Court Opinion

ID: 9788473
Source: CourtListenerOpinion
Date Created: 2023-08-31 00:54:56.576849+00
Date Added: 2024-06-11T07:37:09.995048
License: Public Domain

FIDEL, Presiding Judge,
dissenting.
¶ 24 My colleagues acknowledge the proposition that a regulatory agency must follow its own rules and regulations. Ante ¶ 18. That proposition, if applied, not merely acknowledged, would bring a swift and simple end to this unnecessarily complicated case.
¶25 The majority quotes the applicable regulations in footnote 2 to its opinion. The regulations are remarkably clear, not only when compared "with other tax regulations but when compared with other regulations of any sort. R15-5-2306 informs the public that sales taxes (which, the court and parties agree, include transaction privilege taxes) and use taxes are meant to be complementary and that the former are imposed on sales by in-state vendors, while the latter are levied on purchases from out-of-state vendors. In keeping with this complementary intent, R15-5-2307 provides that “[s]ales made by vendors maintaining a place of business within Arizona are subject to the Sales Tax,” and R15-5-2308 provides that “[p]urchases made from vendors not maintaining a place of business in this state [by] Arizona customers are subject to the Use Tax.” These regulations were drafted in harmony, and there is nothing ambiguous about them. Because Care Computer Systems does not maintain a place of business within Arizona, ADOR, had it followed its own regulations, would have subjected Care’s transactions with Arizona customers to a use tax, not a sales tax.
¶ 26 But, says the majority, “the vendor’s place of business is an overly simplistic test in light of current Commerce Clause jurisprudence regarding [sales] taxation.” Ante ¶ 19. In other words, ADOR is not constitutionally obliged to confine its sales taxing authority to vendors who maintain a place of business within Arizona; rather, it has constitutional leeway under current jurisprudence to impose sales taxes upon vendors who do not maintain a place of business within Arizona. Accordingly, the majority reasons, whatever regulations needlessly confine sales taxing authority so narrowly may be ignored.
¶27 By taking this approach, my colleagues achieve a curious result. They effectively invalidate R15-5-2306, -2307, and - 2308 for taxing too narrowly — for failing to tax sales to the full extent that the Commerce Clause permits. This is curious because it reverses ordinary constitutional analysis. Ordinarily when courts find a statute or regulation incompatible with the Constitution, they find that it exceeds constitutional constraints. Here the opposite pertains; my colleagues render ADOR’s sales tax regulations inoperative because they bite off less than ADOR is constitutionally permitted to chew.
¶ 28 I disagree with this approach. That ADOR might have adopted more comprehensive sales tax regulations is beside the point. The immediate question is not whether ADOR might constitutionally adopt broader regulations but whether ADOR must follow the narrower regulations that it has adopted and has not seen fit to change.
¶ 29 There are good reasons why Arizona law requires administrative agencies to follow their own rules and regulations. Our Administrative Procedure Act (“APA”) not only requires the publication of existing agency rules and regulations, see A.R.S. §§ 41-1011, -1012, but also the publication of a monthly register concerning “proposed repeals, makings or amendments of rules.” A.R.S. § 41-1013 (1999). The APA provides for public notice and comment before the adoption or amendment of agency rules. See A.R.S. §§ 41-1021 through -1036 (1999). The APA also requires the filing of an “economic, small business and consumer impact statement,” A.R.S. §§ 41-1055 (1999) and 41-1056(A)(6) (Supp.1999) and screening by a governor’s regulatory review council before a proposed regulation takes effect. See A.R.S. § 41-1051 (Supp.1999); A.R.S. §§ 41-1052 through -1053 (1999). Explaining this process, this court stated, “APA rulemaking re*421quires public notice, and the opportunity for public participation and comment, to ensure that those affected by a rule have adequate notice of the agency’s proposed procedures and the opportunity for input into the consideration of those procedures.” Carondelet Health Svcs., Inc. v. Arizona Health Care Cost Containment System Admin., 182 Ariz. 221, 226, 895 P.2d 133, 138 (1994).
¶ 30 Through publication of current rules and notice of amendments, an agency not only permits members of the public to comment on impending changes, but also to consult the evolving body of rules and regulations, determine the agency’s approach to circumstances that its rules and regulations define, and order their affairs accordingly. And the purpose of permitting the public to order its affairs in accordance with published regulations is particularly keen for tax regulations that govern commercial transactions. When the parties to commercial transactions factor likely taxes into pricing decisions, they should do so in the confidence that the taxing authority will tax as its published regulations say it will tax, and not as it might tax under a different, unproposed, unapproved, and unadopted regulatory scheme.
¶ 31 In consequence, I see no need to embark on the quest for elusive nexus to resolve this case. On the far simpler ground that ADOR has failed to follow its own regulations, I would affirm. Because my colleagues have opened the subject of nexus, however, I will make one further point.
¶32 Whatever the substantive validity of Commerce Clause ease jurisprudence before Complete Auto, the law then had the virtue of clarity. The earlier case law imposed a “blanket prohibition against any state taxation imposed directly on an interstate transaction.” Ante ¶ 7. In Complete Auto, however, the Court made “substantial nexus” the touchstone of taxation of interstate transactions. And in Tyler Pipe, the Court defined “sufficient nexus” to include those activities “significantly associated with the taxpayer’s ability to establish and maintain a market in [the taxing] state for the sales.” Ante ¶ 8 (quoting Tyler Pipe, 483 U.S. at 250, 107 S.Ct. 2810).
¶ 33 I do not hold the majority responsible for the Tyler Pipe standard. They are stuck with it as are we all. To apply that standard to these facts and those of O’Connor, however, shows it to add bulk without nourishment to the law. What, other than ad hoe pronouncement, distinguishes an activity significantly associated with the taxpayer’s ability to establish and maintain a sales market from an activity not significantly associated with that ability? One is hard pressed to say. The best the court can do is conclude by comparative analysis that, if the attenuated circumstances of O’Connor meet that standard, so must the equally attenuated circumstances of this case. And so, validating the taxation of one attenuated transaction after another after another, the courts erode the general standard of substantial nexus into something very insubstantial indeed.
¶ 34 “Substantial nexus” is a swamp we should stay out of in this case. If ADOR amends its regulations to detach sales taxes from the terra firma of the vendor’s place of business, there will be time enough to gauge nexus. Until then, we should hold ADOR to regulations on the books.
¶ 35 For the foregoing reasons, I respectfully dissent.