The NHL's Arizona Coyotes said it has paid $1.3 million in delinquent sales taxes to Arizona, after the Department of Revenue filed a notice of a tax lien against the team.
The payment of state and local tax liabilities may help prevent the team from losing its business license in the city of Glendale and from being barred from the Gila River Arena, its home stadium in the city. However, the team's future in the city appears headed for a close at the end of the season because the city has decided not to renew its operating agreement with the team.
Glendale City Manager Kevin Phelps told Tax Notes December 13 that although the team has said the tax is paid, it can’t be publicly confirmed until the lien is removed.
Coyotes spokesman Rich Nairn told Tax Notes in a December 10 email that the team had paid just over $1.3 million, including the amount it owed in delinquent transaction privilege tax — Arizona’s sales tax equivalent — and related penalties and interest.
In a statement released by the Coyotes before the payment, the team said the lack of payment was a mistake, not deliberate tax avoidance. “We have already launched an investigation to determine how this could have happened and initial indications are that it appears to be the result of an unfortunate human error.”
“Regardless, we deeply regret the inconvenience this has caused. . . . And we will take immediate steps to ensure that nothing like this can ever possibly happen again,” the statement said.
The lien notice, filed December 3, identified an unpaid balance of $1,313,252.15 in transaction privilege tax l iabilities, penalties, and interest. Of that, around $250,000 is owed to Glendale.
In a December 8 letter, Phelps said that in addition to the unpaid taxes, Glendale had also “received notice from ASM Global” — the entity that manages the arena — “that there is an unpaid balance for the 2020-2021 season” for rent. “Based on this information, the city of Glendale's Tax & License Division is canceling the Glendale Business License for IceArizona Hockey CO LP,” effective December 11 absent action by the team, the letter said.
Also, expressing concern whether the team would be able to meet its current and future obligations, Phelps wrote, “I have instructed ASM Global . . . that if all outstanding amounts owed for taxes and back rent are not paid in full by 5:00 PM MST on December 20, 2021, the Arizona Coyotes will not have access to the Gila River Arena” until approved by the city.
According to Phelps, the city had been aware of the unpaid tax since late summer, but because of taxpayer privacy laws, it wasn’t able to publicly disclose the issue or pursue the business license suspension until the DOR filed its lien. He said he believes that the lien on the team is still in place, but he added that could simply be because of the time necessary to process the team’s payment.
Phelps said the team had been filing returns, but not paying sales tax.
“They’ve been filing the return each month as required. They just never chose to hit the 'remit payment' button, from what it sounds like,” Phelps said. He explained that before a lien can be applied in such a situation, the DOR first sends taxpayers a demand letter with a 30-day period for correction and makes other attempts to contact them.
Phelps said Glendale and the team have had problems for some time. He said the team had indicated that it was not committed to staying in the city in the long term and wasn't interested in a 20-year agreement to stay and help shoulder the cost of renovations and improvements to the arena and surrounding area. As a result, Phelps said, the city in August chose not to renew its annual operating agreement with the team.
Phelps noted that the city’s own analysis showed that the arena’s non-game events, such as concerts, drew in more revenue than Coyotes games. Glendale still owes around $129 million on the arena.
“With an increased focus on larger, more impactful events and uses of the city-owned arena, the city of Glendale has chosen to not renew the operating agreement for the Arizona Coyotes beyond the coming 2021-22 season,” the city announced in an August 19 release. The city and team “have been operating under a year-to-year agreement for several years.”
Phelps said that moving forward without the Coyotes represented the interests of the city’s taxpayers.
The city will soon announce that it has "picked a nationally recognized architectural firm to remodel the arena” to focus on other events, Phelps said, predicting work on the facility will begin in late 2022 or early 2023.