Tax districts owe Qwest $40 million
Maricopa County must pay $26.9 mil
By Yvonne Wingett and Ryan Randazzo
The Arizona Republic
Sunday, July 13, 2008
counties, cities, towns, school districts and other local taxing
districts must pony up millions of dollars to help pay their
portions of a complex settlement agreement with Qwest
Communications International Inc. over how its
telecommunications equipment was assessed over several years.
The budget hit comes as many communities are cash-strapped and
struggling to make ends meet.
The $40 million settlement caps a years-long legal battle that
began when Qwest filed a lawsuit in Arizona Tax Court
challenging state Department of Revenue assessments on its
The company claimed that the state ignored the fact that some of
its assets were obsolete and argued that much of its equipment,
such as old underground cable and switches that have been
replaced with digital equipment, should have been assessed at a
lower rate because the property was unusable.
"We overpaid, they overcollected, and we were entitled to a
refund," said Jeff Mirasola, a Qwest spokesman. "We're
pleased with the fact that we feel it is a more equitable
Most of the $40 million must be paid by July 31.
"This is a settlement," Mirasola said. "We thought we were
due a lot more than this."
Each of Arizona's
15 counties is responsible for collecting taxes from property
owners and distributing the money to local jurisdictions, said
Cheryl Murray-Leyba, assistant director of the state Department
of Revenue's Property Tax Division. All 15 have agreed to
pay their portions of the settlement, she said.
The impact varies depending on how much Qwest property is
located within a jurisdiction, Murray-Leyba said.
The bulk of the settlement, $26.9 million, is owed by Maricopa County
County Manager David Smith has sent letters
notifying dozens of Valley towns, cities, school districts and
other taxing districts that they must help pay for the
settlement. The refunds are in proportion to the tax
revenues received by the jurisdictions at the time Qwest
originally paid the taxes, he said.
With the July 31 deadline looming,
County will pay the entire
bill for its communities, even though the county itself owes
only about $2.8 million. The other jurisdictions are
expected to repay the county between November and May, when
property-tax collections are due.
The county will lose about $635,000 in interest to front the
payment, said Brian Hushek, deputy budget director at the
county's Office of Management and Budget.
The state decided to settle the case, according to Smith's
letter, because "a trial on the merits posed a risk to taxing
jurisdictions and could have led to a refund of more than $300
County Supervisor Andy Kunasek was unhappy with
the settlement, saying, "It appears to me they could be
Qwest, like any utility, pays its bills with money collected
from customers. But utility regulators doubt that any of
the $40 million will be refunded to customers.
"I assume that Qwest will argue that retroactive rate making
will prevent the (Arizona Corporation Commission) from ordering
an immediate refund of these payments to its customers,"
Commissioner Bill Mundell said in a letter to the commission's
However, the commission should consider such tax issues when
setting Qwest's rates in the future, he said.
Mirasola said that if Qwest had not been overpaying the taxes
during the five years covered in the settlement, the company
still would not have exceeded the profit margin it is legally
allowed to earn from customers.
"We still wouldn't be close to what we are entitled to earn," he
the reporter at 602-444- 4712 or