Mesa Considers Lawsuit Against Ban On Service Taxes

By Mariana Dale
Published: Tuesday, December 11, 2018 - 4:43pm
Updated: Tuesday, December 11, 2018 - 5:07pm

The City of Mesa plans to challenge the legality of a ballot measure that prohibits new or increased taxes on services.

The City Council voted unanimously Monday to “authorize the city’s legal council to file a lawsuit on behalf of the City of Mesa to challenge the legality and the applicability of Proposition 126.”

The City of Mesa issued a statement in response to KJZZ's request for an interview saying "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."

City of Mesa statement on Proposition 126
City of Mesa
City of Mesa statement on Proposition 126.

“One of the big issues of Prop 126 is it ties the hands of our state legislature and also of our city councils,” said David Lujan, director of the Arizona Center for Economic Progress. “When they need to raise revenues to get through difficult economic times or fund an important priority it really limits their ability and options they can look to to raise revenue.”

64 percent of voters approved the measure.

“Prop 126 has design flaws,” said Dave Wells, the research director at the Grand Canyon Institute.

Wells explained that sales tax in Arizona isn’t separated between goods or services.

There’s no clear answer to whether buying a round of drinks at your favorite bar, a basket of french fries or a night at a hotel is considered a service or a good.

If it’s the former, like some economists say, any new taxes would be illegal.

Wells’ research predicts significant losses for state education funding and cities like Mesa where voters just approved a sales tax to pay for public safety. 

The increase boosts the city’s sales tax from 1.75 to 2 percent and is estimated to raise $25 million a year to, among other things, hire police officers. Wells said Proposition 126 would eliminate $10 million.

That might be one factor why Mesa leaders directed the city attorney to start working on a lawsuit challenging Proposition 126.

Ken Strobeck is the executive director of the League of Arizona Cities and Towns (which opposed the measure) said there are two “tests” that might cause a governing body to challenge a law.

“Does this in some way limit city authority, the ability to make local decisions at the local level and number two, does it affect our income, our revenue,” Strobeck said.

The Arizona Association of Realtors was one of the largest advocates for Proposition 126.

President of the organization Patrick Lewis told KJZZ’s The Show in October, Proposition 126 does not affect any revenue or tax that’s in place now.

“We firmly believe that small businesses and service-oriented businesses that are already paying taxes should not have the possibility of being double taxed,” Lewis said.

This story has been updated.

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