Phoenix’s proposal would raise Transaction Privilege and Use Tax rates.
According to the city website, these taxes are paid by businesses that sell items.
The current sales tax rate in Phoenix is 2.3%, but the city wants to raise it to 2.8%.
Joe Seyton, the senior communications manager at the Goldwater Institute, a conservative think tank, told The Center Square that the tax increase proposal affects businesses that provide services.
He added that the types of businesses that would be affected by these tax increases are hotels and advertising, construction and utility companies.
The burden of this tax increase proposal falls on Phoenix businesses and consumers, according to Seyton.
He added that Phoenix is increasing taxes due to its budget shortfall.
The city projects a $92 million deficit for the 2025-2026 fiscal year and a $31 million deficit for 2026-2027.
However, Seyton explained the Arizona Constitution prevents local cities and municipalities from creating new taxes on services. He added that the Arizona Constitution’s definition of services is quite broad.
In its March 6 letter to Phoenix Mayor Kate Gallego and City Council members, the Goldwater Institute says the city is violating Article 9, Section 25 of the state constitution.
This section prevents a city from issuing a new tax like the one Phoenix is attempting, according to the institute.
The institute’s letter urged Phoenix to reject the tax increase and “any future proposed tax that may violate the Arizona Constitution.”
”They should not be trying to deal with a budget shortfall by breaking the law,” Seyton told The Center Square.
The communications manager said the Goldwater Institute is not trying to tell the city how to manage its budget, but rather it is telling the city that it “ cannot violate taxpayer rights to compensate for [the city’s] inability to balance the budget.”
Seyton said the institute recently sued another Arizonan city, Gilbert, for something similar.
Seyton explained that the city enacted an unconstitutional tax on services to fund projects like pickleball courts, splash pads and ropes courses.
”What we do see around Arizona and the country is that governments often bypass the legal process to tax their own citizens illegally. And we think that’s bad,” Seyton said.
Government officials are public servants who “should represent the interests of the people they serve,” Seyton said. He added officials need to be fiscally responsible and not abuse their powers “to increase taxes in an illegal manner when they’re unable to balance the books.”
Matt Hamada, the city of Phoenix’s senior public information officer, told The Center Square that the city did not have anyone available to speak about the institute’s letter.
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This article was published by The Center Square and is reproduced with permission.
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