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Arizona Tax Officials Agree with Goldwater: Pinal County Tax is Illegal

May 22, 2018

by Timothy Sandefur
May 22, 2018

Yesterday, we filed a brief asking an Arizona judge to rule that Pinal County’s transportation excise tax—enacted as Proposition 417 last November—violates state law. Remarkably, the state’s taxing agency filed a brief agreeing with us that the county’s tax is illegal.

The Prop. 417 tax has an almost comical number of problems. First, in an attempt to create a special carve-out for politically influential groups in the county, it established a special exemption for sales of individual items that cost more than $10,000. If you buy multiple items that add up to $10,000, you don’t get an exemption. It’s clear from what the county told the state legislature last year that this carve-out was designed to ensure that car dealers and farm equipment dealers wouldn’t oppose the tax at the election. But that’s illegal: the Constitution forbids the government from creating these kinds of special carve-outs for political purposes.

What’s more, Arizona law clearly requires these taxes to apply in specific ways to specific businesses—it doesn’t allow counties to create new exemptions. As the Department of Revenue puts it in their brief, “the attempt to exclude proceeds from the retail classification tax base is violative of state law.” While counties can create “variable” tax rates, that “does not encompass charging one rate on part of the tax base and a zero rate on another part of the tax base.”

Another problem is that the language in the voter information pamphlet actually differed from the language that appeared on the ballot. Voters were told in the pamphlet that the Prop. 417 tax would be applied (as state law requires) to all businesses in the county. But on the ballot, the language was different: it said the tax would only apply to retail sales. After the election, the County asked the Department of Revenue to implement the language from the pamphlet, and not the language that the voters actually approved. But, of course, that kind of bait-and-switch is also illegal. In its brief, the Department refused to take a stand on this—they say they’re just following orders—but it’s pretty clear that they think it’s illegal. And it is.

The next step in the case is for the court to hold a hearing on whether to issue the order that we and the Department of Revenue agree is appropriate: that Pinal County’s new tax is illegal, and that if the county wants to add further taxes onto its already overtaxed populace, it has to at least do it in the way the law prescribes.

Timothy Sandefur is Vice President for Litigation and holds the Duncan Chair in Constitutional Government at the Goldwater Institute.

Watch Timothy Sandefur discuss the case, below:



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