The Arizona Department of Revenue (DOR) seeks specialaction review of the tax court’s ruling certifying a classaction and ordering DOR to bear the cost of notifying potentialclass members. We accepted jurisdiction with an opinion tofollow. This is that opinion. FACTUAL AND PROCEDURAL BACKGROUND From 1986 to 1990, Arizona allowed a deduction fromincome for dividends received from corporations doing more thanhalf of their business in Arizona. See Arizona Revised StatutesAnnotated (A.R.S.) � 43-1128 (1998).
[FOOTNOTE 1] Helen Ladewig, latersuperseded by her estate, filed a “representative”administrative refund claim with DOR in 1991 challenging asunconstitutional the denial of similar deductions for dividendsreceived from corporations not doing more than half of theirbusiness in Arizona during tax years 1986 to 1989. She alsofiled a class action lawsuit asserting the same challenge. In 1994, the tax court dismissed the lawsuit withoutprejudice for lack of jurisdiction because Ladewig had failed toexhaust her administrative remedies. Ladewig then pursued thoseremedies on behalf of herself and the class. After DOR deniedrelief, she refiled her complaint in 1997 and sought classcertification, which DOR opposed. The tax court granted certification after finding that(1) the lack of express authorization for class actions in thetax statutes did not mean that tax court class actions wereforbidden, citing Andrew S. Arena, Inc. v. Superior Court, 163Ariz. 423, 788 P.2d 1174 (1990); (2) the statute of limitationson claims of other potential class members had been tolledbecause Ladewig had exhausted her administrative remedies andtimely filed the class action suit; and (3) the requirements ofRule 23 of the Arizona Rules of Civil Procedure were met. Thecourt ordered DOR to bear the costs of preparing and sendingnotice to the potential class members. After the tax court’s order, DOR filed a motion seekinga ruling that the only taxpayers entitled to relief were thosefor whom the statute of limitations had not run when Ladewigfiled suit. The tax court, however, ruled that Ladewig’s claim.4had placed DOR on notice and that the statute of limitations wastolled as to all putative members of the class when the refundclaim was filed. Soon after the certification order, the tax courtgranted summary judgment to Ladewig and the class on the meritsof her constitutional challenge. DOR has not appealed thatsubstantive ruling as to Ladewig. However, DOR seeks to avoidgiving notice to potential class members and asks this court toaccept jurisdiction because legal issues of statewide importanceare involved. See Hanania v. City of Tucson, 123 Ariz. 37, 38,597 P.2d 190, 191 (App. 1979) (order authorizing class action isnot a final judgment); Eaton v. Unified Sch. Dist. No. 1 of PimaCounty, 122 Ariz. 391, 394, 595 P.2d 183, 186 (App. 1979)(appellate court may take special action jurisdiction over classcertification order), approved and adopted 122 Ariz. 377, 378,595 P.2d 169, 170 (1979). DOR also asserts that, if the class notification orderis later found invalid, it will have suffered the irreparableloss of the cost of giving notice, approximately $175,000.Finally, DOR points out that special action jurisdiction isproper when “statutes or procedural rules require immediateinterpretation.” Escalanti v. Superior Court, 165 Ariz. 385,386, 799 P.2d 5, 6 (App. 1990). We agree that this case presents a purely legal issueof statewide importance concerning an application of Rule 23that is likely to recur. For that reason, and because of DOR’scost of giving notice, we accept jurisdiction. We conclude thatRule 23 permits class actions in tax court proceedings, but wefurther conclude that the class must be limited to thosetaxpayers who have filed individual administrative claims withDOR. We therefore grant DOR relief. STANDARD OF REVIEW Interpretation of statutes is a matter of law that wereview de novo. See Brink Elec. Constr. Co. v. Arizona Dep’t ofRevenue, 184 Ariz. 354, 358, 909 P.2d 421, 425 (App. 1995).Generally, the certification of a class is a matter for thetrial court’s discretion. See Continental Townhouses East UnitOne Ass’n v. Brockbank, 152 Ariz. 537, 540, 733 P.2d 1120, 1123(App. 1986). DISCUSSION Availability of Class Actions in Tax Court Proceedings DOR argues that class actions cannot be maintained intax court because no statute or rule expressly allows classactions in tax cases. Ladewig responds that Arena hasestablished that class actions may be maintained againstgovernment entities. We agree with Ladewig..6 Although Arena was not a tax case, the questionpresented was whether class actions under the notice of claimsstatute could be asserted against public entities. 163 Ariz. at424, 788 P.2d at 1175. Like the tax refund statutes, the noticeof claim statute was silent as to the possibility of classactions. Id. at 425, 788 P.2d at 1176. Yet our supreme courtrefused to exempt government entities “from either the burdensor benefits of class actions in appropriate cases” where theclass members shared a common interest and the class claim wouldavoid a multiplicity of lawsuits. Id. The court concluded thatclass actions were allowed, reasoning that they were intended as”a convenient method of litigating claims involving largenumbers of people . . . [,] [to] provide benefits to both . . .[sides] and [to] serve as a practical tool for resolvingmultiple claims on a consistent basis at the least cost and withthe least disruption to an overloaded judicial system.” Id. Moreover, our legislature has adopted A.R.S. section12-166 (1992), which directs that “[e]xcept as provided in thisarticle, proceedings in the tax court shall be governed by therules of civil procedure in the superior court.” Reasonablyenough, the tax court judge concluded that Rule 23, allowingclass actions, thus governed proceedings before it.Accordingly, it certified the class here. Although DOR argues
[FOOTNOTE 2] that the legislature did notintend to include Rule 23 proceedings in tax court under theaegis of A.R.S. section 12-166, it has failed to provide anylegislative history in support of its argument. Because we mustgive the language of the statute its plain meaning, see Tobel v.Arizona Dep’t of Public Safety, 189 Ariz. 168, 174, 939 P.2d801, 807 (App. 1997), and because the language of the statuteplainly requires that all of the rules of civil procedure applyin tax court proceedings, we conclude that class actions may bemaintained in tax court. Exhaustion of Administrative Remedies and Tolling We next consider whether each member of the class musthave exhausted his or her administrative remedies or, as Ladewigargues, her administrative claim tolled the statute oflimitations for each class member. We recognize that thesearguments do not squarely meet because the exhaustionrequirement differs from the question of tolling. Nevertheless,we conclude that only taxpayers who have exhausted their administrative remedies may be members of the class. To begin, the Arizona Constitution gives exclusivecontrol over taxation to the legislature. See, e.g., Ariz.Const. art. 9, � 12 (exercising that control through its taxstatutes and DOR). Tax refund claims must comply with themandatory procedures set forth in the tax codes foradministrative remedy, and the legislature has specificallyprovided that “[e]ach claim for refund shall be filed with thedepartment [of revenue] in writing.” A.R.S. � 42-129(E)(emphasis added). Exhaustion of administrative remedies istherefore a prerequisite to bringing a tax court action for arefund. See A.R.S. � 42-124. Furthermore, the legislature hasrequired individualized refund claims
[FOOTNOTE 3] rather than”administrative class actions.” Our courts have consistently held that the failure to”scrupulously follow” statutory procedures divests the tax courtof jurisdiction over such tax claims. Estate of Bohn v.Waddell, 174 Ariz. 239, 246, 848 P.2d 324, 331 (App. 1992) (ifparties have statutory recourse to administrative agency withauthority to grant appropriate remedies, they must scrupulouslyfollow statutory procedures); Hamilton v. State, 186 Ariz. 590,594, 925 P.2d 731, 735 (App. 1996) (taxpayer’s claims must bedismissed when taxpayer fails to exhaust administrativeremedies). The necessity of exhausting administrative remediesis particularly compelling when, as with DOR, the administrativeagency has original jurisdiction over the subject matter andspecifically has been granted that power by the legislature. SeeHamilton, 186 at 593, 925 P.2d at 734. Ladewig, nonetheless, argues that Rule 23 does notrequire each class member to exhaust his or her administrativeremedies; it simply requires that the class members sharequestions of law or fact and claims typical of the class. Sherelies mainly upon Arena,
[FOOTNOTE 4] in which only one person presented aclaim to Pima County and then was permitted to file a classaction on behalf of others who had paid building permit fees..10163 Ariz. at 424, 788 P.2d at 1175. Ladewig’s reliance on Arena, however, is misplaced.Arena simply established the proposition that a class action maybe instituted against a government entity. It did not considerwhether the mere filing of an administrative claim eitherobviated the legislatively-prescribed administrative review foreach putative member of the class or tolled the statute oflimitations for such putative members. Arena dealt with the public entity claim statute, whichrequires that a government entity be given specific and timelynotice before a suit can be filed against it. See A.R.S. � 12-821. Such claims may range from a challenge to governmentprocedures to garden variety contract and tort disputes in whichthe conduct of the government entity allegedly gave rise to thecomplaint. However, the legislature has decided that taxpayerdisputes be reviewed quite differently. It established DOR tofill the role played by the Internal Revenue Service on thefederal level. The legislature also prescribed that theadministrative process be conducted on a case-by-case basis, seeA.R.S. � 42-129, in order to resolve most claims without resortto court proceedings. The legislature has thereby structuredtaxpayer disputes far differently than it has claims against.11government entities. See Hoffman v. Colorado State Bd. ofAssessment, 683 P.2d 783, 785 (Colo. 1984) (“[T]he taxing powerof the state is exclusively a legislative function”). Moreover, while A.R.S. section 12-166 makes Rule 23applicable to actions in tax court, nothing in its plainlanguage excuses an individual taxpayer from complying with theprovisions of A.R.S. section 42-129(D), which require that”each” taxpayer file an individual refund claim. Furthermore,given its detailed and plenary statutory scheme, had thelegislature wished to provide such an exemption for classmembers, it would have clearly done so. Therefore, although thelegislature has made tax court class actions available totaxpayers, we will not read into that fact its blanketrejection of its required administrative process. As to Ladewig’s tolling argument, this court has heldthat a claimant’s own statute of limitations is tolled while theclaimant exhausts his or her administrative remedies. See Third& Catalina Assocs. v. City of Phoenix, 182 Ariz. 203, 207, 895P.2d 115, 119 (App. 1994). Thus, Ladewig’s own right to filesuit after exhausting her administrative remedies is protected.But no Arizona case has addressed whether the filing of a classclaim in an administrative action tolls the statute oflimitations for other putative class members. Because we.conclude that each member of the class must have exhausted hisor her administrative remedies, we need not reach that issuehere. CONCLUSION We conclude that A.R.S. section 12-166 makes Rule 23applicable in tax court proceedings. However, because we alsoconclude that each putative member of the class must haveexhausted his or her own administrative remedies in order to bea part of the class, Ladewig’s class claim is invalid as tothose who did not file individual claims with DOR. We thereforeaccept jurisdiction and reverse the tax court’s order certifyingthe class and directing that DOR give notice to putative classmembers. :::FOOTNOTES:::
FN1 Effective January 1, 1999, Title 42 was reorganized andrenumbered. The citations herein are to statutes as they wereprior to the renumbering.
FN2 DOR also argues that tax court class actions areincompatible with the rules governing the Board of Tax Appeals.That argument is unpersuasive because, at the taxpayer’s option,tax cases need not even be heard by the Board of Tax Appeals.See A.R.S. � 42-124(C) (Supp. 1997). Moreover, it is the Boardof Tax Appeals’ responsibility to adopt rules compatible withapplicable legislation.
FN3 A.R.S. section 42-129(D) specified “[e]ach claim for refundshall be in writing and shall state the specific grounds onwhich it is founded.” In the current version of that statute,A.R.S. section 42-1118(E), the legislature added the furtherstrictures that each claim must “identify the claimant by name,address and tax identification number” and each claim must”provide the amount of refund requested, the specific tax periodinvolved and the specific grounds on which the claim isfounded.”
FN4 Ladewig also refers to that portion of Waddell in which westated that “at least one member [of the class] would still berequired to exhaust administrative remedies” as impliedlyholding that each class member need not have done so. 174 Ariz.at 251, 848 P.2d at 336. But that language was, at most, dictumbecause no member of the putative class in Waddell had compliedwith the administrative prerequisites, making it unnecessary forus to address the issue that we face today.
Arizona Dept. of Revenue v. Estate of Ladewig Court of Appeals for the State of Arizona Division One ARIZONA DEPARTMENT OF REVENUE and its Director, in hisofficial capacity, Petitioner, v. THE HONORABLE BERNARD J. DOUGHERTY, Judge of the SUPERIOR COURT OFTHE STATE OF ARIZONA, in and forthe County of MARICOPA, Respondent Judge, ESTATE OF HELEN H. LADEWIG, onbehalf of itself and the class ofall persons in the State of Arizonawho, during any one of the years1986 to 1989 paid income taxes tothe State of Arizona on dividendspaid by corporations whoseprincipal business was notattributable to Arizona, Real Parties in Interest. No. 1 CA-SA 99-0084 Filed: May 18, 2000 Appeal From: Superior Court of Maricopa County Counsel for Petitioner: Janet A. Napolitano, et al. Counsel for Defendant: Bonn, Luscher, et al. Before: Sheldon H. Weisberg, Susan A. Ehrlich, Jefferson L. Lankford
