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Saban Rent-A Car LLC v. Ariz. Dep’t of Revenue - 3/13/2018

Arizona Court of Appeals Division One holds that the tax on rental car businesses that funds the Arizona Tourism and Sports Authority is valid under Article IX, § 14 of the Arizona Constitution and the dormant Commerce Clause implied by the United States Constitution.


Pursuant to legislative authorization, Maricopa County voters approved a tax on car-rental businesses to fund the Arizona Tourism and Sports Authority (AzSTA).  A class of car-rental companies sued AzSTA and the Arizona Department of Revenue to recover their tax payments.  The companies argued that the tax violated the requirement in Article IX, § 14 of the Arizona Constitution that “moneys derived from fees, excises, or license taxes relating to registration, operation, or use of vehicles on the public highways or streets” must be expended for “highway and street purposes.”  The companies also argued that the tax violated the dormant Commerce Clause implied by the United States Constitution.  The superior court held that the tax did not violate the dormant Commerce Clause, but was invalid under Article IX, § 14.  Defendants appealed and the companies cross-appealed.

The Court of Appeals held that the tax was valid.

First, the Court held that the tax, which is levied on the gross proceeds of rental car businesses, was too far removed from vehicle registration or use to come within the meaning of Article IX, § 14.  The Court rejected the companies’ broad interpretation of “relating to” because it would render other phrases in Article IX, § 14 superfluous and was contrary to the purpose of Article IX, § 14 and the representations made to the voters who adopted it by referendum.  

Second, the Court held that the tax did not offend the dormant Commerce Clause.  The Court reasoned that although most of the tax was borne by non-Arizona residents, it treated similarly situated residents and non-residents alike.  The Court also concluded that there was insufficient evidence that the tax, which was enacted to promote tourism, was intended to discriminate against interstate commerce.

The Court therefore directed that judgment be entered in favor of defendants.

Judge Johnsen delivered the opinion of the Court; Judges Winthrop and Cruz joined.

Posted by: Josh Bendor

Disclosure: Osborn Maledon attorneys were involved with this case.



Posted On: 3/15/2018