Protecting Taxpayers from New Fees on Services

Arizona voters amended their Constitution in 2018 to forbid state and city governments from imposing any new or increasing any existing fees or taxes on services in the state. Nevertheless, in December 2019, the city of Phoenix adopted a new drop-off fee and increased the existing pick-up fee to for ride-sharing services to and from Sky Harbor, the state’s busiest airport. Shortly thereafter, the Attorney General’s office—discharging its legal obligation to challenge unconstitutional city laws—filed suit in the Arizona Supreme Court, asking the justices to declare the new fees invalid.

The city argues that the taxes aren’t “transaction-based” fees on “services,” which is what the Constitution prohibits. Instead, it claims the fees are simply charges for using airport facilities for commercial purposes. But that’s implausible, given that the city itself described them as fees for services when it was first considering whether to adopt the requirement. Only once the lawsuit began did the city claim that the fees were for accessing airport facilities. What’s more, the paperwork the city gives to ride-sharing platforms specifies quite clearly: “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.” And while the city does routinely grant leases to businesses for using airport facilities—such as restaurants or souvenir stores—those agreements are totally unlike the fee imposed on ride-sharing trips. For one thing, actual leases for using airport facilities must be done through competitive bidding—but that doesn’t happen for ride-sharing. Additionally, retail stores at the airport 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.

In reality, the city is trying to use a hair-splitting argument to impose a fee on trips to the airport by claiming it’s only a fee for access to the airport. Arizona courts, however, don’t indulge in that sort of hypertechnical or semantic argument when interpreting tax laws—let alone ballot initiatives that voters adopted with the aim of protecting themselves against tax increases.

Representing a group of Uber and Lyft drivers and passengers, we filed a friend of the court brief in support of the Attorney General’s position that the fee is unconstitutional. When voters amended the state Constitution, they plainly intended to bar cities from imposing new fees on services—and that goal shouldn’t be defeated by mere wordplay.