Court Opinion

ID: 9917245
Source: CourtListenerOpinion
Date Created: 2024-01-11 19:01:59.712672+00
Date Added: 2024-06-11T08:01:59.410951
License: Public Domain

NOTICE: NOT FOR OFFICIAL PUBLICATION.
  UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL
                  AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.

                                     IN THE
              ARIZONA COURT OF APPEALS
                                 DIVISION ONE

            CITY OF TUCSON, Plaintiff/Appellee/Cross-Appellant,

                                         v.

ORBITZ WORLDWIDE, INC., et al., Defendants/Appellants/Cross-Appellees.

                              No. 1 CA-TX 23-0001
                               FILED 01-11-2024

                     Appeal from the Arizona Tax Court
                             No. TX2014-000470
                                 TX2014-000471
                                 TX2014-000472
                                 TX2014-000473
                                 TX2014-000474
                                 TX2014-000475

                    The Honorable M. Scott McCoy, Judge

                       VACATED AND REMANDED

                                    COUNSEL

Snell & Wilmer L.L.P., Phoenix
By Barbara J. Dawson, Ed Hermes, Marsha Cotton
Counsel for Defendants/Appellants/Cross-Appellees

Morgan, Lewis & Bockius LLP, Chicago
By Elizabeth B. Herrington, Thomas M. Peterson
Counsel for Defendants/Appellants/Cross-Appellees
                         TUCSON v. ORBITZ, et al.
                           Decision of the Court

Wright Welker Pauole PLC, Phoenix
By Scott G. Andersen
Counsel for Plaintiff/Appellee/Cross-Appellant

Crongeyer Law Firm, PC, Atlanta
By John Crongeyer
Counsel for Plaintiff/Appellee/Cross-Appellant

Bird Law Group, Atlanta
By Alexandria Seay
Counsel for Plaintiff/Appellee/Cross-Appellant

                       MEMORANDUM DECISION

Judge Brian Y. Furuya delivered the decision of the Court, in which
Presiding Judge James B. Morse Jr., and Judge Cynthia J. Bailey joined.

F U R U Y A, Judge:

¶1            Expedia, Inc., Hotels.com L.P., Hotwire, Inc., Orbitz, LLC,
Trip Network, Inc., and Internetwork Publishing Corp. (collectively,
“Expedia”) appeal the superior court’s decision awarding the city of Tucson
more than $400,000 in taxes, interest, and penalties. For the following
reasons, we vacate this award and remand for further proceedings
consistent with this decision.

                 FACTS AND PROCEDURAL HISTORY

¶2             This case is related to 2015 litigation between several Arizona
cities (“the Cities”), including Tucson, and several online travel companies
(“OTCs”), including Expedia. See City of Phoenix v. Orbitz Worldwide Inc., 247
Ariz. 234, 237–38 ¶¶ 6–9 (2019).

¶3              The OTCs operate websites where travelers can book hotel
rooms. Id. at 237 ¶ 2. When travelers book through the OTCs’ websites, they
receive a total price consisting of the room rate set by the hotel, taxes, and
fees. Id. at 237 ¶ 3. The total price includes a markup for the OTCs’ services.
Id.

                                       2
                        TUCSON v. ORBITZ, et al.
                          Decision of the Court

I.    Audit and Assessment

¶4           As early as 2003, the Cities, acting collectively through a
Unified Audit Committee (“the Committee”), began investigating whether
OTCs were taxable as “brokers” under §§ 444 and 447 of the Model City
Tax Code (“MCTC”). Each city had adopted provisions based on the
MCTC. See id. at 236 ¶ 1 n.2.

¶5            Section 444 of the MCTC taxes “the gross income from the
business activity upon every person engaging or continuing in the business
of operating a hotel[,]” whereas § 447 taxes “the gross income from the
business activity of any hotel.” The MCTC also defines “person” to include
“broker[s].” MCTC § 100.

¶6            In 2007, the Cities sent letters to the OTCs announcing they
must “pay privilege tax, and if applicable, transient occupancy tax on
business activity in each Arizona city where their principals are located” if
the OTCs receive “all or part of the gross income from a taxable activity for
their principal.” The letter directed the OTCs to contact individual cities
“[f]or further information regarding the privilege tax and, if applicable,
transient occupancy tax[.]” Expedia paid no tax at that time.

¶7         In 2013, Tucson assessed Expedia for taxes under Tucson City
Code (“TCC”) §§ 19-66 and -444. Tucson’s § 19-444 is a verbatim copy of the
MCTC § 444 but sets the tax rate at zero percent. However, TCC § 19-66(a)
states:

      Every person who operates or causes to be operated a hotel
      . . . within the city is subject to and shall pay an occupational
      license tax in an amount equal to six (6) percent of the rent
      charged by the operator to a transient. The transient rental
      occupational license tax imposed on the class of lodging
      house and recreational vehicle park operators serving
      transients . . . is not on the privilege of doing business within
      the city, but is a license tax on the transient rental occupation.
      The tax, when due, constitutes a debt owed by the operator to
      the city . . . .

¶8             Like the MCTC, the TCC defines “person” to include
“broker.” TCC § 19-1. Other Cities also taxed the OTCs under their versions
of MCTC § 447, which Tucson never adopted. See City of Phoenix, 247 Ariz.
at 236 ¶ 1 n.2; TCC § 19-447 (“Reserved.”).

                                      3
                          TUCSON v. ORBITZ, et al.
                            Decision of the Court

II.    Prior Litigation

¶9             The OTCs, including Expedia, challenged the assessment. The
parties litigated the case through the municipal tax hearing officer
(“hearing officer”), superior court, the court of appeals, and the Arizona
Supreme Court. See City of Phoenix, 247 Ariz. at 237–38 ¶¶ 6–9. Throughout
the litigation, the parties and the reviewing bodies referred to the MCTC
provisions, not to the Cities’ individual tax codes. Id. at 236 ¶ 1 n.2; see also
City of Phoenix v. Orbitz Worldwide Inc., 1 CA-TX 16-0016, 1 CA-TX 16-0018,
2018 WL 4265950 (Ariz. App. Sept. 6, 2018) (mem. decision). Ultimately, the
supreme court held the OTCs liable for taxes under MCTC § 444, but not
§ 447. City of Phoenix, 247 Ariz. at 236–37 ¶ 1.

¶10            In its de novo review of the MCTC provisions, the supreme
court analyzed § 444’s language, focusing on the phrases “every person”
and “engag[ed] . . . in the business of operating a hotel.” See id. at 239–41
¶¶ 14–22. These phrases define the category of taxpayer and the type of
taxable activity. The supreme court reasoned that the use of the terms
“every person” and “business” broadened the taxpayer category “beyond
the hotels’ owners and operators,”—“those who physically own or furnish
lodging to customers”—to “the entire business activity and on every ‘person’
engaged in that activity.” Id. at 239 ¶¶ 15–16. Because the OTCs “advertise
available rooms, solicit potential customers, collect customers’ information,
process payments, confirm reservations, provide customer service, and
facilitate reservation modifications and cancellations,” they are brokers
“actively engaged in ‘the business of operating a hotel.’” Id. at 236 ¶ 1, 240
¶ 19. The supreme court held “§ 444 imposes a tax liability on any ‘person’—
not just a hotel owner or operator—that engages for profit in business
activities that are central to keeping brick-and-mortar lodging places
functional or in operation.” Id. at 240 ¶ 18.

¶11            By contrast, the court held MCTC § 447 did not apply to
brokers because it only taxed “the gross income from the business activity
of any hotel,” and thus, did not expand beyond “brick-and-mortar lodging
places.” Id. at 243 ¶ 32.

¶12          In sum, the supreme court held the OTCs are brokers, but are
not hotel operators or hotels, and therefore are liable to the Cities under
MCTC § 444, but not § 447. See id. at 239 ¶¶ 15–16, 242 ¶ 29, 243 ¶ 31–33.
Because factual issues existed regarding the retroactive application of
MCTC § 444, the supreme court remanded the case to the superior court “to
determine whether [MCTC] § 542(b) bars the Cities from assessing taxes,

                                       4
                        TUCSON v. ORBITZ, et al.
                          Decision of the Court

penalties, and interest due under § 444 before the [2013 Assessments].” Id.
at 237 ¶ 1.

¶13           Before remand, only the hearing officer had commented on
the specific language of TCC § 19-66 and did so in a footnote to his
discussion of MCTC § 447. At that time, the hearing officer decided MCTC
§ 447 did not apply to the OTCs because it applied only to hotels. The
footnote stated, “Some of the Cities however have enacted supplemental
transient lodging taxes in provisions other than the MCTC § 447,” and cited
three cities’ provisions, including TCC § 19-66. Two of those cities’
provisions tax “hotels” explicitly, while TCC’s § 19-66 taxes “[e]very person
who operates or causes to be operated a hotel.” The hearing officer
concluded, “[b]ased on the language of [all three] provisions, the reasoning
regarding MCTC § -447 is also applicable to those provisions.”

III.   Superior Court Decision on Remand

¶14            On remand, Expedia moved for summary judgment, arguing
Tucson should be judicially estopped from “claiming . . . § 19-66 is a
‘combined’ tax for MCTC §§ 444 and 447.” Tucson also moved for summary
judgment, contending it “always considered all brokers, including the
OTCs, to be taxable under MCTC § 444.” Tucson’s motion did not discuss
or mention TCC § 19-66 but cited the supreme court’s footnote stating,
“each City has passed its own tax ordinance which is ‘based on and do[es]
not differ substantively from the MCTC.’” See City of Phoenix, 247 Ariz. at
236 ¶ 1 n.2. Both parties also moved for summary judgment on the
retroactivity issue, Expedia arguing against and Tucson for.

¶15            The superior court denied Expedia’s motion for summary
judgment regarding the application of TCC § 19-66, finding the provision
“is a version of MCTC § 444” because it contains “operative language, and
underlying definitions, substantively indistinguishable from that of MCTC
§ 444.” The court concluded § 19-66 and MCTC § 444 differed substantively
only in their tax bases—“transients” and “all ‘persons’” respectively.

¶16           The court also partially granted each party’s motion for
summary judgment as to retroactivity, finding TCC § 19-66 applicable
retroactively to August 2007 but not before. Lastly, the court awarded
penalties under TCC § 19-540 but not under § 19-80, which had been
enacted during pendency of the litigation.

¶17          This court has jurisdiction over Expedia’s timely appeal and
Tucson’s timely cross-appeal under Arizona Revised Statutes (“A.R.S.”)
§§ 12-2101(A)(1) and -170(C).

                                     5
                         TUCSON v. ORBITZ, et al.
                           Decision of the Court

                               DISCUSSION

¶18           On appeal, Expedia argues the superior court erred by (1)
finding Expedia liable to Tucson for any tax, (2) finding Tucson could
retroactively assess taxes against Expedia, and (3) holding Expedia liable
for any penalties. On cross-appeal, Tucson argues the superior court erred
by finding Expedia not liable for additional retroactive taxes or penalties
under TCC § 19-80. Because we hold TCC § 19-66 does not apply to Expedia,
we do not address retroactivity or penalties. See Freeport McMoRan Corp. v.
Langley Eden Farms, LLC, 228 Ariz. 474, 478 ¶ 15 (App. 2011) (“[W]e do not
issue advisory opinions or decide unnecessary issues.”).

I.     The Superior Court Did Not Exceed the Scope of the Supreme
       Court’s Mandate.

¶19            Expedia first argues the superior court exceeded the scope of
the supreme court’s mandate by determining liability under TCC § 19-66.
Specifically, Expedia argues City of Phoenix confined the superior court to
determining tax liability under the Cities’ equivalents of MCTC § 444 and,
because Tucson taxed Expedia under TCC § 19-444 at a zero-percent tax
rate, the litigation should have ended with the supreme court’s opinion.
Tucson responds that TCC § 19-66 “is clearly within the Arizona Supreme
Court’s Order.”

¶20           “We review de novo whether the trial court followed the
appellate court’s mandate.” Bogard v. Cannon & Wendt Elec. Co., Inc., 221
Ariz. 325, 334 ¶ 30 (App. 2009). On remand, the trial court cannot consider
issues decided by the appellate court but may address any issues not
resolved by the mandate. Cyprus Bagdad Copper Corp. v. Ariz. Dep’t of
Revenue, 196 Ariz. 5, 7 ¶ 7 (App. 1999) (citation omitted).

¶21            Tucson’s § 19-66 has been involved in the litigation from the
beginning as part of the 2013 Assessment. And because § 19-444’s zero-
percent tax rate cannot result in any tax liability, § 19-66 is the only
provision under which Expedia potentially owes taxes to Tucson. However,
no party directly challenged § 19-66’s specific language during the prior
litigation. The supreme court construed MCTC §§ 444 and 447, noting that
the Cities’ local tax provisions were equivalent. City of Phoenix, 247 Ariz. at
236 ¶ 1 n.2. But this analysis did not determine whether § 19-66 was
equivalent to MCTC § 444 or MCTC § 447 or, as Tucson contends, both.
Indeed, the supreme court did not discuss § 19-66 at all. Thus, because City
of Phoenix does not explicitly or implicitly analyze § 19-66’s language, its
application remains an unresolved issue. As such, the mandate did not

                                      6
                          TUCSON v. ORBITZ, et al.
                            Decision of the Court

preclude the superior court from determining whether § 19-66 applied to
Expedia on remand. See Cyprus Bagdad Copper Corp., 196 Ariz. at 7 ¶ 7
(stating trial courts on remand “may address any issues that the appellate
court did not dispose of either expressly or impliedly”) (cleaned up).

II.    Waiver of Arguments Regarding TCC § 19-66.

¶22           Both parties argue the other waived its arguments regarding
the applicability of TCC § 19-66 by not raising their arguments in the prior
litigation.

¶23           Parties generally waive arguments raised for the first time on
appeal, see Englert v. Carondelet Health Network, 199 Ariz. 21, 26 ¶ 13 (App.
2000), or those unsupported by law, Ramos v. Nichols, 252 Ariz. 519, 522 ¶ 8
(App. 2022). See also Ariz. R. Civ. App. P. 13(a)(7)(A). But waiver is a
discretionary procedural rule, not a jurisdictional matter. Sobol v. Marsh, 212
Ariz. 301, 303 ¶ 8 (App. 2006).

¶24            Given the unique facts of this case, its history, and the
substantial interests of the parties, we decline to find waiver and instead
reach the merits. Because City of Phoenix did not construe TCC § 19-66, the
matter of its applicability to Expedia remains outstanding, and we address
it here.

III.   Expedia is Not Liable for Taxes to Tucson Under TCC § 19-66.

¶25             We construe city ordinances “by the same rules and
principles which govern the construction of statutes, and we review issues
of statutory interpretation de novo[.]” City of Phoenix, 247 Ariz. at 238 ¶ 10
(citation omitted). We begin by reading the statute’s words “neither
narrowly nor liberally, but rather according to the plain meaning of the
words in their broader statutory context.” S. Ariz. Home Builders Ass’n v.
Town of Marana, 254 Ariz. 281, 286 ¶ 31 (2023). “In construing a specific
provision, we look to the statute as a whole and we may also consider
statutes that are in pari materia—of the same subject or general purpose—
for guidance and to give effect to all of the provisions involved.” Stambaugh
v. Killian, 242 Ariz. 508, 509 ¶ 7 (2017). Where possible, we give meaning “to
every word and provision so that no word or provision is rendered
superfluous.” Nicaise v. Sundaram, 245 Ariz. 566, 568 ¶ 11 (2019).

¶26             And we “avoid construing a statute in a manner that leads to
an absurd result.” France v. Indus. Comm’n of Ariz., 250 Ariz. 487, 490 ¶ 13
(2021); see also City of Peoria v. Brink’s Home Sec., Inc., 226 Ariz. 332, 333 ¶ 6
(2011) (explaining courts shall not impose tax liability through “strained

                                        7
                          TUCSON v. ORBITZ, et al.
                            Decision of the Court

construction or implication”) (citation omitted). Lastly, where such exist,
courts must interpret ambiguities in tax statutes “in favor of the taxpayer.”
State ex rel. Ariz. Dep’t of Revenue v. Phoenix Lodge No. 708, Loyal Ord. of Moose,
Inc., 187 Ariz. 242, 247 (App. 1996).

¶27           Expedia argues § 19-66 does not apply to OTCs because it is
Tucson’s equivalent of MCTC § 447 or, alternatively, because § 19-66
applies only to hotel operators. Tucson responds that because § 19-66
applies to “[e]very person,” it is like MCTC § 444 and must apply to OTCs.

       A.      The Supreme Court’s Construction of MCTC §§ 444 and 447
               Does Not Apply to TCC § 19-66.

¶28            MCTC § 19-66 applies to “[e]very person who operates or
causes to be operated a hotel . . . .” The text therefore deviates from the
restrictive formulation of MCTC § 447, which only imposes a tax on “any
hotel.” (Emphasis added). But it also departs from the broader language of
MCTC § 444 which taxes “the gross income from the business activity [of]
every person engaging in or continuing in the business of operating a hotel.”
(Emphasis added). The omission of any reference to “business activity” and
“business of” operating hotels is significant. See City of Phoenix, 247 Ariz. at
239 ¶ 15 (explaining the inclusion of “business of” expands the category of
taxable activity beyond hotel owners and operators). Further, per its
express language, § 19-66 differs from MCTC § 447 because it is not a
transaction privilege tax levied upon “business activities of any hotel” but
rather a licensing tax levied upon “the rent charged by the operator to a
transient,” TCC § 19-66(a). Thus, § 19-66 is substantially distinct, and the
supreme court’s constructions of MCTC § 444 and § 447 do not precisely
address its language.

       B.      Section 19-66 Applies to Hotel Operation.

¶29           Our interpretation begins with the plain language of § 19-66.
See Stambaugh, 242 Ariz. at 509 ¶ 7. The first sentence of § 19-66(a) defines
the applicable taxpayer and taxable activity—“[e]very person who operates
or causes to be operated a hotel.” The phrase “operates or causes to be
operated a hotel” qualifies, and therefore limits, the category of “every
person.” As written, § 19-66 refers to only two taxpayer categories: “every
person” who operates hotels, and “every person” who “cause[s] [hotels] to
be operated.” The absence of “business activity” and “business of” from §

                                        8
                          TUCSON v. ORBITZ, et al.
                            Decision of the Court

19-66(a) eliminates all others as subjects of the tax.1 Thus, § 19-66 will apply
only if OTCs like Expedia are hotel operators or if they cause hotels to be
operated.

               1.     OTCs Are Not “Hotel Operators.”

¶30            Tucson’s code, unlike the MCTC, defines “hotel operator” as

       the person who is proprietor of the hotel, whether in the
       capacity of owner, lessee, sublessee, mortgagee in possession,
       licensee or any other capacity. Where the operator performs
       his functions through a managing agency of any type or
       character other than an employee, the managing agent shall
       also be deemed an operator for the purposes of this section
       and shall have the same duties and liabilities as his principal.

TCC § 19-1. Thus, a “hotel operator” is either the proprietor of the hotel or
a non-employee managing agent who performs the proprietor’s functions.

¶31            OTCs are brokers, not proprietors of hotels. See City of
Phoenix, 247 Ariz. at 242–43 ¶¶ 29–31. Per the TCC’s definition, a broker is
“any person engaged or continuing in business who acts for another for a
consideration in the conduct of a business activity taxable under this article,
and who receives for his principal all or part of the gross income from the
taxable activity.” TCC § 19-1. As our supreme court observes, OTCs
“actively engage[] in ‘the business of operating a hotel,’” since they provide
services that “are central to keeping a hotel functional and in operation.”
See City of Phoenix, 247 Ariz. at 240 ¶ 19 (emphasis added). By contrast, a
proprietor—as defined at the time Tucson adopted § 19-66 in 1990—is “one
who has the legal right or exclusive title to something: owner” or “one
having an interest (as control or present use) less than absolute and
exclusive right.” Proprietor, Webster’s Ninth New Collegiate Dictionary (9th

1      Given § 19-66’s narrower phrasing, we note it appears more
analogous to the specific statutes discussed in Pitt Cnty. v. Hotels.com, L.P.,
553 F.3d 308, 313 (4th Cir. 2009) (discussing a statute applying to
“[o]perators of hotels, motels, tourist homes, tourist camps, and similar
type businesses”) and Montana Dep’t of Revenue v. Priceline.com, Inc., 354
P.3d 631, 634 ¶ 8 (Mont. 2015) (discussing a statute requiring “[t]he owner
or operator of a facility [to] collect the tax . . . .”) than it does to MCTC § 444.
See City of Phoenix, 247 Ariz. at 239 ¶ 15 (distinguishing Pitt Cnty. and Mont.
Dep’t of Revenue based on their specific, narrower, statutory language).

                                         9
                         TUCSON v. ORBITZ, et al.
                           Decision of the Court

ed. 1984). Because brokers do not own, control, or have present use of
hotels, they are not proprietors.

¶32             However, the TCC’s definition of “hotel operator” also
includes managing agents. TCC § 19-1. Under Tucson’s code, a managing
agent is deemed a “hotel operator” if the agent is not an employee of the
operator and the operator “performs his functions through” the agent. Id.
OTCs are not employees of hotels. See City of Phoenix, 247 Ariz. at 237 ¶¶ 2–
3. Further, OTCs do perform some of the functions of proprietors because
they “advertise available rooms, solicit potential customers, collect
customers’ information, process payments, confirm reservations, provide
customer service, and facilitate reservation modifications and
cancellations.” Id. at 240 ¶ 19. But our analysis does not end there. The
code’s language does not specify that a managing agent who performs
some of a hotel’s functions, like OTCs, must be deemed an operator under
§ 19-1. Instead, the provision states a managing agent is deemed an operator
if “the operator performs his functions through a managing agency.” TCC §
19-1 (emphasis added). This wording is ambiguous—it could rationally
refer to all of the operator’s functions, or merely some of them. See Premiere
RV & Mini Storage LLC v. Maricopa Cnty., 222 Ariz. 440, 444 ¶ 14 (App. 2009)
(“A statute is ambiguous if there is uncertainty about the meaning or
interpretation of its terms, or if the statute’s text allows for more than one
rational interpretation.”) (cleaned up, citation omitted).

¶33          OTCs do not perform all the functions of an operator, City of
Phoenix, 247 Ariz. at 239 ¶ 15, and therefore might qualify as a “hotel
operator” as a managing agent, but only if we read § 19-1 to include those
who perform only a subset of the proprietor’s functions. But because we
must construe ambiguous tax statutes in favor of the taxpayer, Phoenix
Lodge No. 708, 187 Ariz. at 247, we read this provision as requiring
performance of all functions of an operator to qualify as a managing agent,
and therefore, be deemed a “hotel operator” for purposes of the TCC. Thus,
OTCs—which perform only some of the functions of proprietors—are not
managing agents under § 19-1 and cannot be deemed “hotel operators.”

              2.     OTCs Do Not Cause Hotels to Be Operated.

¶34          Tucson argues § 19-66’s provision regarding “causes to be
operated a hotel” is equivalent to MCTC § 444’s provision regarding “the
business of operating” a hotel. Even if we were to agree with Tucson’s
suggestion, we cannot look only at the first sentence of § 19-66. Rather, we
must “interpret statutory language in view of the entire text, considering

                                     10
                         TUCSON v. ORBITZ, et al.
                           Decision of the Court

the context and related statutes on the same subject.” Nicaise, 245 Ariz. at
568 ¶ 11.

¶35            As discussed above, we view the absence of “business of” and
“business activity” from § 19-66 as meaningful. See supra ¶ 28. As written,
§ 19-66 does not apply to “business activity” adjacent to hotel operation as
provided in § 444, narrowing the field of taxable activities. See City of
Phoenix, 247 Ariz. at 239–40 ¶¶ 14–18. The remaining language further
emphasizes § 19-66’s application exclusively to hotel operation itself. For
instance, Tucson’s tax is based on the “rent charged by the operator” and
creates a “debt owed by the operator.” TCC § 19-66(a) (emphasis added). We
must construe § 19-66 as a whole, including these phrases, see Stambaugh,
242 Ariz. at 509 ¶ 7, and give meaning to their use, see Nicaise, 245 Ariz. at
568 ¶ 11. Such phrasing shows the tax is directed at hotel operations, not
adjacent business activities, and the language expressly makes operators
liable for paying taxes on room rental revenue.

¶36           Moreover, unlike MCTC § 444, TCC § 19-66 “is not [a tax] on
the privilege of doing business within the city[] but is a license tax on the
transient rental occupation.” TCC § 19-66(a); City of Phoenix, 247 Ariz. at
238–39 ¶¶ 13–14. Put another way, the taxable activity of § 19-66 is issuing
licenses to transients for occupying real property. That § 19-66 is not a
transaction privilege tax—but rather a real property licensing tax—is
significant because while OTCs do engage in business transactions, they do
not themselves issue licenses to transients. Instead, they broker deals
between the licensors (operators) and licensees (transients). Thus, the entire
taxing structure specified in § 19-66 is not aimed at the OTCs’ activities.

¶37           Further, as § 19-66 states, the tax, “when due, constitutes a
debt owed by the operator to” Tucson. TCC § 19-66(a) (emphasis added). If
Tucson’s construction of § 19-66 is accepted, taxable activity of OTCs would
be a debt owed by the hotel operators, not the OTCs. Put differently,
applying § 19-66 against Expedia would create tax liability against an entity
that does not owe the debt imposed. We avoid such absurd constructions.
See France, 250 Ariz. at 490 ¶ 13; see also In re Transient Occupancy Tax Cases,
384 P.3d 1236, 1240 (Cal. 2016) (explaining a tax creating a debt owed only
by the operator “does not appear to contemplate that the city treasurer may
assess an intermediary such as an OTC for unpaid transient occupancy
tax”).

¶38           To summarize, TCC § 19-66 applies to hotel operations via
proprietors (persons who own hotels), managing agents (persons who
perform all the functions of a principal proprietor), and those who cause a

                                      11
                         TUCSON v. ORBITZ, et al.
                           Decision of the Court

hotel to be operated (persons who directly engage in hotel operation).
Expedia is not liable to Tucson under § 19-66 because it performs none of
those taxable activities.

¶39           Because we hold Expedia is not liable to Tucson for taxes
under § 19-66, we vacate the superior court’s award to Tucson of taxes,
interest, and penalties.

                               CONCLUSION

¶40           We hold Expedia is not liable to Tucson for taxes under TCC
§ 19-66 and therefore vacate the court’s judgment and remand with
instructions to enter judgment in favor of Expedia, consistent with this
decision.

¶41            Expedia requests an award of attorneys’ fees, costs, and
expenses under Arizona Rule of Civil Appellate Procedure 21 and A.R.S.
§ 12-348. In light of the result, Tucson is no longer the prevailing party, and
in our discretion, we decline to award attorneys’ fees on appeal. But the
superior court may reconsider any requests for fees on remand, including
those incurred by Expedia in this appeal. See Centerpoint Mech. Lien Claims,
LLC v. Commonwealth Land Title Ins. Co., 255 Ariz. 261, 277 ¶ 78 (App. 2023).

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

                                        12