A recent case in Arizona involved the municipal taxation of home security services when the provider’s monitoring facility was out of state and the services included telecommunications. Municipalities are prohibited from taxing interstate telecommunication service under Arizona law.
Various cities in Arizona assessed transaction privilege taxes against the security company pursuant to their city code. Each code provided for taxation of gross income when providing “telecommunications services,” which included “charges for monitoring services relating to a security or burglar alarm system located within the city where such system transmits or receives signals or data over a communications channel.” The alarm company protested the assessments arguing that it provided interstate telecommunication services immune from municipal taxation. The tax court granted summary judgment in favor of the cities, concluding that the monitoring services were primarily intrastate and therefore taxable. The court of appeals, characterizing the alarm company’s monitoring process as a “transmission loop” that begins and ends in Arizona, concluded that the services were intrastate and therefore taxable. Arizona tax provisions defined “intrastate telecommunications services” as transmitting signs, signals, writings, images, sounds, messages, data or other information of any nature by wire, radio waves, light waves or other electromagnetic means if the information transmitted originates and terminates in this state.