Granite Construction Co. v. State ex rel. Arizona Department of Revenue

811 P.2d 345, 168 Ariz. 93, 76 Ariz. Adv. Rep. 39, 1990 Ariz. App. LEXIS 405
CourtCourt of Appeals of Arizona
DecidedDecember 18, 1990
DocketNo. 1 CA-CV 89-478
StatusPublished
Cited by1 cases

This text of 811 P.2d 345 (Granite Construction Co. v. State ex rel. Arizona Department of Revenue) is published on Counsel Stack Legal Research, covering Court of Appeals of Arizona primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Granite Construction Co. v. State ex rel. Arizona Department of Revenue, 811 P.2d 345, 168 Ariz. 93, 76 Ariz. Adv. Rep. 39, 1990 Ariz. App. LEXIS 405 (Ark. Ct. App. 1990).

Opinion

OPINION

HAIRE, Judge.

Granite Construction Company (Granite) has appealed from an adverse judgment on its claim for a refund of. state transaction privilege taxes and from an order denying its motion for new trial. The appeal presents the following questions: (1) whether 25 U.S.C. § 640d-6 preempts state taxation of gross receipts from contracting services performed for a coal lessee in the Navajo-Hopi Joint Use Area; (2) whether the federally required reclamation work performed at Peabody Coal Company’s Kayenta and Black Mesa coal mines constituted “contracting” under former A.R.S. § 42-1301(4) (now see A.R.S. § 42-1310.16(D)(l), (2)); (3) assuming the reclamation work constituted “contracting,” were there any genuine issues of material fact concerning whether Granite’s participation in the reclamation work constituted “contracting” as opposed to the mere leasing of equipment; and (4) assuming that Granite’s reclamation work constituted contracting, was the work performed as a “subcontractor” exempt from taxation pursuant to former A.R.S. § 42-1310(2)(i).

FACTUAL AND PROCEDURAL BACKGROUND

Viewed in the light most favorable to Granite, Estate of Kerr, 137 Ariz. 25, 667 P.2d 1351 (App.1983), the record reveals the following facts. Peabody Coal Company (Peabody) is a Delaware Corporation whose primary business in Arizona is the mining of coal. Peabody is the owner of the leasehold interest under leases with the Navajo and Hopi nations. Peabody strip-mines coal at its Kayenta and Black Mesa Mines on the lands subject to the leases located in the Navajo and Hopi Indian Reservations and Navajo-Hopi Joint Use Area.

The first step in the strip-mining process is to remove the natural vegetation from the area to be mined. The topsoil, which supports plant life, is then stripped and stored in a protected area for later redistribution over an area to be reclaimed. After the topsoil is removed and stored, the “overburden,” a layer of soil and rock overlying the coal seams, is removed with a huge piece of machinery called a “drag-line.” The dragline dumps overburden into the hole created by the dragline’s last pass through the strip of land adjacent to the area being mined. The dumping creates pyramid-shaped piles referred to as “spoil piles.” Removal of the overburden exposes multiple layers of coal in the coal deposit. The rock strata separating the coal seams are blasted, and the coal is removed with electric shovels.

Pursuant to federal law, strip-mined areas must be “reclaimed.” Reclamation comprises recontouring, surface grading, respreading of stored topsoil, and seeding, revegetating and fencing the reclaimed land. The hydrologic balance of the area must also be restored. Peabody owned and operated equipment used for reclamation of strip-mined land. Peabody performed all its own reclamation work at its smaller mining operations in Montana and Colorado.

Before Granite became involved, Peabody also did all the reclamation work at the Kayenta and Black Mesa Mines. However, in 1978, the Surface Mine Control Reclamation Act became effective and increased the amount of required reclamation work. Rather than purchase an additional three to four million dollars worth of equipment within a short period of time, Peabody estimated from its reclamation plan “the amount of work required that exceeded the amount of equipment that we had, and then put this amount of work out to various companies for bid.” Peabody initially awarded the bid to Granite, the lowest bidder.

Granite’s initial contract was for two years. Peabody relet the bid every two [95]*95years thereafter, and Granite was the successful bidder each time. Granite remained at the Kayenta and Black Mesa Mines from 1974 to July of 1988.

As pertinent to this litigation, the terms of Granite’s contract with Peabody were reflected in a letter agreement dated February 15,1984. Granite was to provide “all supervisory labor, materials, equipment and tools necessary to excavate and dispose of overburden or other similar excavation materials” at the Black Mesa and Kayenta Mines. Peabody was to provide “sufficient personnel to perform all non-supervisory labor as deemed necessary by Contractor [Granite] to perform the work and to operate all the equipment provided.” 1 The letter agreement also stated:

In addition to performing excavation work, Contractor will also provide assistance to Owner [Peabody] in planning and establishing an efficient reclamation program with regard to regrading, topsoiling and revegetation of spoil. Contractor’s superintendent and staff will work with Owner’s supervisors, engineers and foremen in establishing plans, developing economical techniques and directing Owner’s labor and equipment. In the event Owner proposes to contract for spoil leveling, Contractor shall be given the opportunity to submit a bid for such work.

Under the agreement, Granite was to be paid on a per-cubic yard or per-acre basis for excavation work and for managing “owner’s labor and equipment,” but on a per-operated hour basis for Granite equipment used at the mines. The hourly rates for the equipment were set at the industry level for equipment rented with operators, but the agreement gave Peabody a deduction for the labor costs of its own employees who operated the Granite equipment.

In support of its motion for summary judgment, the Department of Revenue (Department) submitted a promotional article written on Granite’s behalf by Robert Cummings, who for a time was Granite’s project superintendent at the Black Mesa and Kayenta Mines. Cummings’ article included these statements describing Granite’s work for Peabody:

At this mine a general contractor, acting as subcontractor to the coal company, has put together a management group organized specifically to catch up and maintain an ongoing reclamation program. The project superintendent, essentially acting as the construction manager, was responsible for keeping the wheel rolling. The team saw to it that schedules were adhered to, that responsible individuals made their decisions in a timely fashion, that costs were held in control, and that the final outcome met specifications.
The work responsibility of the management team included topsoil stripping and spreading, and spoil regrading and contouring____
As in any reclamation project, the chief objective was to restore the land and to satisfy the new government regulations. The increased sensitivity of the public and regulatory personnel regarding adverse and environmental impacts of mining activities requires companies to work a little harder to achieve an acceptable product. Although initially a demonstration project, the topsoil and regrading work fit well into the expertise of this contractor. Though the management team did not produce any startling new innovations, it did organize, control and manage a very successful operation, that was able to reduce costs and satisfy the mining laws.

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Bluebook (online)
811 P.2d 345, 168 Ariz. 93, 76 Ariz. Adv. Rep. 39, 1990 Ariz. App. LEXIS 405, Counsel Stack Legal Research, https://law.counselstack.com/opinion/granite-construction-co-v-state-ex-rel-arizona-department-of-revenue-arizctapp-1990.