Do Arizona's three state universities have to send the state a share of licensing and royalty income before deducting expenses, or only after?

Plain-English summary

Attorney General Mark Brnovich concluded that the University of Arizona, Arizona State University, and Northern Arizona University were each required by A.R.S. § 15-1670(G) to deposit a percentage of their gross licensing, royalty, and intellectual-property income with the state treasurer for the general fund. The statute uses the bare word "income," and the AG read that to mean all monies received, before any deduction for the universities' expenses.

The opinion was a response to Representative John Allen, who had asked whether the universities were complying with § 15-1670(G). Brnovich revised the Pima County Attorney's earlier opinion implicitly suggesting net-income treatment was acceptable. He also noted that the 2017 amendments to § 15-1670 added subsections (H) and (I), which use the term "net income" for amounts received after April 30, 2017. The fact that the legislature switched terminology in those new subsections, while leaving subsection (G) untouched, was treated as confirmation that "income" in (G) does not mean "net income."

The opinion further observed that if the universities had been calculating their § 15-1670(G) deposits net of expenses (and concluding, for example, that they owed nothing), a person with standing could sue to compel payment, including through a declaratory judgment action.

Currency note

This opinion was issued in 2019. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Historical context: what the opinion meant in 2019

For state legislators

The opinion confirmed that the legislative compromise embedded in § 15-1670(G) was a gross-income obligation. If lawmakers wanted the universities to keep more (or less) of their commercialization revenue, the right move was to amend (G) the way they had amended subsections (H) and (I), not to read "net" into the existing text.

For university administrators

If a university had been computing its (G) deposit by first netting out the costs of its tech-transfer offices, patent prosecution, or licensing-related staff, the AG's reading meant that calculation was incorrect for amounts received before April 30, 2017. The universities did not have a textual basis to exclude expenses under (G).

For taxpayers and the auditor general

The AG framed enforcement as a standing question. The state itself, or a private person with standing, could bring a declaratory judgment action to compel payment if records showed the universities had under-deposited. The opinion did not opine on whether under-deposit had actually occurred.

Common questions

Q: What does A.R.S. § 15-1670(G) actually require the universities to pay?
A: Beginning in fiscal year 2007-2008 and each subsequent fiscal year for which the legislature appropriates funds under subsections (A)-(D), each of the three state universities must deposit, by October 1, 20% of its income from licensure and royalty payments and 25% of its income from the sale or transfer of university-developed intellectual property, into the state general fund.

Q: Why did the AG say "income" means gross income, not net?
A: Three reasons. The dictionary definitions of "income" focus on what is received, not on profit after expenses. The legislature in 2017 added subsections (H) and (I) that explicitly used "net income": showing it knows how to say "net" when it means net, and chose not to in (G). And federal courts interpreting "income" in the bankruptcy code (a self-employed debtor's monthly income calculation) have reached the same gross-receipts reading.

Q: What changed in 2017?
A: The legislature added subsections (H) and (I) to § 15-1670, which apply to amounts received after April 30, 2017, and use "net income" rather than "income." That created two different formulas: a gross-income formula under (G) for older amounts, and a net-income formula under (H) and (I) for newer amounts. The AG's opinion specifically said the 2017 amendments do not affect how income from contracts or transactions before April 30, 2017 should be calculated.

Q: If a university owes more than it has paid, who can sue to collect?
A: A "plaintiff with standing." The opinion did not identify a specific party but flagged a declaratory judgment action as a potential vehicle. Standing is the threshold question and would depend on the facts of any specific action.

Q: Did the AG find that the universities had actually underpaid?
A: No. The opinion expressly declined to opine on whether the universities had been under-depositing. That would have been a factual question outside the scope of an AG opinion. The opinion only resolved the legal question about how "income" should be calculated.

Background and statutory framework

A.R.S. § 15-1670 sets the rules under which the Arizona Board of Regents and the three state universities receive state appropriations. The statute was originally enacted in 2003. Subsection (G) imposed a "claw-back" of sorts: if the legislature was going to fund the universities, it expected a slice of the universities' commercialization revenue back in the general fund.

The pre-2017 statute used a single term, "income," in (G). In 2017, the legislature added subsections (H) and (I) that switched to "net income" for amounts received after April 30, 2017. The legislature did not amend (G) at the same time. That asymmetry is what drove the AG's analysis: under standard canons of statutory interpretation, when the legislature uses one term in one subsection and a different term in another, courts presume the difference is intentional.

The opinion relied on Glazer v. State, 244 Ariz. 612 (2018), and Stambaugh v. Killian, 242 Ariz. 508 (2017), for the rule that statutes are read as a whole. It cited DBT Yuma, L.L.C. v. Yuma Cty. Airport Auth., 238 Ariz. 394 (2015), for the rule that undefined terms get their ordinary dictionary meaning. And it borrowed an analogy from federal bankruptcy law (In re Harkins, 491 B.R. 518) where a self-employed debtor was barred from netting business expenses against income for Chapter 13 plan purposes.

Citations and references

Statutes:
- A.R.S. § 15-1670 (state university appropriations and general fund deposits)
- A.R.S. § 1-213 (common meaning of statutory words)

Cases:
- Janson on Behalf of Janson v. Christensen, 167 Ariz. 470 (1991), statute's language is the best indicator of its meaning
- Mid Kansas Fed. Sav. & Loan Ass'n of Wichita v. Dynamic Dev. Corp., 167 Ariz. 122 (1991), courts follow plain unambiguous text
- DBT Yuma, L.L.C. v. Yuma Cty. Airport Auth., 238 Ariz. 394 (2015), undefined terms get ordinary dictionary meaning
- Robinson v. Shell Oil Co., 519 U.S. 337 (1997), language read in specific and broader context of the statute
- State v. Gonzales, 206 Ariz. 469 (Ct. App. 2003), courts do not read terms into sections from which they were excluded
- In re Harkins, 491 B.R. 518 (Bankr. S.D. Ohio 2013), "income" for Chapter 13 means all gross business receipts

Source

• Landing page: https://www.azag.gov/opinions/i19-002-r18-011
• Original PDF: https://www.azag.gov/sites/default/files/2025-06/I19-002.pdf

Original opinion text

To:

John Allen

AZ House of Representatives

Questions Presented

Does Arizona Revised Statutes ("A.R.S.") § 151670(G) require the three state universities to pay a percentage of their income earned from licensure and royalty payments and the sale and transfer of intellectual property to the general fund before deducting expenses?

If the universities are not in compliance with A.R.S. § 15-1670(G), what recourse exists?

Summary Answer

Yes. Arizona Revised Statutes § 15-1670(G) requires the universities to pay a specified percentage of their income from licensure and royalty payments and income from the sale and transfer of intellectual property developed by the university before netting expenses. The universities are violating the statute if they are calculating their income from those sources by first deducting expenses and concluding, for example, that they have no income as a result.

If a university owes money to the general fund, a plaintiff with standing could sue to compel payment.

This opinion expresses no view on whether the circumstance currently exists.

Background

Arizona Revised Statutes § 15-1670(G) provides:

Beginning in fiscal year 2007-2008 and in each subsequent fiscal year for which an appropriation is made pursuant to subsections A, B, C and D of this section, each university shall deposit not later than October 1 with the state treasurer in the state general fund an amount equal to:

Twenty percent of the income from licensure and royalty payments received by the university during the preceding fiscal year.

Twenty-five percent of the income received by the university during the preceding fiscal year from the sale or transfer of intellectual property developed by the university.

(Emphasis added.) Although this statute was originally enacted in 2003, except as provided below, there have been no material changes relevant to the questions presented here.

In 2017, the Legislature amended A.R.S. § 15-1670 to add two new subsections, H and I, which require the universities to deposit "net income" into the general fund after April 30, 2017. 2017 Ariz. Laws, Ch. 328, § 1. This new provision, however, did not make any substantive changes to A.R.S. § 15-1670(G), nor did it specifically address how to interpret income received before April 30, 2017. Thus, the Legislature's 2017 amendments do not impact university payments of income from contracts or transactions prior to April 30, 2017.

Analysis

Definition of Income

The opinion request turns on the interpretation of A.R.S. § 15-1670, which governs the Arizona Board of Regents and the three State universities—the University of Arizona, Arizona State University, and Northern Arizona University. The first question is whether A.R.S. § 151670 requires the universities to pay a percentage of their income to the general fund before netting certain expenses. This is an issue of statutory construction.

The "best and most reliable index of a statute's meaning is its language." Janson on Behalf of Janson v. Christensen, 167 Ariz. 470, 471 (1991). Where the language is plain and unambiguous, courts must follow the text as written. Mid Kansas Fed. Sav. & Loan Ass'n of Wichita v. Dynamic Dev. Corp., 167 Ariz. 122, 128 (1991); see also Balestrieri v. Hartford Acc. & Indem. Ins. Co., 112 Ariz. 160, 163 (1975).

The Legislature did not supply a definition of "income" in A.R.S. § 15-1670. Absent a specific statutory definition, courts give words their ordinary meaning, and often look to dictionary definitions. DBT Yuma, L.L.C. v. Yuma Cty. Airport Auth., 238 Ariz. 394, 396, ¶ 9 (2015). "Words and phrases shall be construed according to the common and approved use of the language." A.R.S. § 1-213.

"Income" means all monies received without deducting expenses.

As discussed below, "income" without further modification means gross income, not net income, in the context of A.R.S. § 15-1670. "Income" is defined as "the value of goods and services received by an individual in a given period of time." Webster's New International Dictionary 1143 (1993). Black's Law Dictionary (10th Ed. 2014) defines income as "[t]he money or other form of payment that one receives, [usually] periodically, from employment, business, investments, royalties, gifts, and the like." Both definitions focus on the amounts that one receives, rather than any net profit calculation. In other words, the dictionary definition provides that income is all monies received. This is different from net income, defined as "the balance of gross income remaining after deducting related costs and expenses [usually] for a given period and losses allocable to the period." Webster's New International Dictionary 1520 (1993).

Additionally, the language of A.R.S. § 15-1670 as a whole indicates that the Legislature knows how to differentiate between "income" and "net income," and intended income to mean gross income in this context. See Robinson v. Shell Oil Co., 519 U.S. 337, 341 (1997) ("The plainness or ambiguity of statutory language is determined by reference to [not only] the language itself, [but also to] the specific context in which that language is used, and the broader context of the statute as a whole.").

The 2003 version of what is now Subsection G referred only to "income." The 2017 amendments to add Subsections H and I used "net income" but did not make any changes to "income" in Subsection G. Moreover, A.R.S. § 15-1670 does not authorize any exclusions from income before paying the specified percentages. Therefore, in amending A.R.S. § 15-1670, the 2017 Legislature understood the difference between "income" and "net income" and intended to apply its ordinary meaning, i.e., all monies received without deducting expenses. See State v. Gonzales, 206 Ariz. 469, 472, ¶ 10 (Ct. App. 2003) ("[w]hen the legislature has specifically included a term in some places within a statute and excluded it in other places, courts will not read that term into the sections from which it was excluded.") (citations omitted).

Other federal definitions and case law indicate that "income" means all monies received, without deducting expenses.

The federal Bankruptcy Code contains another analogous use of "income." In confirming Chapter 13 bankruptcy plans, 11 U.S.C. § 101(10A) requires debtors to calculate their "monthly income." In re Harkins, 491 B.R. 518, 521-22 (Bankr. S.D. Ohio 2013). In Harkins, a self-employed debtor sought to reduce his income calculation by deducting his business expenses. Id. at 523-24. The court held that deducting expenses was improper, reasoning that although the term "income" was not defined in the Bankruptcy Code, the plain meaning of "average monthly income from all sources" required the debtor to include all gross business receipts in his monthly income calculation. Id. at 525, 538-39, 543. In reaching its conclusion that "income" means all gross business receipts, the court considered the "broader context of the [Bankruptcy Code] as a whole." Id. at 525-30. Therefore, the definition of income, the statutory scheme of A.R.S. § 15-1670, and federal law support defining income as all monies received, without deducting any expenses.

Remedies

The opinion request also asks whether recourse is available if the universities have not been depositing the required percentage of income into the general fund pursuant to A.R.S. § 151670. An investigation into the amount of monies the universities have deposited into the general fund would require a factual investigation. Assuming, however, that the universities have not been depositing the required percentage of "income" payments each fiscal year pursuant to A.R.S. § 15-1670(G), some recourse may be available, including the commencement of a declaratory judgment action by some person(s) with standing to do so.

Conclusion

The dictionary definition, the applicable statutory scheme, and analogous federal law indicate that income means all monies received, without deducting any expenses. Consequently, A.R.S. § 15-1670 requires the universities to deposit a percentage of "income," not "net income," into the general fund, and they should not apply deductions before calculating the amounts to be paid.

Mark Brnovich

Attorney General