The Superior Court of Arizona, Maricopa County, rejected the Department of Revenue’s request that rental car companies be granted only prospective relief from the court’s earlier decision which declared the car rental charge illegal. The voter-approved surcharge was enacted for the Arizona Tourism and Sports Authority to finance the Arizona Cardinals’ football stadium and other tourism-related activities. The superior court, however, had declared it illegal because the Arizona Constitution requires that taxes relating to the operation or use of vehicles be used for highway-related purposes. Stadium financing and tourism promotion fell outside of this limitation. In its latest ruling, the superior court said that car rental companies are entitled to refunds under Arizona precedence interpreting McKesson v. Division. of Alcoholic Beverages & Tobacco. The court observed that refunds would result in a windfall to car rental companies because they generally pass the surcharge on to their customers. While the court noted that McKesson might permit prospective-only relief if retroactive application would result in a windfall to taxpayers, it also acknowledged that it was bound by two decisions of the Arizona court of appeals mandating retroactive relief when a tax is declared illegal.
The court did not address whether a car rental company must refund the illegal tax to its customers prior to claiming a refund for itself. This may be in response to dicta from the resolution of a 2007 class action suit brought by customers challenging the same tax. There the court of appeals stated that because the incidence of the car rental surcharge fell on car rental companies, if it were declared illegal car rental companies would receive the refund and not be required to pass the refund on to customers. This stands in contrast to several other jurisdictions which generally require that vendors, as a prerequisite to a valid refund request, first refund the contested amounts to their consumers. Saban Rent-A-Car LLC v. Ariz. Dep’t of Revenue, TX 2010-00189 (Sup. Ct. Maricopa Cnty. July 28, 2015).