Court Opinion

ID: 9400616
Source: CourtListenerOpinion
Date Created: 2023-06-08 17:07:20.085103+00
Date Added: 2024-06-11T17:19:46.843090
License: Public Domain

IN THE
             ARIZONA COURT OF APPEALS
                             DIVISION ONE

     DOVE MOUNTAIN HOTELCO, LLC, et al., Plaintiffs/Appellants,

                                    v.

      ARIZONA DEPARTMENT OF REVENUE, Defendant/Appellee.

                          No. 1 CA-TX 22-0003
                            FILED 6-8-2023

                  Appeal from the Arizona Tax Court
                         No. TX2019-000448
                 The Honorable M. Scott McCoy, Judge

                              AFFIRMED

                               COUNSEL

Snell & Wilmer LLP, Phoenix
By Barbara J. Dawson, Edward J. Hermes
Co-Counsel for Plaintiffs/Appellants

Reed Smith LLP, Chicago Illinois
By David P. Dorner, admitted pro hac vice
Co-Counsel for Plaintiffs/Appellants

Arizona Attorney General’s Office, Phoenix
By Scot G. Teasdale
Counsel for Defendant/Appellee
                   DOVE MOUNTAIN, et al. v. ADOR
                        Opinion of the Court

                               OPINION

Judge Jennifer B. Campbell delivered the opinion of the Court, in which
Judge Paul J. McMurdie joined. Presiding Judge Brian Y. Furuya dissented.

C A M P B E L L, Judge:

¶1          Dove Mountain Hotelco, LLC and HSL Cottonwood RC
Hotel, LLC (collectively, Dove Mountain) appeal from the tax court’s
judgment upholding the Arizona Department of Revenue’s (the
Department) determination that Dove Mountain owes transaction privilege
taxes on monies (the monies) it received from a third party through a
rewards program. Because the monies constitute gross income and no
deduction applies, we affirm.

                            BACKGROUND

¶2             The relevant facts are not disputed. Dove Mountain, a
Marriott-branded hotel, participates in the Marriott Rewards Program (the
Rewards Program)―Marriott’s points-based loyalty marketing program,
operated and administered by Marriott Rewards, LLC. “[D]esigned to
foster long-term brand loyalty and increase repeat lodging at Marriott
branded hotels,” the Rewards Program permits hotel guests who register
with the Rewards Program (members) to earn points from their paid stays
at Marriott-branded hotels. Apart from paid hotel stays, members may also
earn points “by booking travel with [a] participating program airline, car
rental or cruise companies, from dining at participating program
restaurants, and from credit card purchases using participating program
credit cards.” Members earn approximately three-fourths of the Rewards
Program points through paid stays at Marriott-branded hotels and the
remaining points through their transactions with Marriott’s affiliated
partners. The members may redeem their accrued points for free stays at
Marriott-branded hotels, or for other items such as merchandise, airline
tickets, car rentals, and gift cards.

¶3             All Marriott-branded hotels participate in and fund the
Rewards Program by paying a percentage of their room revenue to cover
the Rewards Program costs and allowing members to redeem their points
for free lodging. Specifically, Dove Mountain remits 4.5% of each member’s
paid hotel stay to Marriott Rewards, LLC. When members redeem points

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                   DOVE MOUNTAIN, et al. v. ADOR
                        Opinion of the Court

for free stays, Dove Mountain requests money from the Rewards Program
to cover the costs of the complimentary lodging, but its compensation is not
limited to its 4.5% remittance to the program.

¶4           After paying transaction privilege taxes on the monies it
received from the Rewards Program between April 1, 2012 and March 31,
2016, Dove Mountain sought a refund from the Department, contending it
“mistakenly” paid taxes on “reimbursements.” The Department denied
Dove Mountain’s refund request.

¶5           Dove Mountain appealed the Department’s decision in the
tax court. Asserting it “paid tax on the lodging at the time the Rewards
points were earned,” Dove Mountain claimed that imposing the transaction
privilege tax on the monies it received from the Rewards Program
amounted to double taxation. On cross-motions for summary judgment,
Dove Mountain limited its refund claim to the 4.5% it remitted to the
Rewards Program.

¶6          After full briefing and oral argument, the tax court granted
summary judgment in favor of the Department. Upon entry of final
judgment, Dove Mountain timely appealed.

                              DISCUSSION

¶7            Challenging the tax court’s summary judgment ruling, Dove
Mountain contends that the monies are not subject to Arizona’s transaction
privilege tax “for one simple reason”―because the underlying free stays
were mere “redemptions of reward points from prior transactions on which
tax was previously paid.” With this framing, and wholly relying upon State
Tax Commission v. Consumers Market, 87 Ariz. 376 (1960), Dove Mountain
argues that: (1) the monies do not qualify as taxable income or proceeds,
and (2) imposing transaction privilege tax on the monies constitutes double
taxation.

¶8           We review the tax court’s grant of summary judgment de
novo. SWAT Training Facilities LLC v. Ariz. Dep’t of Revenue, 251 Ariz. 269,
272, ¶ 5 (App. 2021). 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).

¶9            We also review de novo the tax court’s construction and
application of statutes. Ariz. Dep’t of Revenue v. Ormond Builders, Inc., 216
Ariz. 379, 383, ¶ 15 (App. 2007). “When construing a tax statute, we give
words their plain and ordinary meaning.” SWAT Training, 251 Ariz. at 273,

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                    DOVE MOUNTAIN, et al. v. ADOR
                         Opinion of the Court

¶ 8. “If the statute is unambiguous, we apply it as written without further
analysis.” Id.

¶10           Arizona imposes an excise tax on persons and entities
engaging in business within the State under certain business classifications.
A.R.S. § 42-5008. Under A.R.S. § 42-5070(A), businesses operating hotels for
transient occupancy are subject to transaction privilege tax under the
transient lodging classification. See also A.R.S. § 42-5010(A)(2)(a).

¶11            The transaction privilege tax “is not a sales tax, but a tax on
the gross receipts of the [taxpayer’s] business activities.” SWAT Training,
251 Ariz. at 272, ¶ 6 (alteration in original) (quotation omitted). “The tax is
levied upon the business the taxpayer conducts, and ‘it is presumed that all
gross proceeds of sales and gross income derived by a person from business
activity classified under a taxable business classification comprise the tax
base for the business until the contrary is established.’” Id. (quoting A.R.S.
§ 42-5023); see also A.R.S. § 42-5070(C) (“The tax base for the transient
lodging classification is the gross proceeds of sales or gross income derived
from the business . . . .”).

¶12           Dove Mountain argues, and the Department concedes, that a
business’s offer of free goods or services to customers as a reward for their
patronage adds no gross income or proceeds to the business’s tax base. But
rather than providing free or prepaid hotel stays, the Department contends
that Dove Mountain participates in a third-party marketing program that
provides full compensation for “free” stays offered to members.

¶13            As statutorily defined, “‘gross income’ means the gross
receipts of a taxpayer derived from trade, business, commerce or sales and
the value proceeding or accruing from the sale of tangible personal
property or service, or both, and without any deduction on account of
losses.” A.R.S. § 42-5001(4). “Gross receipts,” in turn, “means the total
amount of the sale, lease or rental price . . . including any services that are
a part of the sales, value in money, whether received in money or otherwise,
. . . without any deduction from the amount on account of the cost of the
property sold, materials used, labor or service performed, interest paid,
losses or any other expense.” A.R.S. § 42-5001(7).

¶14          With these broad definitions in mind, we consider the
transactions at issue. Dove Mountain received the monies from the
Rewards Program to cover the cost of providing complimentary lodging to
members. Although the members paid no money for their “free” stays,
Dove Mountain nonetheless received the full value of the lodging. See

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                    DOVE MOUNTAIN, et al. v. ADOR
                         Opinion of the Court

A.R.S. § 42-5070(F) (defining “transient” for purposes of the transient
lodging classification as “any person who either at the person’s own
expense or at the expense of another obtains lodging space or the use of
lodging space.”). Because Dove Mountain derived the monies from a
transient lodging business transaction, they fall within the plain meaning
of “gross income” and “gross receipts,” as those terms are statutorily
defined. And, as Dove Mountain concedes, no statutory deduction permits
a hotel to deduct business expenses or losses when calculating gross income
or gross receipts.

¶15           Despite receiving full payment for the value of its
complimentary lodging to members, Dove Mountain asserts that the
monies cannot be included in its tax base because it already paid transaction
privilege taxes on the 4.5% of members’ paid lodging that it remitted to
Marriott Rewards, LLC. According to Dove Mountain, imposing
transaction privilege tax on the monies results in double taxation.1

¶16            “[D]ouble taxation is presumed not to be within the intent of
a legislative body.” US W. Commc’ns, Inc. v. City of Tucson, 198 Ariz. 515,
524, ¶ 32 (App. 2000). Double taxation occurs when “the same property or
person is taxed twice for the same purpose for the same taxing period by
the same taxing authority.” Id. at ¶ 33 (quotation omitted).

¶17           Dove Mountain relies solely on Consumers Market to support
its double taxation claim. In that case, a grocery store chain issued stamps
to customers who purchased groceries at its stores, allowing those
customers later to exchange the stamps for “free” merchandise. Consumers
Market, 87 Ariz. at 377-78. Because the grocery store chain marked-up the
price of merchandise sold in the regular course of business to cover the cost
of the “free” merchandise exchanged to redeem the stamps, and the stores
received no new revenue when the stamps were redeemed, the supreme
court characterized these retail transactions, see A.R.S. § 42-5010(A)(1)(l)
(subjecting retail transactions to the transaction privilege tax), as “a system
of advanced spending and deferred enjoyment of the fruits thereof by the
[grocery store chain]’s customers.” Consumers Market, 87 Ariz. at 377-79.
Reasoning that the price of the “free” merchandise had already been
“included in the gross sales of the business” through the increased cost of
regular goods and therefore subjected to the transaction privilege tax, and

1     At oral argument, Dove Mountain conceded that approximately a
quarter of the points earned (through members’ transactions with
Marriott’s affiliated partners) and then redeemed for complimentary
lodging are subject to the transaction privilege tax.

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                   DOVE MOUNTAIN, et al. v. ADOR
                        Opinion of the Court

considering that the grocery store chain, itself, redeemed the stamps,
distributed the free merchandise, and could trace all monies in and out of
the program as its sole administrator (a self-contained marketing scheme),
the supreme court concluded that imposing transaction privilege tax on the
value of the “free” merchandise exchanged to redeem the stamps
“amount[ed] to double taxation.” Id. at 380.

¶18           Consumers Market is readily distinguishable from this case.
Although Dove Mountain asserts that members “already paid” for their
“free stays” in “the price of [their] prior purchases,” characterizing the
program as a system of advanced purchasing for a deferred benefit
analogous to the trading stamp system in Consumers Market, it offers no
evidence to support this contention, and our review of the record reveals
none. To the contrary, the Department’s auditor, in her signed declaration,
avowed that Dove Mountain provided no “business records showing that
[its 4.5% remittance to the Rewards Program] had any effect on pricing of
rooms.” Meaning, unlike Consumers Market, no evidence supports a finding
that the members’ paid hotel stays included a built-in mark-up such that
any tax otherwise due on gross receipts from the subsequent “free stays”
had already been paid. Also, unlike the retail transaction classification at
issue in Consumers Market, the tax imposed here falls within the transient
lodging classification with the associated requirements and exemptions. See
A.R.S. § 42-5070.

¶19            Moreover, unlike the grocery store chain in Consumers Market,
which essentially retired debts by redeeming its customers’ stamps, here,
Dove Mountain received additional compensation for providing
complimentary lodging to members. Had Dove Mountain provided the free
accommodation and not sought payment from Marriott Rewards, LLC,
there would have been no additional gross receipts to tax. But the Rewards
Program has an “intermediary structure”―Dove Mountain pays a premium
to belong to the Rewards Program and provides the free stays, and Marriott
Rewards, LLC redeems the points and compensates the hotel for
complimentary lodging.

¶20           Notably, Dove Mountain admits that it remitted 4.5% of the
revenue from members’ paid hotel stays to Marriott Rewards, LLC to pay
for a “marketing program.” Throughout its briefing, Dove Mountain
likewise acknowledges that at least some of its remittance to Marriott
Rewards, LLC paid for “marketing and administrative costs.” But Dove
Mountain fails to quantify what portion of its 4.5% remittance, if any,
remains after subtracting marketing and administrative costs.

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                    DOVE MOUNTAIN, et al. v. ADOR
                         Opinion of the Court

¶21           The Dissent equates Dove Mountain’s 4.5% remittance to the
Rewards Program with reserves or savings. But this framing does not
square with Dove Mountain’s concession that the monies it receives from
the Rewards Program above its 4.5% remittance―compensation for free
stays in excess of the annual Rewards Program premium―is taxable
income. The converse is also true, when a Marriott-branded hotel does not
provide enough complimentary stays in a given year to receive
compensation equal to its Rewards Program remittance, it is not entitled to
reimbursement for excess payment. To be clear, Dove Mountain’s
remittance to the Rewards Program is just that, payment for membership
in the Marriott Rewards Program. Compensation from the Rewards
Program for extending complimentary stays to members is a benefit of the
program and part of the Marriott-branded hotels’ gross receipts for
transaction privilege tax purposes.

¶22           Simply put, Dove Mountain has failed to demonstrate that the
monies it received from Marriott Rewards, LLC to compensate for the cost
of members’ complimentary lodging were already subjected to the
transactional privilege tax. In other words, on this record, there is no basis
to conclude that members prepaid for their complimentary hotel stays
through built-in mark-ups that were already taxed. Accordingly, we
conclude the superior court did not err by granting summary judgment in
favor of the Department.

                              CONCLUSION

¶23           For the foregoing reasons, we affirm.

F U R U Y A, Judge, dissenting:

¶24           In my view, this case turns on the character of the funds the
Rewards Program distributes out to Dove Mountain, specifically, whether
those funds are new income or rather a disbursement of post-tax reserves
that happen to be administered by a third party. Because I see the funds in
question as equivalent to post-tax reserves that are held and released by the
Rewards Program for future use—and therefore not new income that
would be subject to additional taxation—I respectfully dissent.

                                      7
                   DOVE MOUNTAIN, et al. v. ADOR
                       FURUYA, J., dissenting

  I.   The Rewards Program’s Disbursements to Dove Mountain Are
       Not New Income, But Equivalent to Reserves.

¶25           The majority opinion concludes the funds disbursed to Dove
Mountain on a reimbursement claim are entirely new income. If this
conclusion is taken as given, then all money Dove Mountain receives from
the Rewards Program qualifies as “gross receipts,” and the majority
opinion’s analysis and conclusion must follow. But I do not agree with this
premise.

¶26           While unquestionably broad, the definition of “gross
receipts” does not include reserves, savings, or other post-tax, pre-paid
funds that are later accessed or recouped at some future point to cover costs
experienced at that time. See A.R.S. § 42-5001(7). Thus, if the disbursements
Dove Mountain receives out of the Rewards Program are not new
consideration, but instead are a release of amounts contributed previously
by Dove Mountain—being merely held by the Rewards Program for Dove
Mountain’s future use—then those funds are more properly characterized
as equivalent to reserves or savings, not new income.

¶27           Here, the record indicates the disbursed funds at issue are
entirely constituted from post-tax hotel revenues from prior member stays.
The evidence establishes that Dove Mountain, like other Marriott-branded
hotels, reserves 4.5% of such post-tax revenue and remits it to the Rewards
Program. The Rewards Program aggregates all such contributions from
participating hotels, like Dove Mountain, and holds these funds, using a
portion for administration and marketing expenses. The remainder is used
to reimburse participating hotels, Dove Mountain included, when they
make claims for disbursement after they provide free stays to Rewards
Program members. Because the source of the funds is from post-tax hotel
revenues, I see them as more accurately treated as reserves or savings that
Dove Mountain and other participating hotels store with the Rewards
Program for deferred receipt and use. Thus, I do not agree the funds Dove
Mountain receives from the Rewards Program to cover free stays are
“income” under A.R.S. §§ 42-5070 and -5001(4), (7), and I would reverse the
superior court’s grant of summary judgment to the Department.

 II.   Dove Mountain’s Reimbursements from the Rewards Program
       Are Not Sales.

¶28          The majority opinion concludes the money Dove Mountain
receives from the Rewards Program qualifies as “gross receipts” because it
views these remittances as payment for Rewards Program members’ free

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                   DOVE MOUNTAIN, et al. v. ADOR
                       FURUYA, J., dissenting

stays. The majority opinion essentially treats the Rewards Program as a
third-party payer that covers members’ stays as new sales transactions. But
this conclusion disregards the evidence showing the Rewards Program is
using the participating hotels’ own, post-tax money to cover the
disbursement requests. In my view, unless reason exists to support
transmutation of the post-tax reserves into separate assets sufficient to
make the disbursements new income, they retain their original character
and cannot qualify as “gross receipts” from new sales.

III.   Use of Post-Tax Contributions Held by the Rewards Program for
       Marketing Purposes Does Not Transmute Them into New
       Consideration.

¶29           The majority opinion reasons that the money Dove Mountain
receives from the Rewards Program is includable within Dove Mountain’s
tax base as “gross income” because Dove Mountain’s remittances are really
payment for marketing services. The majority opinion equates Dove
Mountain’s tax refund request to a request for an exemption for marketing
expenses. But I do not believe the evidence supports such a conclusion.

¶30            It is undisputed that Dove Mountain’s remittances do, to
some extent, cover marketing costs the Rewards Program undertakes for
Dove Mountain’s benefit, among others. Further, Dove Mountain’s counsel
stated during oral argument that, based upon the points that members earn
by means other than via hotel stays, such marketing costs were limited to
approximately 24% of participating hotels’ contributions. Dove Mountain’s
counsel also conceded that this 24% could be excluded from its tax refund
request. And the record establishes that the remaining 76% of the hotels’
contributions are held to cover disbursement requests by participating
hotels for free stays.

¶31           Certainly, the 24% portion of the contributions could be
considered payment for marketing services. But the majority opinion does
not explain how or why mere use of this limited part of the contributions
for marketing costs causes the remaining 76% to lose their character as post-
tax reserves. Again, the evidence shows all funds the Rewards Program
remits to Dove Mountain originate as post-tax revenues the Rewards
Program received from participating hotels for member stays. No evidence
was provided suggesting the Rewards Program has any other source of
income. Thus, 100% of the funds that the Rewards Program uses for all its
activities—administration, marketing, and disbursements to participating
hotels to cover free stays—are paid exclusively out of these contributions.

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                   DOVE MOUNTAIN, et al. v. ADOR
                       FURUYA, J., dissenting

¶32          I do not agree that using part of the post-tax reserves for
marketing and administration purposes is sufficient to transmute the
remaining part into new, non-post-tax income. Whatever else the Rewards
Program may do with Dove Mountain’s contributions is not germane to the
nature and character of the remaining funds as post-tax reserves. And I can
discern nothing in the record or from counsels’ statements at oral argument
indicating that Dove Mountain’s contributions are transmuted into new
consideration sufficient to qualify as “gross income.”

IV.   Use of a Third-Party Intermediary Does Not Transmute Post-Tax
      Contributions Held by the Rewards Program into New
      Consideration.

¶33            The Department argues that because the Rewards Program is
a third-party vendor, the disbursements it makes to Dove Mountain upon
a claim when points are redeemed for “free” stays are new consideration,
thereby creating revenue that must be included in Dove Mountain’s “gross
receipts” for calculating its “gross income” for transaction privilege tax
(“TPT”) purposes. The majority opinion similarly notes that the
relationship between Dove Mountain and the Rewards Program creates an
“intermediary structure” which requires the conclusion that the payments
from the Rewards Program to Dove Mountain are “compensat[ion]” for
“free” stays, rather than disbursements from fund reserves upon requests
by the contributing hotels. But in my opinion, mere use of an “intermediary
structure” to hold one’s reserves for later distribution cannot be sufficient
to change the nature and character of the reserves into non-reserves.
Individuals and businesses commonly use third parties as holding entities
in financial transactions. Indeed, the entire banking industry functions in
this manner.

¶34           Here, it is undisputed that Dove Mountain, as with other
participating hotels, provides the relevant premium in the form of “free”
stays for those customers who are also Rewards Program members. Dove
Mountain pre-pays the costs of providing this premium by sequestering
post-TPT revenue within the Rewards Program and then reclaiming funds
from the Rewards Program after redemption by members occurs. Further,
Dove Mountain has limited its tax refund claim to the amount of its own
contributions to the Rewards Program within a given tax period, minus
24% as conceded by Dove Mountain’s counsel at oral argument. Therefore,
the money Dove Mountain receives from the Rewards Program that it seeks
to exclude from its “gross receipts” is equivalent to a maximum of 76% of
its own remittances to the Rewards Program, all of which are composed of
post-TPT revenues from hotel stays by paying Rewards Program members.

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                    DOVE MOUNTAIN, et al. v. ADOR
                        FURUYA, J., dissenting

Taxing disbursements which match Dove Mountain’s contributions to the
Rewards Program—again, contributions taken from income that has
already been taxed under A.R.S. § 42-5070—is akin to taxing a business’s
withdrawal of funds within a savings account that it set aside for a future
anticipated use under the pretense that such withdrawal was
independently and newly realized “income.” I do not agree that the
legislature intended such a result.

 V.    Consumers Market is Not Meaningfully Distinguishable and
       Remains Controlling Authority in this Case.

¶35          Further, I disagree with the majority opinion’s conclusion that
Consumers Market, our supreme court’s controlling precedent on the issue
of TPT and loyalty programs, is materially distinguishable from this case.

¶36            Here, as in Consumers Market, when Rewards Program
members pay for rooms at Dove Mountain, Dove Mountain pays TPT on
the revenue in question. See State Tax Comm’n v. Consumers Mkt., 87 Ariz.
376, 378 (1960). Those customers receive points in the Rewards Program.
And like patrons in Consumers Market, who received “free” groceries by
redeeming stamps, a Rewards Program member’s points may be redeemed
at Dove Mountain for “free” hotel stays, among other things. Id. at 379–80.
As in Consumers Market, Dove Mountain—albeit together with other
participating Marriott-branded hotels—must bear the expense of funding
the Rewards Program itself, both by honoring member claims for “free”
stays, as well as providing contributions out of its post-tax income received
from paid member stays. Id.

¶37             The majority opinion distinguishes Consumers Market by
pointing to several factual differences, none of which I find controlling.
First, the majority opinion observes that the record is devoid of evidence
that Dove Mountain increased the prices of their hotel rooms to cover the
later-incurred costs of “free” lodging provided in exchange for points
redemption. This is accurate. Instead, Dove Mountain reserves a portion of
its post-tax revenue to cover the costs of providing that premium and
further to pay for marketing the Rewards Program. But as discussed above,
I do not see how this distinction operates to change the character of the
funds used to cover the premiums Dove Mountain and other participating
hotels provide. As I see it, the difference between up-charging product to
pay for premiums, as in Consumers Market, and impounding a portion of
post-tax revenues as reserves to pay for premiums, as Dove Mountain does
in this case, is not critical to the analysis in Consumers Market. The critical
fact is that funds used to cover the costs of providing customers’ premiums

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                    DOVE MOUNTAIN, et al. v. ADOR
                        FURUYA, J., dissenting

through their respective loyalty programs have already been subjected to
taxation. Id.

¶38            Second, the majority opinion argues TPT was assessed under
a different classification in Consumers Market (there, the retail classification,
and here, the transient lodging classification). But classification has no
bearing on Consumers Market’s applicability here. Both cases involve the
assessment of TPT governed by A.R.S. § 42-5008(A). This provision states
that the purpose of TPT is to impose taxes “measured by the amount or
volume of business transacted by persons on account of their business
activities, and in the amounts to be determined by the application of rates
against values, gross proceeds of sales or gross income.” Id. The TPT
statutes make no distinction across classifications other than to explain
which business activities are subject to the tax. Thus, I disagree that the
difference in classifications provides a substantive analytical distinction
between Consumers Market and this case.

¶39          Third, the majority opinion concludes Consumers Market is
distinguishable because of an “intermediary structure” in the relationship
between Dove Mountain and the Rewards Program. This position is akin to
the Department’s argument that Consumers Market is distinguishable
because the Rewards Program is a “third-party” vendor, thereby making
its payments to Dove Mountain separate revenues that are a part of Dove
Mountain’s “gross income.” But I do not believe the evidence supports this
distinction.

¶40           Under a true third-party vendor relationship, the
participating vendee does not itself pay for, or otherwise incur the costs of,
providing the premiums that customers receive upon redemption of points.
See State Tax Comm’n v. Ryan-Evans Drug Stores, 89 Ariz. 18, 21–22 (1960)
(explaining that marketing company was a third-party vendor because
participating taxpayer-retailer did not itself provide premiums and only
provided its customers with a claim against the marketing company who
then redeemed the claim). By contrast, Dove Mountain itself, not the
Rewards Program, provides the relevant premium, “free” stays at Dove
Mountain.

¶41           Further, any concerns that the Rewards Program does not
record Dove Mountain’s contributions as part of a segregated account or
that members’ points may be earned outside of Arizona—and therefore are
not subject to the lodging TPT—are also resolved by the fact that Dove
Mountain limits its claim for a tax refund here to the amount of
contributions it made to the Rewards Program. Though self-imposed, this

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                    DOVE MOUNTAIN, et al. v. ADOR
                        FURUYA, J., dissenting

limitation ensures the value of the points redeemed for “free” hotel stays at
Dove Mountain will be taxed to the extent they exceed Dove Mountain’s
contributions for paid member stays—the value of which has already been
subjected to Arizona’s TPT statute at the point of purchase. This limitation
both resolves any concern that applying Consumers Market will thwart
Arizona’s TPT requirements and clarifies that to hold otherwise would be
to subject Dove Mountain to double taxation.

¶42            Given the limited claim at issue here and the character of
Dove Mountain’s contributions and the subsequent remittances back to
Dove Mountain after a claim, the Rewards Program effectively acts as a
repository of post-TPT revenues that are later accessed by Dove Mountain
to offset the cost of providing members “free” stays upon their redemption
of points. When limited exclusively to amounts less than what Dove
Mountain contributes to the Rewards Program, this mechanism functions
much as a company might use a bank to impound revenues in a
contingency account to pay future costs. Because use of such a system does
not impact Consumers Market’s substantive analysis, I do not view it as
sufficient to distinguish Consumers Market from governing this case.

¶43            The Department further argues Consumers Market is
distinguishable from this case because members can gain Rewards Program
points from third parties independent of Dove Mountain and may also
redeem those points from such independent third parties. The Department
suggests that because third parties are involved in the Rewards Program,
Dove Mountain is not a “self-redeemer” of Rewards Program points, and
the Rewards Program itself is simply a third-party vendor “purchasing”
stays from Dove Mountain to redeem member points. But the involvement
of third parties, without more, does not provide a meaningful distinction.

¶44            Consumers Market’s holding turns on how the taxpayer-grocer
used revenues upon which it had already paid TPT to fund its marketing
program, including both administration and the cost of groceries that were
later redeemed by customers as a premium. Consumers Mkt., 87 Ariz. at 379
(“[T]he ‘consideration’ referred to in the [TPT statute] has already been paid
by plaintiff’s customers.”). Because the taxpayer had built its marketing
program’s costs into its customers’ initial grocery purchases, its customers
had pre-paid for the premiums they redeemed later. Id. Only one taxable
transaction took place, occurring at the initial purchase. Id. Consumers
Market observed that later redemptions were not “sales” that could be
counted towards the taxpayers’ “gross income,” and imposing TPT upon
the redemption transaction would constitute impermissible double
taxation. Id. at 379–80.

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                   DOVE MOUNTAIN, et al. v. ADOR
                       FURUYA, J., dissenting

¶45           The critical analysis in Consumers Market centers on whether
the taxpayer itself provides the premium for its members to redeem and
how that taxpayer covers the costs of providing those premiums. Id. Where
a taxpayer uses revenues that have already been subject to TPT to cover
costs incurred in self-furnishing premiums under a marketing program,
this use of post-TPT revenues is not a second, independent realization of
gross income derived from that taxpayer’s business upon which the
Department may impose additional levies of TPT. Id.

¶46           Here, regardless of where or how members earned their
points, or where or how else they may redeem them, Dove Mountain must
permit members to redeem those points by providing “free” lodging at
Dove Mountain. This appeal concerns only the taxpayer, Dove Mountain.
It does not concern the impact to or upon the taxpayer’s customers. The
focus of analysis must be solely limited to the taxpayer’s receipt of money
to cover the costs of the premiums it offers under its loyalty program. Thus,
where Dove Mountain itself provides the premium at issue,
notwithstanding what other premiums might be available to members from
third parties, other benefits Dove Mountain’s customers may receive are
irrelevant. Relevant here is that all money claimed and received by Dove
Mountain to cover the costs of the “free” stays it must provide to members
upon redemption of points has already been subjected to TPT. This remains
true regardless of wherever or however else members redeem points, and
regardless of what other Marriott-branded hotels are also contributing post-
TPT funds to the Rewards Program to pay for premiums.

¶47            Under these undisputed facts, I would hold that Consumers
Market controls and the redemption transaction of exchanging Rewards
Program points for “free” stays at Dove Mountain—together with the later
claims for disbursement to cover the costs of those stays—is simply a
“system of advanced spending and deferred enjoyment of the fruits
thereof,” and is not subject to a separate levy of TPT. Consumers Mkt., 87
Ariz. at 379. That Rewards Program members can earn and redeem points
through a variety of transactions, with a variety of vendors that do not
involve Dove Mountain does not change the analysis relevant to this
appeal.

VI.   The City of Marana Tax Code Does Not Authorize Imposition of
      TPT Against the Amounts at Issue.

¶48         Finally, because I would hold that the Rewards Program
reimbursements are not subject to State TPT, I would similarly hold that
those payments are not subject to TPT under the Model City Tax Code as

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                  DOVE MOUNTAIN, et al. v. ADOR
                      FURUYA, J., dissenting

imposed by the City of Marana. Like A.R.S. § 42-5070, the Model City Tax
Code levies TPT on revenues from hotel operation and measures the
amount of TPT owed from the business’s gross income resulting from its
business activity. Model City Tax Code §§ 400(a)(1), 444.

¶49             Because I would conclude that the Rewards Program
payments are not taxable income, but rather Dove Mountain’s self-
redemption of loyalty program points, those disbursements cannot be
subject to TPT under the Model City Tax Code. To do so would, like under
state statute, result in impermissible double taxation.

VII.   Dissent Conclusion

¶50         For these reasons, I would reverse the superior court’s grant
of summary judgment. Therefore, I respectfully dissent.

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

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