AG Brnovich Victory in Carter Oil Case Saves Arizona More Than a Hundred Million Dollars in Improper Refund Tax Claims

PHOENIX – Attorney General Mark Brnovich announced today his office prevailed in a substantial lawsuit filed by Carter Oil, saving Arizona taxpayers and the State more than one hundred million dollars in improper refund tax claims.

Carter Oil was seeking refunds for the transaction privilege taxes it paid on the sale of dyed diesel fuel to companies in Arizona. Carter argued the dyed diesel fuel qualified for a statutory exemption for "machinery or equipment" used directly in manufacturing or mining operations. The Court of Appeals agreed with the Attorney General’s Office, reversing a lower tax court's decision, thereby recognizing that dyed diesel fuel is not machinery or equipment. Carter Oil did not file a petition for the Arizona Supreme Court to review the decision by April 29, thereby concluding the lawsuit.

“The plaintiff's interpretation of the law would have needlessly exposed Arizona to hundreds of millions of dollars of claims from corporations at a time when the State is facing a massive shortfall in revenue,” said Attorney General Brnovich. "I am pleased the plaintiff chose to end this litigation and applaud the Arizona Department of Revenue for assuring that the tax structure for machinery and equipment continues to be administered as intended by the Arizona Legislature.”

If Carter Oil’s interpretation had been adopted, Arizona law would have been rewritten, upsetting longstanding precedent and thereby giving Carter Oil and other similar businesses a budget-busting windfall not contemplated or authorized by the Arizona Legislature.

Assistant Attorneys General Jerry Fries, Scot Teasdale, Nancy Case, Rusty Crandell, and Beau Roysden defended the State in this case.