The Arizona Supreme Court decided a case in March of 2011, City of Peoria/Phoenix v. Brinks Home Security, Inc. (CV-10-0218-PR), in which the cities of Phoenix and Peoria levied municipal taxes upon a home-security monitoring company’s services, part of which included telecommunications. Arizona’s tax laws (A.R.S. § 42-6004(A)(2)) specifically prohibit municipalities from taxing interstate telecommunications, but do not prohibit municipalities from taxing intrastate telecommunications.
In the case, the central question was whether a series of interstate telecommunications may be aggregated so as to characterize the series as one single telecommunication. In general, the series at issue was as follows: an alarm was triggered in Arizona, the alarm system transmitted data to the home-security monitoring company’s facility in Texas, those at the facility attempted to contact the customer in Arizona and then contacted emergency services in Arizona if unable to contact the customer.
Lawyers for the cities of Phoenix and Peoria contended, and the court of appeals agreed, that such a series of telecommunications was essentially one single intrastate telecommunication, despite intermediaries in Texas, because the telecommunications began and ended in Arizona. As such, both cities asserted that they could levy taxes upon the telecommunications. However, the Supreme Court did not agree. The court reasoned that the series of telecommunications are “separate transmissions that relay different information.”
Although the Supreme Court ruled that the telecommunications couldn’t be aggregated, it remanded the case to the Court of Appeals to determine whether the telecommunications were monitoring services, which the cities argued, are not exempt from municipal taxes even if interstate.
Douglas K. Cook is a board certified tax lawyer in Mesa, Arizona handling business, estate planning, real estate, and other tax law-related matters.
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