Car rental company sues state over football stadium tax
PHOENIX -- Arizona is facing yet another challenge over a 2005 law imposing a tax on car rental companies to help pay for the Cardinals football stadium.
Attorneys for Enterprise Leasing Co. of Phoenix and Vanguard Car Rental claim the levy is structured in a way that discriminates against residents of other states visiting Arizona who have to rent a car here. They said that runs afoul of federal constitutional provisions on interstate commerce.
They also charge that using the proceeds of a tax on rental cars runs afoul of a provision of the Arizona Constitution which says levies on the operation of motor vehicles can be used only for roads and highways.
Amy Rezzonico, spokeswoman for the state Attorney General's Office said her lawyers have not yet seen this lawsuit.
But she noted the state is fighting a similar claim filed by another car rental company in 2010. And Rezzonico said her office believes the levy is legal.
At the heart of the fight are actually two separate levies.
One is a 3.5 percent tax on car rentals; the other is a 1 percent tax on hotel rooms.
Both are a direct result of demands by Cardinals owner Bill Bidwill for a place for the football team other than Sun Devil Stadium at Arizona State University in Tempe. Bidwill threatened to move unless taxpayers financed a stadium ? one where he would control more revenue.
In 1999, Mesa voters rejected a sales tax increase to finance a stadium. Then-Gov. Jane Hull created a task force to find a way to build a stadium.
Hull specifically told task force members to develop a mechanism to "minimize impact on the average citizen.'
The plan they adopted requires the Cardinals to invest $85 million -- about a quarter of the construction costs -- with another $10 million from the Fiesta Bowl organization. The $274 million balance, according to the authority documents, comes "not from ordinary Arizona citizens but from out-of-state visitors who rent hotel rooms and cars.'
But it wasn't even that simple.
The levy on those who rent a car in Maricopa County was set at 3.5 percent, or $2.50, whichever is greater. But there was an exception: Anyone who got a car as a "temporary replacement vehicle would be subject solely to the $2.50 levy. And repair shops that provided a rental vehicle would owe nothing.
A 2005 challenge to the levy filed by a couple of visitors from Michigan was thrown out of court.
The Arizona Court of Appeals acknowledged the two men did have to pay more on their car rental and hotel bills.
But the judges pointed out that Arizona lawmakers crafted this levy -- like others already on the books --not as a "sales tax' but instead as a "transaction privilege tax.' And that, technically, is a tax paid by the businesses.
What that means, they concluded, is that only the businesses affected have legal standing to challenge the legality of the levy, something they have not done. And Judge Maurice Portley, writing for the court, said the fact that businesses routinely pass on the cost to customers is legally irrelevant.
That resulted first in the 2010 lawsuit by Saban Rent-A-Car and now the new one by Enterprise and Vanguard.
But it also resulted in a curious side effect.
"The rental car companies, our clients, will keep the refund because the Court of Appeals held that the taxpayer was the rental company, not the customer,' said attorney Shawn Aiken, who represents Saban. The question of whether the tax was passed along to customers then become irrelevant.
Both lawsuits are based on a provision in the U.S. Constitution that says only Congress can regulate interstate commerce.
"This power implies a 'negative' converse, known as the dormant Commerce Clause, which prevents the states from impeding the free flow of goods and commerce from one state to another,' they wrote. And that, they argue, prohibits "protectionist' state regulations that benefit in-state interests by burdening out-of-state competitors.
"Here the taxes violate the dormant Commerce Clause, discriminating against interstate commerce by favoring Arizona residents over out-of-state residents,' the lawsuit claims.
The lawyers point out that preference is clear in the law because it contains an exemption available only to Arizona residents. And they cited the motivation of those who crafted the levy that was to shift the financial burden of the stadium from Arizonans to those from elsewhere.
In defending the levy, attorneys for the state have argued it is simply a levy based on each car rental firm's business of leasing or renting motor vehicles designed to operate on Arizona streets. "As such, the Arizona Sports and Tourism Authority tax does not apply to any interstate transaction.'
They also cite that earlier appellate court ruling which says the tax is on the rental car companies and not on the customers, whether from Arizona or elsewhere. That, they argued, means that, at least from the perspective of the rental firms, there is no discrimination.
Funds from the levy, which runs through March 2031, pay not only for the stadium but also provide cash for tourism promotion, spring training facilities in Maricopa County as well as youth and amateur sports leagues.