The decision by a three-judge panel of the appellate court overturns a state Tax Court judge’s ruling that the surcharge violates the Arizona Constitution and that car-rental companies are entitled to refunds.
The companies’ attorneys argued that a constitutional provision on use of transportation money allows surcharge revenue to be used only for road maintenance and construction, but the Court of Appeals decision said voters who approved the constitutional provision “did not intend to encompass every tax or fee in any way ‘relating to’ vehicles.”
Instead, the decision added, the restriction is triggered by the “the legal operation or use of a vehicle on a public thoroughfare,” Judge Diane Johnsen wrote for the panel.
Shawn Aiken, an attorney for the car-rental companies, didn’t immediately return a call seeking comment on the appeal court’s ruling.
Aiken previously estimated the amount of potential refunds at stake at $150 million plus interest. He had said the companies wouldn’t pass any refunds to customers who paid the tax because legally the companies were the taxpayers.
The appeals court previously denied two other challenges to the car-rental tax surcharge, including one filed on behalf of a car-rental customer. The court said in a 2007 ruling that the customer lacked standing to challenge the surcharge because it is imposed on car-rental companies, not their customers.
The auto-rental surcharge partially funds the Arizona Sports and Tourism Authority, providing approximately $14.1 million of the $54.8 million of revenue projected for the current fiscal year.
The public agency uses the money to help pay off bonds for the University of Phoenix stadium where the Arizona Cardinals play, along with baseball spring training venues and youth sports facilities.
The rest of the authority’s revenue comes from a hotel bed tax and payments for facilities usage.
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