Peoria v. Brink’s Home Security, Inc – 4/29/2010

May 10, 2010

Arizona Court of Appeals Division One Holds That The Cities of Phoenix and Peoria May Impose Transaction Privilege Taxes on the Income Received From a Home Security Monitoring Company Pursuant to Phoenix City Code § 14-470(a)(2)(D) and Peoria City Code § 12-470(a)(2)(D).

Brink’s Home Security, Inc. (“Taxpayer”) provides alarm monitoring systems.  In addition to installing hone security devices, Taxpayer monitors the alarm systems it installs for a monthly fee.  When an alarm in one of Taxpayer’s customers’ homes is triggered, and the customer does not disarmed within an allotted period of time, a message is sent via telephone lines to a central monitoring station in Texas.  An individual at the monitoring station then calls the customer and/or the local police department.  Taxpayer’s customers in Phoenix and Peoria pay a flat monitoring fee for the service provided; Taxpayer does not pay transaction privilege tax based on the gross income earned from these service charges.  The Cities of Phoenix and Peoria (the “Cities”) assessed transaction privilege taxes on Taxpayer pursuant to Phoenix City Code § 14-470(a)(2)(D) and Peoria City Code § 12-470(a)(2)(D).  Taxpayer protested and a hearing officer resolved the protest in Taxpayer’s favor, concluding that A.R.S. § 42-6004(A)(2) precludes taxation.  The Cities appealed on the merits to the Arizona Tax Court and Taxpayer appealed the denial of its attorneys’ fees.  The parties filed cross-motions for summary judgment.  The tax court granted summary judgment to the Cities and upheld the denial of fees to Taxpayer.   The taxpayer then time appealed. 

The Arizona Appeals Court affirmed.  Phoenix City Code § 14-470(a)(2)(D) and Peoria City Code § 12-470(a)(2)(D) both permit taxation of the gross income from the business of providing telecommunications services within the Cities, which includes charges for monitoring services relating to a security or burglar alarm city located within the Cities.  Taxpayer argues that under A.R.S. § 42-6004(A)(2), which precludes taxation on interstate telecommunications, taxation is precluded because its service is made up of three separate interstate telecommunication transmissions: Arizona to Texas, Texas to Arizona (to customer) and Texas to Arizona (to police).   Judge Barker, writing for the majority, reasoned that because the transmission of information from Taxpayer’s monitoring services begins and ends in Arizona, these communications are intrastate, not interstate, and therefore are taxable.  The majority relied on the definition of “telecommunications service” included in Phoenix City Code § 14-100 and Peoria City Code § 12-100, both of which refer to a communications channel or “any combination of communications channels” to support its finding that Taxpayer’s service is a service loop that begins and ends in Arizona.  The majority further held that the tax does not violate the Commerce Clause, applying the Goldberg v. Sweet test.   

Judge Johnsen wrote in dissent, arguing that she would reverse the tax court and hold that the imposition of transaction privilege taxes by the Cities on Taxpayer’s income from customers in Phoenix and Peoria violates A.R.S. § 42-6004(A)(2).  Judge Johnsen concluded that Taxpayer’s service is made up of three separate, interstate telecommunications transmissions, thereby precluding taxation.  

Judge Barker authored the opinion, Judge Portley concurred, and Judge Johnsen dissented.