September 18, 2019
The Goldwater Institute was in court this week to defend taxpayers from having to pay an illegal sales tax.
In late 2017, Pinal County voters adopted a tax to fund road construction and improvements to infrastructure. But as Goldwater Institute Vice President for Litigation Timothy Sandefur argued today in the Arizona Court of Appeals, that tax violates state law. For one thing, the tax only applies to retail sales—but Arizona law doesn’t allow counties to impose taxes just on retail. What’s more, the County’s tax contains a special carve-out so that it applies to low-price items, but not to sales of single items that cost more than $10,000. You read that right: The tax applies if you buy dog food at Walmart, but not if you buy expensive items like new cars or jewelry. That isn’t just unfair, it’s also illegal. Arizona law specifies what must be taxed when a county creates a transportation excise tax, and doesn’t allow counties to create their own rules in this way. (You can read the full details about the case, and read our briefs, in Vangilder v. Arizona Department of Revenue, here.)
And it isn’t just the Goldwater Institute that says that: The Arizona Department of Revenue, the state’s tax agency, agrees. It’s surely the first time we’ve ever been on the same side of a lawsuit, but Arizona tax officials are worried that if counties can write new rules for taxes in this way, Arizona will end up a crazy-quilt of different tax rules, handicapping businesses and harming both taxpayers and the Department itself.
Much of today’s argument turned on whether the County’s Regional Transportation Authority (RTA) acted lawfully when it first called for the election. In November 2017, it passed a resolution that asked county officials to put the tax on the ballot—but that resolution specified only a retail-only tax. The wording was changed slightly when the tax appeared on the ballot, and the County argued that that tiny change—the addition of the word “including”—transformed the tax from a retail-only tax to a tax on a wide variety of occupations and businesses. The County argued in today’s hearing that because that resolution included the language state law requires, that was good enough—but we contend that counties aren’t allowed to impose retail-only taxes or to transform taxes from one thing into another before voters approve them.
The Court of Appeals will be ruling on the case in the days to come. In the meantime, you can watch today’s oral argument here.