Arizona’s Approved High-Earner Tax Unconstitutional, Suit Says

(Disclosure: Rose Law Group represents Ann Siner of My Sister’s Closet and Judge John Buttrick in their litigation efforts against 208.)

By Abraham Gross | Law360

An approved Arizona ballot measure that will impose a 3.5% income tax surcharge on the state’s highest earners to fund education programs is unconstitutional, a retired state judge, a state resident and her business told a state court.

In a complaint filed Monday in Maricopa County court, retired Judge John Buttrick, Ann Siner and her company, Eco-Chic — which does business under the name of My Sister’s Closet — said Proposition 208 violates the state constitution by exceeding tax limits and by restricting the Legislature’s powers.

Proposition 208, which passed in November by an approximately 52% to 48% vote, levies the surcharge on individuals with more than $250,000 in annual income, or joint filers with more than $500,000 in annual income, starting in tax years beginning from and after Dec. 31.

Arizona’s highest tax bracket currently imposes a 4.5% tax on people with more than $159,000 in income, or more than $318,000 for joint filers. The measure is estimated to raise $940 million annually to fund education programs.

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Thomas Galvin, who represents Buttrick, Siner and her company, told Law360 on Wednesday that the taxpayers were all directly affected by the surcharge. He said that Arizona businesses under S corporation status — including My Sister’s Clothing — would also be indirectly subject to the tax when their income flows through to owners like Siner who meet the proposition’s threshold.

“This is just a bolt out of the blue that just upends her business plans that have been underway for the last couple of years,” Galvin said of Siner.

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