Walter E. Heller Western., Inc. v. Ariz. Dep't of Revenue

In Walter E. Heller Western., Inc. v. Ariz. Dep't of Revenue, 161 Ariz. 49, 53, 775 P.2d 1113, 1117 (1989) the Arizona Supreme Court addressed "whether interest income earned by Heller Western on loans to Arizona customers should be included in the numerator of the sales factor." 161 Ariz. at 50, 775 P.2d at 1114. Heller Western loaned money to commercial borrowers. Id. Funds for lending were generated by its California-based parent. Id. Heller Western argued its interest costs in obtaining these funds must be considered in assessing whether a greater proportion of its costs of performance were incurred outside Arizona, with the result that none of the interest paid by Arizona customers would be attributed to Arizona. Id. at 52, 775 P.2d at 1116. The supreme court rejected this argument, explaining that "income producing activity . . . contemplates only direct sales payment activity by the consumer." Id. The income-producing activity in Heller Western was the commercial financing company's offering of loans and the relevant cost of performance did not include the taxpayer's cost of borrowing money used to make loans. Id. at 52-53, 775 P.2d at 1116-17. The supreme court explained that UDIPTA preserves a customer-based focus, id. at 52, 775 P.2d at 1116, and procurement is not itself an income-producing activity. Id. at 53, 775 P.2d at 1117.