Detailed Arizona Development
The Arizona Supreme Court recently held that “trip fees” imposed by the City of Phoenix on commercial ground transportation providers transporting passengers to and from the Phoenix Airport did not violate a new provision in Arizona’s constitution. In 2018, Section 25 of the Arizona Constitution was amended to prohibit the state or its political subdivisions from imposing or increasing any sales tax, transaction privilege tax, luxury tax, excise tax, use tax, or any other transaction-based tax or fee on gross receipts of sales or gross income derived from any service performed in Arizona. The City of Phoenix imposed a “trip fee” on providers before the 2018 law change, but it adopted an ordinance in 2019 that adjusted the amount of passenger pick-up fees and imposed new trip fees on such providers. Prior to the 2019 ordinance taking effect, the Attorney General was asked to address whether the ordinance violated Section 25 of the state constitution. The Attorney General determined that the ordinance “may” violate the state constitution, and asked the Supreme Court to resolve the issue.
At the outset, the court noted that the permissibility of the trip fees was dependent on whether the fee was a “transaction-based” fee imposed on the privilege of engaging in a service. The Attorney General argued that for purposes of Section 25, “transaction” meant “any activity involving two or more persons.” Thus, entering and exiting the airport was a “transaction” that was engaged in between a driver and passenger. The City argued, on the other hand, that because the trip fees were imposed on providers regardless of whether a passenger paid his or her fare, the fees were not “transaction-based.” Noting that the term “transaction” was subject to multiple interpretations, the court applied various canons of statutory interpretation and determined that the intent behind Section 25 was to prohibit the increase or decrease of a tax or fee based on “consumer spending in commercial dealings with persons engaged in a business or occupation.” The court ultimately held that the “trip fees” were not transaction-based fees, but were akin to “authorized-user fees.” In the court’s view, the trip fees were imposed on providers for using the Airport property and having access to dedicated curbside space for pick-up and drop-off of passengers. Moreover, the fee amount was based on the impact of curbside use on the airport, which included discounts for energy efficient vehicles and greater fees for large capacity vehicles. The trip fees were comparable to other user fees imposed in Arizona, such as highway tolls and landing fees for aircrafts. Finally, the court concluded that lack of fees imposed on non-providers was immaterial to the constitutionality of the 2019 ordinance. As such, the court ruled that the ordinance did not impose or increase a “transaction-based” fee on services. For more information on State of Arizona v. City of Phoenix, please contact John Schneider at 213-955-8534.
This Week's Developments
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