Advocacy Group Sues To Block Effort Which Could Overturn Arizona’s New Tax Structure

July 23, 2021

By Terri Jo Neff |

A lawsuit filed in Maricopa County Superior Court on Wednesday argues that efforts to have voters decide whether Arizona’s new flat-rate income tax and other tax law changes should go into effect are unconstitutional.   

The Arizona Free Enterprise Club (AFEC) is among the plaintiffs seeking a court order to bar the acceptance of petition signatures gathered by Invest In Arizona, a political committee sponsored by Arizona Education Association and Stand for Children – Arizona, which wants voters to overturn three revenue-related bills recently signed by Gov. Doug Ducey.

The problem with Invest in Arizona’s plan, the lawsuit argues, is that Article 4 of the Arizona Constitution prohibits referendums of legislation which deals with revenues and appropriations used for the “support and maintenance of the departments of state government and state institutions.”

AFEC is a nonprofit 501(c)(4) corporation organized and operated for the promotion of social welfare. It does so by engaging in public education and advocacy in support of free markets and economic growth in the State of Arizona.

Joining AFEC as plaintiffs in the lawsuit is the group’s executive director, Scott Mussi, as well as Diane Schafer, a registered voter from Yavapai County.

The legislation which Invest in Arizona wants to challenge via referendum are Senate Bills 1783, 1827, and 1828. The bills were passed near the end of the recent legislative session and then signed by Gov. Doug Ducey.

SB1828 amends Arizona’s current income tax brackets and tax rates and provides for a single income tax rate of 2.5 percent conditioned on certain general fund revenue thresholds. It was the cornerstone of Ducey’s budget package approved by the legislature earlier this month.

A companion bill, SB1827, ensures an individual taxpayer’s taxable income will not be subject to an overall marginal tax rate of more than 4.5 percent when a tax surcharge from Prop 208 (Invest In Ed) is considered.  Meanwhile, SB1783 allows certain small business owners to pay an alternative small business tax.

The legislation is slated to take effect 90 days after the governor affixed his signature. That 90-day window provides time for challengers to initiate a petition signing drive to take the matter out of lawmakers’ hands and put it before voters across the state via a referendum.

Getting a matter onto a ballot as a referendum requires valid petition signatures to be submitted to Arizona Secretary of State Katie Hobbs equal to five percent of the total votes cast in the last gubernatorial election. If that happens, then the new laws would remain on hold until voters have their say in a statewide election.

And that, according to AFEC, Mussi, and Schafer, should not be allowed to happen with SB1783, 1827, and 1828 because each deals directly with the generation of state revenue for funding Arizona’s state government and state institutions.  Their lawsuit asks a Maricopa County judge to bar Hobbs from accepting petition signatures for any of the three bills.

“The filing of petitions in support of the Proposed Referenda will injure the Plaintiffs and all Arizona taxpayers by unconstitutionally delaying the effective date of non- referrable laws duly enacted by the elected Legislature and approved by the Governor,” the lawsuit states.

The plaintiffs are represented by Thomas Basile of the Statecraft Law Firm. Basile says his clients are not against voter referendums in general and only initiated this legal action to ensure the Arizona Constitution is followed by Hobbs’ office.

“At the core of our case is that while the right of referendum is broad, it is not unlimited,” he told AZ Free News on Thursday. “The framers of our Constitution carved out certain categories exempt to referendum, such as in the case of tax reform and appropriations.”

Hobbs is named as a defendant in her official capacity as the state officer responsible for accepting or rejecting referendum petition sheets. Invest in Arizona is also named as a real party in interest.

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