Goldwater Demands AZ Tax Bureaucrats Return $80 Million in Illegally Taken Taxes

More than a year after the Arizona Supreme Court ruled that Pinal County officials broke the law when they adopted a multimillion-dollar “transportation excise tax,” the county—and the state’s tax agency—have still not returned a dime of their $80 million in ill-gotten gains. In fact, despite repeatedly promising to refund the illegally obtained money, the Arizona Department of Revenue announced days ago that it would not process refund requests at all. That’s why the Goldwater Institute has gone back to court to demand that state and county bureaucrats obey the law and repay the taxes they illegally took.

The lawsuit actually began five years ago, when Pinal County officials adopted a sales tax to pay for road repairs. They knew imposing a new tax was a risky move, because any such tax requires voter approval—and Pinal County voters are tired of the way the county had wasted millions of tax dollars intended for road repairs, and left the roads in the same bad shape as ever. So officials came up with a clever scheme to neutralize political opposition to their proposed tax: they would apply it only to sales of items below $10,000, but not above that. That would ensure that powerful private interests in the county wouldn’t oppose the tax at the ballot box.

The only problem with that plan? It was illegal. Arizona law specifies how taxes are supposed to be designed, and the law doesn’t let counties divide up taxes by dollar amount in that way.

The Goldwater Institute warned the county months before the election that the tax was illegal—but the county ignored that warning, and passed it anyway. Then, when we sued on behalf of taxpayers, the county insisted on collecting the tax during the lawsuit—and even after the judge agreed with us and declared the tax illegal, it continued collecting the taxes. And it did so with the help of the Arizona Department of Revenue, despite the fact that the department also agreed that the tax was illegal! Over and over, lawyers for the county and the Department of Revenue reassured judges and taxpayers that if the state Supreme Court ultimately declared the tax invalid, taxpayers would get their money back—with interest.

And sure enough: in April 2022, the Arizona Supreme Court ruled that the tax was illegal. Just days later, the Department of Revenue issued a public statement promising to begin refunding taxpayers.

And then—nothing. No action was taken…no tax dollars were repaid, and no refund applications were provided. When taxpayers called the Revenue Department to ask how to get their money back, they were given no answer.

That changed on August 30, when the Department of Revenue posted a new notice on its website, announcing that it would not process any refund applications, and would not return the money. According to some estimates, the department and the county are now sitting on a pot of $80 million illegally taken from taxpayers. The department blames the county, but whoever is at fault, the bottom line is clear: taxpayers are legally entitled to refunds—and the state and county government meets are refusing to give the money back.

Arizona law could not be clearer: Pinal County and the Department of Revenue must repay this money.

So the Goldwater Institute has returned to court, filing a new motion asking the trial judge to issue an order commanding the state and the county to obey the law, and return the money they promised to return—money they have no right to keep, because they had no right to take it.

You can read our motion here and learn more about the case here.

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