Court Strikes Down Pinal County’s Discriminatory Tax

by Timothy Sandefur
August 2, 2018

Pinal County’s discriminatory transportation excise tax—enacted as Proposition 417 in November—violates state law and must be struck down, according to a decision announced early this morning by the Arizona Tax Court. The case, litigated by lawyers with the Goldwater Institute, represents a major victory for taxpayers throughout Arizona.

State law allows counties to adopt transportation excise taxes to pay for road improvements—but dictates precisely how such taxes are supposed to be designed. Pinal County disregarded those requirements, however, and tried to design a different system that exempted large items from taxation entirely. The tax did not apply to single sales of individual items that cost $10,000. That meant it applies to things bought at Walmart or Target, but not to new cars. This discriminatory treatment was designed to prevent politically powerful businesses from opposing the tax measure when it was put to voters.

Remarkably, the Arizona Department of Revenue agreed with taxpayers that the tax was illegal. The $10,000 cutoff, it pointed out, led to so much confusion that taxpayers were filling out paperwork incorrectly, forcing the Department to engage in audits. If other counties in the state adopted similar tax rules, it argued, the result would be chaos. That’s why Arizona lawmakers created a single, strictly designed system for counties to follow.

Today’s ruling went even further. The county initially told voters that it would tax only retail businesses, wrote Judge Christopher Whitten. But then it instructed state tax officials to collect the tax from all businesses in the county. That alone was illegal, the judge ruled. And that meant the tax had to be barred entirely, even aside from the $10,000 exemption.

From the beginning, this tax was poorly written, leading to confusion and unfairness. Today’s decision is a major step toward ensuring uniformity and preventing favoritism—all critical steps to making Arizona a good place to do business.

Timothy Sandefur is the vice president for litigation at the Goldwater Institute’s Scharf-Norton Center for Constitutional Litigation.