Cities can't use their laws taxing telecommunications services against out-of-state alarm monitoring companies, the Arizona Supreme Court has ruled.
Without dissent, the court rejected arguments by attorneys for Phoenix and Peoria that the services provided by Brinks Home Security amount to intrastate telecommunications which is subject to local sales taxes. Justice Scott Bales, writing the ruling, dismissed the argument that communications routed through Texas are really intrastate.
But the justices said they are willing to consider an alternate legal theory presented by the cities to justify the tax.
Brinks provides home security systems and monitoring to customers throughout the state.
If an alarm is triggered at an Arizona home and not disarmed, information is transmitted electronically to a monitoring station in Texas. At that point, personnel there attempt to contact the homeowner, typically by telephone.
When appropriate, Brinks notifies law enforcement.
The two cities sought to tax the company.
Both cities have language in their codes that levy a sales tax on telecommunication services. That specifically includes charges for monitoring security or burglar alarm systems within the city where the system sends or receives data over a communications channel.
Brinks appealed, arguing that any telecommunication services it provides are interstate, with taxes on these specifically precluded by state law. Both a trial judge and the Arizona Court of Appeals, however, sided with the cities.
Bales acknowledged that state law provides little guidance about what are intrastate telecommunication services, which can be taxed, and which are interstate and tax exempt.
Looking at what happens here, Bales said the triggering of an alarm can result in three separate transmissions: One notifying Brinks in Texas of the alarm, a second by phone to the customer in Arizona, and a third, if necessary, to law enforcement, also in Arizona.
City attorneys argued that this really is an intrastate act, as all the information ultimately begins and ends in Arizona.
"But the ‘loop' involves separate transmissions that relay different information," Bales said.
The cities, however, argue that even if the transmissions are truly interstate, that doesn't exempt them from the law. Their lawyers said what's really being taxed are the monitoring services, not the telecommunications which they characterized as merely incidental.
Bales noted that when the Court of Appeals sided with the cities on the issue of intrastate taxes, the judges never bothered to look at this alternate theory since it was unnecessary. So the Supreme Court ordered those appellate judges to take a second look at the issue.