Legality of Pinal County transportation sales tax carve-out questionable

The Arizona Capitol Times
Thursday, July 20, 2017
Jennifer Stielow

Pinal County is asking voters this November to approve a half-cent sales tax to fund regional transportation projects. Notwithstanding the failure to advance legislation that would allow the county to levy the tax at varying rates among different classifications, the county is proceeding with ballot language to do just that.

On June 21, the Pinal County Board of Supervisors unanimously passed a resolution to narrowly levy the new tax to retail purchases and only up to a specified amount on single-item purchases despite the lack of legal authority to do so.
Under current statute, a county may levy up to a half-cent sales tax for regional transportation purposes if approved by the voters. The statute allows a “variable” rate to be levied that is less than a half-cent if specified in the ballot. However, Pinal’s ballot language calls for an outright exemption for all sales tax classes beyond the retail class. Other sales tax classifications, such as restaurants and bars, utilities, and prime contracting, will be exempt from paying the new sales tax. Moreover, the ballot also exempts retail purchases in excess of $10,000.

Realizing the current statute doesn’t provide for such carve-outs, Pinal County pursued legislation this year under HB2156 that would have allowed a half-cent county transportation sales tax to be levied “at different rates among the various sales tax classifications instead of one fixed rate, including rates of zero for transactions above stated dollar values.” Pinal County’s advocacy for HB2156 was intended to stave off local business opposition to their proposed tax increase at the November ballot, mainly from auto dealers. However, the bill was roundly opposed at the Legislature by the Arizona Tax Research Association and others from the business community.

ATRA opposed HB2156 on the basis that it would set an extremely bad precedent by allowing county sales tax bases to differ from the state and further frustrate the business communities’ goal of state and local sales tax uniformity. For decades, ATRA has continually advocated to reform Arizona’s complicated sales tax system that is grounded in an independent municipal sales tax structure that not only varies between cities but also from the state and county sales tax base that is delineated in state statute. HB2156 would have broken new ground by allowing the county sales tax base to differ from the state tax base.

Lacking the support to advance HB2156 beyond the House Ways and Means Committee, the bill’s sponsor requested a legal opinion by a Legislative Council staff attorney. The attorney opined that a legislative change was not necessary after all. That questionable opinion is what the Pinal County supervisors are relying upon to justify their position.

The county’s reliance on an opinion by Legislative Council to support its actions is risky and county officials should be concerned whether such a position would survive a court challenge. If the county is to ask its voters to approve a sales tax increase, it should not carve out certain transactions for expedience.

— Jennifer Stielow is vice president of the Arizona Tax Research Association.