Arizona Supreme Court says Brnovich can continue lawsuit challenging ASU hotel project

In a unanimous decision, the Arizona Supreme Court said Tuesday that state tax court should revisit a years-long legal battle between Arizona Attorney General Mark Brnovich and the Arizona Board of Regents over allegations that a Tempe hotel on university land violates the state’s gift clause. 

The case primarily focuses on a deal Arizona State University and ABOR reached with hotel giant Omni for a hotel and conference center project. Brnovich wants to make ASU put the property back on the tax rolls and claims that the university is shielding private companies from paying taxes.

The project was controversial when it went before the Tempe City Council in 2018, with critics like state Rep. Athena Salman, D-Tempe, and Sen. Juan Mendez, D-Tempe, calling for a delay on a vote for a $21 million tax break for the project.

The 30-year relief on bed and sales taxes was approved by the council on a 6-1 vote. Because ASU owns the land, the property also will be exempt from property taxes.

The court ruling comes shortly after a ABOR changed its rules to rein in these sort of deals, which Brnovich called “insufficient.” 

The Arizona Supreme Court disagreed with a lower court’s ruling that the AG could not bring any action to find the lease illegal and another finding by the lower court of appeals that he added the violation of the gift clause accusation past the statute of limitations. 

The court did uphold the dismissal of two counts of Brnovich’s lawsuit against ABOR. 

“[H]e argues that because the purpose of the Omni Deal is to evade taxes, the property leased is subject to taxation,” Justice John R. Lopez wrote for the court. “But again, for a conveyance to be made to evade taxation, there must be a tax to evade in the first place, and here there is none.”

The court did not rule on the merits of Brnovich’s suit, instead sending two of Brnovich’s claims back to the tax court. It also reversed an award of $1 million in attorney fees to ABOR, calling them “premature.” 

“The court remanded to the trial court those portions of the Attorney General’s complaint that allege that the transaction somehow violated the gift clause provision of Arizona’s Constitution and is outside of the leasing authority granted by the Legislature to the board,” ABOR Chair Lyndel Manson said in a statement about the decision. “It is notable the court did not rule on the merits and the board remains confident the claims are meritless.”

The case will now go back to the tax court to be reheard for a second time. 

“From the very beginning, we said this lawsuit is about protecting hardworking Arizonans by ensuring that taxpayer funds are not used for private business deals,” Brnovich said in a statement to the Arizona Mirror.