Opinion ID: 2616600
Heading Depth: 2
Heading Rank: 2

Heading: Standards for reviewing tax classifications

Text: The uniformity clause of art. 9, § 1  all taxes shall be uniform on the same class of property  imposes greater limits on state taxing authorities than the federal equal protection clause. See Nashville C. & St. Louis Ry. v. Browning, 310 U.S. 362, 60 S.Ct. 968, 84 L.Ed. 1254 (1940). We have previously cited Browning with approval, quoting the following: This court [United States Supreme Court] has previously had occasion to advert to the narrow and sometimes cramping provisions of these state uniformity clauses, and has left no doubt that their inflexible restrictions upon the taxing powers of the state were not to be insinuated into ... the Equal Protection Clause. .. . Apache County v. Atchison, Topeka & Santa Fe Ry. Co., 106 Ariz. 356, 359, 476 P.2d 657, 660 (1970) (quoting Browning, 310 U.S. at 368, 60 S.Ct. at 971). Although we do not necessarily agree that the provisions of art. 9, § 1 of our state constitution are narrow or cramping, or their restrictions inflexible, we have acknowledged that they are not a counterpart of but more restrictive than the equal protection clause. Id. They were intended for a different purpose: to ensure that each taxpayer's property bear the just proportion of the property tax burden. Merris v. Ada County, 100 Idaho 59, 63, 593 P.2d 394, 398 (1979); [3] see also Apache County, 106 Ariz. at 361, 476 P.2d at 661; Yellowstone Pipe Line Co. v. State Board of Equalization, 138 Mont. 603, 358 P.2d 55, 64 (1960) (The tax uniformity rule imposes government's burdens on property in proportion to its use, its productivity, its utility [and] its general setting in the economic organization of society.). This is not to say that all property must be taxed at the same rate. The constitution obviously permits property division into classes to be taxed at different rates. Thus, we have always recognized the legislature's power to classify. People's Finance & Thrift Co. v. Pima County, 44 Ariz. 440, 445, 38 P.2d 643, 645 (1934). Although we affirm and respect the legislature's broad discretion in the matter of classifying property, we have also long held that the legislature may not unfairly and unreasonably discriminate between taxpayers of the same class, or be arbitrary, specious, or fanciful. Id. at 445-46, 38 P.2d at 645. Thus, a tax classification must rest upon real differences and be reasonable. Id. at 446, 38 P.2d at 645. This means that property of the same character must be taxed the same, Southern Pacific Co. v. Cochise County, 92 Ariz. 395, 400, 377 P.2d 770, 774 (1963), and makes our constitution's tax uniformity clause a guarantee of [e]quality of opportunity [for] all persons and corporations similarly situated. Stults Eagle Drug Co. v. Luke, 48 Ariz. 467, 476, 62 P.2d 1126, 1130 (1936); J.C. Penney Co. v. Department of Revenue, 125 Ariz. 469, 472, 125 Ariz. 469, 610 P.2d 471, 474 (Ct.App. 1980) (classes must be reasonable and not arbitrary). Other jurisdictions with similar constitutional clauses have reached similar conclusions. Under a uniformity clause, property cannot be put in different classes according to size or location rather than value because this would be arbitrary classification. Gillis v. Yount, 748 S.W.2d 357, 363 (Ky. 1988); State v. Minnesota Farmers Mut. Ins. Co., 145 Minn. 231, 176 N.W. 756, 757 (1920); Mathias v. Department of Revenue, 312 Or. 50, 817 P.2d 272, 278 (1991) (Classifications, to pass state constitutional muster, must be based on inherent, qualitative, genuine, rational differences between the classes of property to be accorded different treatment.). Two early Arizona cases set limits on legislative discretion that are still relevant today. In fact, in many aspects, the case at bar parallels Smith v. Mahoney, in which the Arizona Legislature sought to foster Arizona's livestock industry by imposing on nonresident stock owners a tax for each goat, sheep, steer, or horse grazed or pastured within Arizona, although resident owners paid no such tax. The court held the tax wanting in uniformity and unequal as applied to the same class of property. 22 Ariz. 342, 350, 197 P. 704, 707 (1921). This palpable discrimination between residents and non-residents robs the law of the indispensable requisite that taxes be uniform upon the same class of property within the jurisdiction of the body imposing them. Id. at 351, 197 P. at 707. In State Tax Commission v. Shattuck, this court similarly held that the legislature could not make tax distinctions within the same class of intangible property. Where the attempted classification was more fanciful than real, it could not be upheld, even if the resulting tax penalty was small. 44 Ariz. 379, 401, 38 P.2d 631, 640 (1934). The court pointedly asked: Can discrimination be allowed as between property in the same class? If permitted where the discrimination is slight, when shall it be denied? Id. Under these decisions, it seems apparent that the tax statutes at issue here violate the uniformity clause because they effectively tax America West's commuter airplanes at a higher rate than commuter aircraft used by any other airline for the same purpose. The sole basis for the discrimination is the number and size of the other airplanes in America West's fleet. Because of its other airplanes, America West's commuter airplanes, flying commuter routes to rural Arizona, are taxed at a higher rate than the airplanes of its commuter competitors, whose fleets are small enough to qualify for the tax rate limit of § 42-705(C). The only reason advanced for this unequal treatment is that a tax break for small airlines may encourage the use of commuter equipment to serve Arizona cities and towns that would otherwise lack any air service. Although this may be a good and valid reason, it is certainly not a property classification. We deal here only with the latter. A property classification statute arguably might, for instance, tax small airplanes differently from large ones or airplanes used for rural service differently from those flying urban routes. The classification thus made would be a classification of property  based on one of the property's characteristics or uses  rather than a classification of owners.