Arizona Supreme Court likely sinks Proposition 208

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

By Arjun Rondla | Chamber Business News

The Arizona Supreme Court last Thursday issued a ruling that puts the future of Proposition 208 on shaky ground.

Narrowly adopted by voters last November, Proposition 208 sought to increase Arizona’s top state income tax rate by more than 77 percent, ratcheting the rate up from 4.5 percent to 8 percent and taking the top rate to one of the nation’s highest. 

Many small businesses, which file their taxes as pass-through entities, would have been impacted by the tax hike since they pay their taxes on the individual tax code, not the corporate tax code, which has a 4.9 percent income tax rate.

Since the proposition’s passing last year, the Arizona Legislature passed and Gov. Doug Ducey signed a phased-in 2.5 percent flat income tax for most taxpayers. Under the new tax schedule, the state income tax cannot exceed 4.5 percent once any surtaxes are factored in, such as the 3.5 percent surtax included in Proposition 208.

The court ruled that the proposition’s attempt to bypass expenditure limits in the state constitution by classifying the new tax revenues as “grants” was unconstitutional. 

The court noted that Invest in Education — the proposition’s writers — had “requested a review of the initiative’s language from Arizona’s Legislative Council, who opined that the provision defining Prop. 208 money as grants and not local revenues was ‘likely invalid’ because it conflicted with the Education Expenditure Clause [of the state constitution].”

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