On August 20, 2025, the Arizona Supreme Court accepted a petition to review the Court of Appeals decision in the 9W Halo1 case. In that 2023 decision, the Arizona Court of Appeals held that the taxpayer’s commercial laundry business did not qualify as a processing operation for a use tax exemption related to its machinery and equipment.
Background
9W Halo Opco, LP, DBA Angelica Textile Services, LP (“Angelica”) provided industrial laundry services to healthcare clients, disinfecting more than 600,000 pounds of textiles weekly. Angelica’s process involved sorting, prewashing, four wash cycles using certified chemicals to remove microbes and spores, specialized drying methods, inspection, and folding. Additionally, the business is regulated by several federal agencies and is required to maintain certifications that mandate strict adherence to process guidelines. The principal issue was whether the business met the definition of a processing operation to qualify for the use tax exemption on machinery or equipment used directly in processing. Angelica argued its operations transformed contaminated, unmarketable healthcare textiles into clean, disinfected, and marketable textiles, which constituted a processing operation.
The Arizona Department of Revenue, however, relied on dictionary definitions accepted in prior precedents, which referred to processing as subjecting material to manufacturing or preparation for market. In its discussion, the Court of Appeals examined the ordinary meaning of “processing” and determined that it did not include the taxpayer’s activities. The court noted that the taxpayer’s business involved repeated sanitizing of textiles rather than creation of a new product. Restoring original articles to a usable form did not align with the concept of processing as intended by the tax exemption.
Petition Arguments
In requesting review of the decision, two reasons were presented and discussed:
- The Court of Appeals ignored the court’s binding precedent regarding the interpretation and construction of “the Machinery & Equipment exemption.”
- The Court of Appeals’ decision fundamentally misunderstood Arizona’s transaction privilege tax scheme.
For these reasons, the petition for review requested that the Arizona Supreme Court grant review, vacate the Court of Appeals’ opinion, reverse the tax court’s judgment, and remand the case for further proceedings. Lanie Thompson, Principal in Ryan’s Transaction Tax practice, sees this as the Arizona Supreme Court’s concern with the lower court’s overly narrow interpretation of the exemption—and a willingness to reconsider it.
This will be a very interesting decision to follow to see if the Arizona Supreme Court expands the definition of “processing.” If it does, other businesses should review their operations to see if they too qualify for an exemption. If you would like to discuss your situation and the impact this case may have on your business, please reach out to one of the experts below. We will keep you posted on the progress of this case.
1 9W Halo Opco LP v. Arizona Department of Revenue, No. TX 2020-000967, Tax Court of Arizona (April 10, 2023).
TECHNICAL INFORMATION CONTACTS:
Susan Bittick
Principal
Ryan
916.414.0400
susan.bittick@ryan.com
Lanie Thompson
Principal
Ryan
832.293.4222
lanie.thompson@ryan.com
Mary Bernard
Director
Ryan
401.272.3363
mary.bernard@ryan.com
The material presented in this communication is intended to provide general information only and should solely be seen as broad guidance and not directed to the particular facts or circumstances of any individual who may read this publication. No liability is accepted for acts or omissions taken in reliance upon the content of this piece. Before taking (or not taking) any action, readers should seek professional advice specific to their situation from Ryan, LLC or other tax professionals. For additional information about this topic, please contact us at info@ryan.com.