By Matthew Holloway |

The City of Phoenix has drawn the attention of the Goldwater Institute, earning a stern response from the conservative think tank to “Stop violating taxpayers’ rights.” The rebuke comes over a proposed tax increase on businesses that provide services that are precluded by the Arizona Constitution. A final city council vote on this proposal is set for March 18, 2025.

If the hike on Transaction Privilege (“TPT”) and Use Tax rates is approved, the rates go into effect July 1, 2025.

According to Goldwater, “The city of Phoenix has proposed a tax increase on businesses that provide services, claiming it needs the money because of a revenue shortfall. But the burden of the new tax increase will ultimately fall hardest on Phoenix businesses and consumers, raising the prices of services like construction contracting and lodging.” As Goldwater observes, the Arizona Constitution (Art. IX § 25) outright forbids “any county, city, town, municipal corporation, or other political subdivision of the state, or any district created by law” from creating any new or increasing any existing transaction-based taxes on the “privilege to engage in, or the gross receipts of sales or gross income derived from, any service performed in this state.”

Notably though, the prohibition on Section 25 “does not repeal or nullify any tax, fee, stamp requirement, or other assessment in effect on December 31, 2017,” and therefore allowed the pre-2017 taxes already in place. However, as Goldwater Attorney Stacy Skankey explains, the new rates would constitute a new tax under the law.

Skankey wrote succinctly, “New or increased taxation on services violates the Arizona Constitution.”

“The Arizona Constitution has a broad understanding of the term ‘service,’ and it includes a range of covered enterprises on anything that does not produce ‘goods.'”

“Service generally includes activities involving human effort like labor, skill, or advice. The term also covers businesses in the hospitality industry such as hotels, restaurants, and bars. Many of the business classifications subject to the proposed TPT tax increase are services as that term is used in the Constitution.

“The proposal by the Phoenix City Council is a tax increase on services, and therefore, is unconstitutional. Consequently, we urge the City to disapprove of the proposed TPT tax increase and any future proposed tax that may violate the Arizona Constitution.”

As reported by AZ Free News in January, the Goldwater Institute has already launched a lawsuit against the Town of Gilbert after municipal leaders unleashed a similar service tax on Town businesses including homebuilding and short-term rental properties.

Matthew Holloway is a senior reporter for AZ Free News. Follow him on X for his latest stories, or email tips to Matthew@azfreenews.com.