Phoenix’s Ride-Sharing Tax is Unconstitutional—Whatever Name You Give It

March 4, 2020
By Timothy Sandefur

Representing a group of drivers and passengers who use ride-sharing services, the Goldwater Institute filed a friend of the court brief yesterday in the lawsuit challenging the constitutionality of Phoenix’s new tax on ride-share services to and from Sky Harbor Airport. That tax, which was adopted by the city in December, drastically increased the existing tax to be picked-up and instituted a new tax to be dropped off at Arizona’s busiest airport by ride-sharing services—even though the state Constitution prohibits cities from creating or increasing “any sales tax, transaction privilege tax, luxury tax, excise tax, use tax, or any other transaction-based tax, fee, stamp requirement or assessment on the privilege to engage in…any service.”

Voters added that prohibition to the Constitution just last year, and the Goldwater Institute warned city officials when they first considered imposing this ride-sharing tax that it was illegal. Yet they chose to do it anyway, and the Attorney General swiftly responded by filing an action directly in the Arizona Supreme Court, after investigating the matter at the request of a state lawmaker. That was when Phoenix officials changed their tune. It isn’t actually an impermissible fee after all, they argued, but rather a charge imposed for the use of airport property.

This argument—as we explain in our brief—doesn’t hold water. Arizona courts have repeatedly emphasized that they don’t indulge in hypertechnical or semantic arguments in tax law, and especially not when interpreting voter initiatives that are intended to protect people from tax increases. The Constitution forbids “transaction-based” “fees” on people engaged in “services.” Here, the service is providing ride-sharing platforms and transporting people to the airport. The city’s argument is that this isn’t a transaction-based fee on the service of airport transportation, but instead only a fee for access to the airport by people engaged in the service of transportation is the sort of hair-splitting that courts have repeatedly rejected.

The city tries to argue that the fee is really just a charge for using airport facilities for commercial purposes, akin to renting a portion of property. But businesses that use the airport for commercial reasons—such as restaurants or concession stands—sign lease agreements that specify their right to use the property and retain exclusive use of that space, unlike the temporary and non-exclusive use of a ride-share car dropping off or picking up a user at the curb.

This point is made even clearer by the permit that Uber and Lyft drivers receive from the city, which states, “THIS PERMIT SHALL NOT BE CONSTRUED TO BE A CONTRACT, AGREEMENT OR GRANT OF…ANY PROPERTY RIGHT TO ENGAGE IN COMMERCIAL ACTIVITY AT THE AIRPORT.” What’s more, the law requires the city to engage in competitive bidding when it lets people use the airport for commercial purposes—and of course it didn’t do that with regard to ride-sharing companies. The reason is simple: because that’s not what’s going on here. Instead, the city is taxing airport rides, and trying to call it something else.

The case will be argued March 26 in the Arizona Supreme Court.

Timothy Sandefur is the Vice President for Litigation at the Goldwater Institute.