Victory! Court Strikes Down Illegal Tax

The Goldwater Institute won a victory for taxpayers this morning when the Arizona Supreme Court struck down Pinal County’s illegal transportation excise tax. Goldwater represented a group of taxpayers and business owners in challenging the tax, which, among other things, only applied to purchases of less than $10,000, with the consequence that the tax burden fell primarily on lower- and middle-income taxpayers, as opposed to the wealthy.

That bizarre tax structure came about when county officials tried to neutralize political opposition to the tax by ensuring that it wouldn’t apply if people bought expensive items such as luxury cars or farm equipment. But subdividing the tax in that way violates Arizona law, which creates a carefully designed set of tax categories, and doesn’t allow counties to create their own.

Pinal County claimed it could subdivide the tax in this way because the law lets counties set a “variable rate” in a tax, and that it was simply setting the “rate” of some sales at zero. But the state Supreme Court today rejected that argument. “The term ‘variable’ means ‘something subject to change,’” it declared. “But in this case, Pinal County’s two-tiered tax rate structure—which establishes a positive tax rate and a tax rate of zero percent—sets fixed tax rates that never vary and are never subject to change.”

The legislature intended state taxes to be uniform—not to allow each of the state’s 15 counties to set their own rules. To allow that would make Arizona inhospitable for business, because it would transform the state into a crazy quilt of different tax rules in each locality. That’s why the Arizona Department of Revenue—in an unusual move—sided with taxpayers in this case, agreeing that Pinal County broke the law when it created its two-tier tax system.

Today’s long-anticipated decision is the Goldwater Institute’s seventh win before the Arizona Supreme Court. And it marks a victory for taxpayers not just in Pinal County but throughout Arizona. In tough economic times—with inflation and fuel costs rising—the last thing Arizona needs is for public officials to create more and more complicated tax rules that take more of people’s earnings away and drive away job-creating industry.

What’s next? After the final judgment is issued in the case, Arizona retailers should be entitled to refund the taxes they were illegally forced to pay. Business owners should consult their attorneys and accountants for information on how that process works.

You can learn more about the case here.

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