 511, ¶ 25, 56 P.3d at 690. In Bentley-Dille, 

we determined that income derived from the provision of construction equipment

was not taxable because the taxpayer did not “give up possession and control” of 

the equipment. 136 Ariz. at 292, 665 P.2d at 1014. We held that “as a matter of law 

[ ] appellant did not give up possession and control of the Gradalls when it 

provided them to various construction projects with operators and thus, such 

activity was not ‘renting’ within the meaning of the transaction privilege tax.” Id.

¶11 Here, the Department argues that “Jones is in the business of renting 

billboards” and that the advertisers have exclusive use and control of the 

billboards for the duration of their contracts. Jones argues, however, that the

customers do not have sufficient control over the billboards to constitute “renting” 

within the meaning of § 42–5071(A). We agree with Jones. 
JONES OUTDOOR v. ADOR

Opinion of the Court

5

¶12 Jones retains possession and control of the billboards during the 

term of the contract with its customers, the advertisers, as evidenced by the 

following undisputed facts: (1) Jones owns the vinyl on which the advertisement 

is printed; (2) Jones affixes the vinyl to the billboard; (3) only Jones’s employees 

are permitted on the billboard to post, re-post, repair, adjust or illuminate the 

billboard; (4) only Jones may hire an electrician, repair person, or other 

maintenance person to service the billboard; (5) under no circumstances does Jones 

permit its customers entry on the billboards; (6) Jones removes the vinyl at the end 

of the advertising period; (7) Jones retains possession of the vinyl after its removal; 

(8) under the terms of the contract, Jones reserves the right to relocate and assign 

the advertisement to another billboard location “of approximately equal 

advertising value”; and (9) Jones also “reserves the right at any time to refuse or 

withdraw any advertising copy in its sole discretion.” In view of these facts, we 

conclude that Jones’s customers receive the mere right to have a message 

displayed on the billboards -- they do not enjoy possession or control of the 

billboards.3 See Snarr Adver., Inc. v. Utah State Tax Comm’n, 432 P.2d 882, 884 (Utah 

1967); Federal Sign & Signal Corp. v Bowers, 174 N.E. 2d 91, 93 (Ohio 1961) (holding 

that the rental of outdoor advertising signs was not subject to sales tax because the 

lease did not involve the transfer of possession).

II. THE LEGISLATURE HAS REPEALED THE TAX ON ADVERTISING.

¶13 Beginning in 1935, Arizona provided for a privilege tax on 

advertising, which applied to “[j]ob printing, engraving, embossing and copying, 

advertising by billboards, direct mail, radio, or by any means calculated to appeal to 

prospective purchasers.” Laws 1935, Chapter 77, § 2(c)(8) (emphasis added). In 

1986, as part of an act “providing for incremental removal of taxation from 

proceeds of local advertising,” the Legislature expressly repealed the TPT on local 

advertising. 1982 Ariz. Sess. Laws ch. 188, pp. 509-511. The act provided that,

“From and after December 31, 1985, sales of local advertising are exempt from the 

tax imposed by this paragraph,” including “local advertising by billboard, direct 

mail, radio, television or by any other means.” 1982 Ariz. Sess. Laws ch. 188, p.

511. There is no indication the legislature repealed the tax because it believed the 

 

3 Administrative regulations provide the following examples of tangible 

personal property that is included in the tax base under the personal property 

rental classification: “televisions, cars, trucks, lawnmowers, floor polishers, 

tuxedos, uniforms, furniture, towels, and linens.” Arizona Administrative Code 

(“A.A.C.”) Rule 15-5-1502(A). Jones’s customers do not possess or control the 

billboards in the same way that a customer who rents a television, a car, or any of 

the items listed in the regulation would possess and control the property.
JONES OUTDOOR v. ADOR

Opinion of the Court

6

advertising activity would be taxable under the personal property rental tax 

classification.

¶14 As the Department’s own website confirms, the state does not 

currently impose a tax on advertising: 

There are some differences between the state and local authorities in 

the taxability of transactions. For instance, the state does not impose 

a transaction privilege tax on 1) renting, leasing, or licensing for use 

residential real property or 2) the sale of advertising. However, 

many cities do tax these activities.4 

Indeed, cities and towns that follow the Model City Tax Code do impose a tax on 

advertising, including billboard advertising. See, e.g., Phoenix City Code § 14-405; 

Tucson City Code § 19-405. It is undisputed that Jones paid the cities’ tax on 

advertising, as applicable, during the audit period.

¶15 By repealing the tax on advertising, the Legislature manifested its 

intent that TPT not apply to billboard advertising. If the Legislature had intended 

the personal property rental classification to extend to billboard advertising, it 

could have stated so explicitly. Cf. First Bank Bldg. Corp., 5 Ariz. App. at 601, 429 

P.2d at 488 (holding that if the Legislature had intended to extend the transaction 

privilege to property owners on whose property the business is conducted it 

“could have easily spelled it out in the Statute”). Applying the rule of statutory 

construction that statutes imposing taxes must be construed in favor the taxpayer, 

we decline to extend § 42-5071 to billboard advertising. See Arizona Tax Comm’n v. 

Dairy & Consumers Co-op. Ass’n, 70 Ariz. 7, 18, 215 P.2d 235, 242 (1950) (explaining 

the rule of statutory construction “that statutes imposing taxes will be most 

strongly construed against the government and in favor of the taxpayer or 

citizen”).

 

4 http://www.azdor.gov/Business/TransactionPrivilegeTax.aspx. 
JONES OUTDOOR v. ADOR

Opinion of the Court

7

CONCLUSION

¶16 For the foregoing reasons, we reverse the decision of the tax court 

and remand with instructions for the tax court to enter summary judgment in 

favor of Jones. Jones has requested attorney’s fees on appeal pursuant to A.R.S. § 

12–348. A.R.S. § 12–348(B)(1) permits us to award attorney’s fees to a party that

successfully challenges the assessment or collection of taxes. We grant Jones’s

request subject to the limitation imposed by § 12-348(E)(5).