## Facts

- Dayton-Hudson Corporation operated Phoenix department stores and entered written agreements with independent retailers to operate specific in-store departments (e.g., beauty salon, shoes, furs, furniture).
- Each retailer received the exclusive right to operate a particular type of department within the store, limited to that type of business.
- Dayton-Hudson provided services (including maintenance and utilities), and the retailer paid Dayton-Hudson a percentage of gross receipts, subject to a minimum monthly payment.
- Agreements were for definite terms, automatically renewed absent notice, and could be terminated by Dayton-Hudson upon retailer default.
- The City of Phoenix assessed a 1% privilege tax on Dayton-Hudson’s receipts under Phoenix City Code § 14-2(a)(12), taxing persons leasing or renting real property for consideration.
- Dayton-Hudson paid under protest, exhausted administrative remedies (which upheld the assessment), and sued, asserting the agreements created licenses rather than leases.
- The superior court granted summary judgment to Dayton-Hudson and awarded a refund with interest and costs; the City and its treasurer appealed.

## Issues

1. Whether the in-store retailer agreements created leases (taxable rentals of real property) or merely licenses (non-taxable under Phoenix City Code § 14-2(a)(12)).
2. Whether interpretive presumptions favoring taxability required treating the agreements as leases for purposes of § 14-2(a)(12).

## Decision

- The court of appeals affirmed summary judgment for Dayton-Hudson.
- The agreements did not create a leasehold interest as a matter of law; they created licenses.
- Because § 14-2(a)(12) taxed leasing or renting real property, Dayton-Hudson’s receipts under the agreements were not taxable under that provision.
- The presumption favoring taxability did not permit expanding the ordinance to reach license arrangements lacking lease attributes.

## Legal Principles

- A lease generally conveys a possessory interest in real property; a license grants a revocable privilege to use premises without transferring an estate or exclusive possession.
- Contract classification turns on substantive rights and control reflected in the agreement, not merely on the occupant’s physical presence in the space.
- A taxing ordinance limited to “leasing or renting” real property does not apply to mere licenses absent clear language extending the tax to such arrangements.
- Taxing provisions are not extended by implication to activities outside the ordinance’s terms; doubts about coverage are resolved under ordinary rules of construction rather than by recharacterizing the underlying legal relationship.

## Conclusion

The court held that Dayton-Hudson’s agreements with in-store retailers were licenses, not leases, so the City of Phoenix could not tax Dayton-Hudson’s receipts from those agreements under the ordinance taxing the leasing or renting of real property.


Wenner v. Dayton-Hudson Corp., 123 Ariz. 203, 598 P.2d 1022 (Ariz. Ct. App. 1979)