by Timothy Sandefur
This morning, the Arizona Tax Court declined to issue an order barring the collection of Pinal County’s illegal Proposition 417 tax. That tax—which is the subject of a lawsuit in which we represent a group of taxpayers—violates Arizona law because although the voters approved only a tax on retail sales of items that cost less than $10,000, the County has decided to tax a wide variety of businesses, including restaurants, hotels, and so forth, which voters did not approve. On the other hand, state law also doesn’t allow the County to just tax retail sales below $10,000, either. Even the Arizona Department of Revenue has said in its court papers that what the County’s doing is unlawful.
What taxpayers asked the judge for this morning was an order barring enforcement of the tax. That’s because the County has announced that it will begin collecting the tax in a week, and Pinal County businesses will be forced now to begin paying the illegal tax right away, in hopes that they can get refunds later. Our lawyers asked the court to halt that, to give the court time to decide the legal questions. But such orders are rare, and although they are allowed, tax courts are often reluctant to issue them. The court gave no explanation for choosing not to, but the bottom line is that the case will proceed as normal, with the parties arguing out their differences over the legality of the tax.
Unfortunately, that not only means that Pinal County businesses will suffer (well, those that charge less than $10,000 for their products, anyway—high-end merchandise is exempt), but also that the County itself will be on the hook for repaying not just the taxes, but also the interest on those taxes, if and when it ultimately loses.
That seems pretty likely, given that the County has instructed state tax officials to collect the tax on all the classifications—which voters did not approve. As for the $10,000 cutoff, that’s not allowed under Arizona law—as the Department of Revenue itself told the judge: “The county’s attempt to exclude revenues from single items in excess of $10,000,” it said, “is not consistent with [state law].” Counties “lack authority” to rewrite state tax law in this way. And trying to do so is bad for Arizona taxpayers and businesses. If allowed, it would create a patchwork of different county tax rules that would scare away businesses and result in inconsistent, confusing, and abusive tax law.
To learn more about the case, check out our case page.
Timothy Sandefur is Vice President for Litigation at the Goldwater Institute and holds the Duncan Chair in Constitutional Government.