Although they say they don’t want to trample the will of voters, Mesa, Scottsdale and other city officials – but not Phoenix – are filing suit over the just-approved ballot proposition banning additional taxes on services.
Claiming the Prop 126’s language is ambiguous language, an unknown number of municipalities are banding together to seek a declaratory judgement that would define what constitutes a service and what can and can‘t be taxed.
The city councils in Mesa and Scottsdale in separate meetings last month voted to join the suit.
Mesa officials are concerned the new law could undermine the impact of a separate ballot question approved by votes to raise the sales tax 0.25 percent to hire more police and firefighters.
“Proposition 126 creates multiple issues and ambiguities that endanger the ability of the City of Mesa to collect and retain the Public Safety sales tax,’’ according to a statement issued by the city.
The statement was issued several days after the Mesa council met in executive session last month with attorneys, then voted without comment in public session to authorize the suit.
“Not being able to collect the Public Safety sales tax in its entirety would mean there would be fewer firefighters and police officers serving our city,’’ the statement said.
“We don’t take challenging the initiative lightly, but our commitment to Mesa voters to fund our police and fire and medical departments to ensure a safe community for our citizens makes it necessary.’’
The Scottsdale City Council voted to join the suit, and give the Ballard Spahr law firm a $50,000 retainer to represent Scottsdale’s interests.
“It is uncertain from a legal prospective exactly what effect this Proposition will have on cities’ taxing ability, including but not limited to what constitutes a “service,’’ according to a Scottsdale agenda item. “It is important to the city’s fiscal planning to have clarity regarding the effect of this proposition.’’
Kelly Corsette, a city spokesman, said Scottsdale is seeking clarity.
“Scottsdale is still working through its analysis of any potential impact given the uncertainties in the proposition arising from, among other things, the absence of a definition of “services,’’ according to Scottsdale’s statement.
The constitutional amendment was overwhelmingly approved by voters, 64 percent to 35 percent.
It prohibits the state and each county, city, town, district or other political subdivision in Arizona from imposing a new or increased tax on services that was not already in effect on Dec. 31, 2017, according to the Arizona Secretary of State’s Office.
But Mesa voters also approved Question Two, which increases the city sales tax increase, by a vote of 53 percent to 47 percent. The tax was represented to generate $15 million for the police department, to fund 65 positions, and to raise $10 million for the fire department.
Giles said hotels and restaurants already are maintaining they don’t have to pay that increase.
“We’re not going to tax realtors and doctors,’’ Giles added. “We need a judge to tell us, ‘you can tax this, you can’t tax that.’’’
“We don’t want to undo the will of the voters,’’ Giles said. “We need to know how many police and firefighters to hire.’’
Proposition 126 was viewed as an attempt to stave off future attempts by the state legislature to tax services. A bill to tax financial services was introduced in 2016, but it failed to win approval.
The proposition was sponsored by Citizens for Fair Tax Policy, which included national and state realtor groups. Advertising in support of the measure alluded to potential new taxes on veterinary services, health care and child care.
The Arizona Association of Realtors submitted more than 400,000 signatures on petitions last June to put Prop 126 on the November ballot and cover everything from their own services to medical care, barbers, lobbying services and weight-loss centers.
The desire is to protect senior citizens and the poor from new taxes that a future legislature might impose, said Holly Mabery, a Prescott real estate agent who chairs the effort.
But Mabery didn’t dispute that the ballot measure, if approved, would prevent lawmakers from revamping taxes in a way that might actually have more benefit to people on fixed incomes.
For example, Arizonans now pay taxes to purchase school supplies, clothing, over-the-counter medications and adult diapers. Under current law, lawmakers could opt to make those purchases tax-exempt, making up any lost revenues by taxing selected services.
Or they could expand the list of what’s taxable to include services and reduce the overall state sales tax rate from its current 5.6 percent.
The initiative blocks lawmakers from taxing not just basic services like medical care but also accounting, advertising, public relations, travel arrangements, nail salons, portfolio management and investment advice.
“The way we look at it, we want to draw a line in the sand that will absolutely protect Arizona taxpayers,” Mabery said.
Mabery said there’s no guarantee that any action by Arizona lawmakers would be revenue-neutral, having new taxes on services replace the levy on certain products. She said the initiative also protects against adding services to the list of what’s taxable to generate more dollars.
-Capital Media Services contributed to this report.