Goldwater Asks Judge to Force AZ Tax Bureaucrats to Return Stolen $90 Million

Goldwater Institute lawyers are heading to court today to ask an Arizona judge to force Pinal County and the state’s Department of Revenue to return $90 million that the government illegally took from Pinal County taxpayers, but which both county and state officials are refusing to give back.

More than five years have passed since the state’s Tax Court declared Pinal County’s “transportation excise tax” illegal—and almost two years have elapsed since the Arizona Supreme Court agreed with that ruling—yet both county and state officials have still not returned a penny of this illegally obtained money to Pinal County taxpayers. This despite the fact that the Department of Revenue—one of the defendants in the lawsuit—admitted all along that the tax was unlawful.

The dispute began in 2017, when Pinal County leaders adopted Proposition 417, a tax carefully—and weirdly—designed to apply differently to expensive items than to less-expensive items. The scheme the county adopted taxed the purchases of items that cost less than $10,000—but not expensive, big-ticket items—out of a desire to neutralize political opposition to the tax by luxury retailers. But that violated state law, which specifies how such taxes are to be designed, and doesn’t let counties tax things differently based on their prices.

The Institute therefore filed suit on behalf of Pinal County taxpayers to prevent the implementation of the illegal tax. But in an unusual move, the Arizona Department of Revenue—responsible for collecting the tax—agreed with the taxpayers that Pinal County’s scheme was illegal. Yet both the department and the county insisted nevertheless on continuing to collect the tax, even after the Tax Court declared it illegal in July 2018. They repeatedly reassured the judge that they would give the money back if the county lost its appeal of that ruling.

That appeal took four years, until March 2022, when the Arizona Supreme Court agreed with the taxpayers (and the Revenue Department) that the tax was invalid. And immediately after that ruling, both the county and the Department of Revenue filed documents with the Tax Court promising that they would soon create a way for taxpayers to get refunds.

And then nothing happened.

At the end of summer 2023, the department—which had formerly posted a notice on its website promising to create a refund process soon—changed that website, and posted a new notice announcing that “questions remain as to the proper disposition of these monies,” and that the state therefore “cannot process any refund claims.” Meanwhile, the county says it has no way to provide refunds, either.

The Institute immediately filed a motion with the Tax Court asking for an order commanding both the county and the department repay the illegally acquired money—which now totals over $90 million, according to an affidavit filed by the county. Remarkably, however, when the department filed its answer to that motion, only days ago, it declared that there was still a “lack of a dedicated method to process claims,” and that the county and the department have only “preliminarily agreed to the division of tasks related to…refund processing.” In other words, five years after the court declared the tax illegal—almost two years since the state’s Supreme Court upheld that reading, and six months after the taxpayers filed this motion—the government still has no plans to return the money, and has only a “preliminary” idea in place of how to do so. This despite the fact that the department’s lawyers conceded all along that the tax was illegal, and promised to repay it.

For Pinal County and the Department of Revenue to continue holding this money is intolerable. No private citizen would be allowed to defy the legal system in this way, and the rules should be the same for the government. In 1989, the Arizona Supreme Court observed that “an honorable government would not keep taxes to which it is not entitled,” and at today’s hearing, Goldwater Institute lawyers will ask the Tax Court to issue an order that ensures both the legal and the honorable outcome: that all this illegally acquired money is returned to the people of Pinal County.

Timothy Sandefur is the Vice President for Legal Affairs at the Goldwater Institute.