scale and gavel
Maricopa County Superior Court Judge Strikes Down Prop 208

March 11, 2022

By Terri Jo Neff |

Several Arizona legislators along with the Free Enterprise Club and the Goldwater Institute are celebrating a major court victory for Arizona taxpayers after a Maricopa County Superior Court judge struck down the largest tax hike in state history on Friday.

Judge John Hannah’s ruling bars enforcement of Proposition 208, which imposed a significant income tax surcharge on small-business owners and individuals making over $250,000 a year. Prop 208, also called the Invest in Education Act, was narrowly passed by voters in November 2020 and was immediately challenged in court on multiple grounds, including a conflict with Arizona’s Constitution.

Governor Doug Ducey called Hannah’s ruling “a win for Arizona taxpayers,” adding that it is marks “another step in undoing the damage of Prop 208 and making sure we continue to benefit from having the lowest flat income tax rate in the nation.”

The Goldwater Institute-sponsored lawsuit was filed in February 2021 on behalf of numerous taxpayers, small business owners, and legislators. Last summer, the Arizona Supreme Court agreed with the plaintiffs’ argument that the surcharge taxes from Prop 208 were considered “local revenues” subject to spending limits under the state’s Constitution.
The Justices sent the case back Hannah for a determination of whether Prop 208’s Local Revenues Provision runs afoul of the Constitution’s Education Expenditure Clause by violating that limitation. In a decision today, the judge agreed that Proposition 208 violated the Constitution.

“This Court understands the remand order as a direction to declare Proposition 208 unconstitutional in its entirety, and to enjoin its operation permanently, if the Court finds as a fact that the annual education spending limits imposed by the Arizona Constitution will prevent Arizona’s public schools from spending a ‘material’ amount of Proposition 208 tax revenue in 2023,” Hannah wrote in his ruling. “On that basis, the Court is obligated to strike down Proposition 208.”

Reaction to the ruling came swiftly, despite a possibility the Justices may be asked by the losing parties to review Hannah’s order later this year.

“While we expect the ruling may be appealed, we are confident the Arizona Supreme Court will find 208 unconstitutional, as they did last year. Arizona is – and will remain – a state that knows how to prioritize education while keeping taxes low and attracting jobs,” Gov. Ducey said.

Senate President Karen Fann, one of the plaintiffs, called Friday’s ruling “a major victory” against an initiative she said misled voters by trying to get the tax-and-spend hike around the Constitution.

“Out-of-state special interests tried to deceive our voters,” Fann said after Hannah released his ruling. “We are thrilled that this job-killing tax hike won’t go into effect.”

Many attributed the success of the lawsuit to the work of the Goldwater Institute which pointed out concerns with Prop 208’s constitutionality well before Election Day in 2020.

“Today’s decision puts a nail in the coffin of the unconstitutional, job-killing Proposition 208, and it cements Arizona’s position as the national leader in lower taxes and building a stronger economy,” said Victor Riches, President and CEO of the Goldwater Institute.

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