Opinion ID: 867198
Heading Depth: 3
Heading Rank: 2

Heading: Both the improvements and the property are

Text: used primarily for athletic, recreational, 5 entertainment, artistic, cultural or convention activities. ¶8 To qualify for Class Nine tax status, improvements on government land must become the governmental landowner’s property on the lease’s termination. The parties dispute, however, whether Class Nine applies to improvements that may no longer exist at the end of a lease, although they will become the government’s property if they do. CNL asserts, and the court of appeals held, that sub-paragraph (a) requires only that the taxed improvement will become government property if it exists upon lease termination. See CNL Hotels, 226 Ariz. at 160 ¶ 18, 244 P.3d at 597 (requiring tax assessment to focus “on the present existence of a demonstrable reversionary interest”).1 The County, however, argues that the Class Nine statute also requires proof the improvement will in fact exist at the end of the lease. ¶9 Both readings are consistent with the language of § 42-12009(A)(1)(a); the statute does not specify whether Class Nine status requires certainty that the government lessor will receive now-existing improvements when the lease later terminates. Because § 42-12009(A)(1)(a) is subject to “two 1 The parties and courts below use the term “reversionary interest” to describe the sub-paragraph (a) requirement of future ownership, but this terminology is technically inaccurate because the government could not hold a “reversionary” interest in improvements it did not previously own. 6 plausible interpretations,” it is ambiguous. Hayes v. Cont’l Ins. Co., 178 Ariz. 264, 268, 872 P.2d 668, 672 (1994). Accordingly, we must interpret the statute in light of its “context, subject matter, and historical background; its effects and consequences; and its spirit and purpose.” Id. ¶10 We conclude that CNL’s interpretation is the more reasonable one. Section 42-12009 is a property tax statute. Our property tax laws generally do not assign immutable tax classifications; instead, property taxes are assessed annually. See A.R.S. § 42-13051 (requiring tax assessor to yearly list property and assess its value for purposes of the tax roll). Because a property’s appropriate classification is reevaluated each year the property is taxed, § 42-12009 is reasonably interpreted as contemplating that tax classifications will consider the circumstances at the time of taxation. Speculating about hypothetical future events is unnecessary. If the government landowner’s right to receive the improvement at the termination of the lease, in fact, terminates, so will the taxpayer’s entitlement to Class Nine status. ¶11 The County’s interpretation also creates administrative difficulties. Tax assessors would be required to scrutinize each lease, covenant, contract, and statute governing the leasehold to determine whether a future contingency could prevent the lessor from actually receiving the improvement. See 7 Killebrew v. Indus. Comm’n of Ariz., 65 Ariz. 163, 168, 176 P.2d 925, 928 (1947) (considering “difficulties in the practical operation of the law” to discern correct interpretation of statutory text). The County’s position would also likely require tax assessors to inquire into rebuilding requirements in the event of natural or manmade disasters such as fire, flood, earthquake, war, or terrorist attack. ¶12 The County’s rationale for its interpretation is equally unpersuasive. It contends that unless the state actually receives the improvement taxed under § 42-12009, it will not receive sufficient economic value to justify the lessee’s tax benefit. We disagree. ¶13 The County characterizes the state’s future ownership as consideration for the one percent tax rate the lessee receives. But neither § 42-12009 nor the property tax scheme generally evinces any legislative intent to require taxpayers to compensate the government when they benefit from favorable tax rates. And in any event, it was not unreasonable for the legislature to determine that reducing property taxes for Class Nine would benefit the state by encouraging the lease of government land and spurring development. See Ariz. Const. art. 10, §§ 1-11 (prescribing management of state trust lands); see also Turken v. Gordon, 223 Ariz. 342, 348 ¶ 23, 349 ¶ 29, 224 P.3d 158, 164, 165 (2010) (acknowledging that city council could 8 reasonably conclude increased tax base benefits public). ¶14 In contrast, the court of appeals’ and CNL’s interpretation of subsection (A)(1)(a) avoids these analytical and administrative pitfalls. Similarly, it comports with the state’s duty to responsibly manage trust land. ¶15 Reading § 42-12009(A)(1)(a) to require only that, at the time of taxation, an improvement exist on the land that, under the terms of the lease, would become the property of the government landowner at the lease’s termination results in a statute that is easy to apply and understand. Tax assessors would be faced with a manageable task, consistent with their statutorily defined duties. See § 42-13051 (describing duties of county tax assessors as determining names of owners and cash value of properties). Their inquiry would be limited to examining each tax year what exists on the land and determining whether the government landowner at that time has the right to own any improvements upon termination of the lease. ¶16 Applying this interpretation, CNL has satisfied § 4212009(A)(1)(a)’s future ownership requirement. Desert Ridge sits on state trust land. Upon the termination of each lease, CNL must quitclaim the premises, including any improvements, to the state. 9