The Arizona Supreme Court has ruled that a historic change to the state’s income tax rate estimated to result in a $1.9 billion tax cut for Arizonans is not subject to review by voters and can be implemented.
Thursday’s decision comes just two days after the justices heard oral arguments in a case involving an effort to kill two provisions of Senate Bill 1828, an omnibus appropriations bill signed by Gov. Doug Ducey in June 2021. The provisions change Arizona from a four-rate income tax structure to a simple 2.5 percent across the board rate effective January 2025.
Invest In Arizona, which is sponsored by Arizona Education Association and Stand for Children, submitted signatures on referendum petitions to Arizona Secretary of State Katie Hobbs last fall. Hobbs later announced the matter would be placed on the November 2022 General Election ballot as Proposition 307.
The Arizona Free Enterprise Club and several individuals challenged the referendum plan, arguing that the Arizona Constitution does not allow for referendum of legislative actions “for the support and maintenance of the departments of state government and state institutions.”
And in an incredibly quick turnaround, the Arizona Supreme Court issued its decision agreeing with the arguments against referendum.
“The Court en banc has considered the briefs, authorities, and arguments in this appeal,” the decision states. “The Court finds that §§ 13 and 15 of S.B. 1828 do fall within the support and maintenance exception to the Arizona Constitution, and thus may not be referred to the voters.”
The justices’ decision reverses a Maricopa County judge’s earlier order that held only legislative acts related to appropriations or expenditures were exempt from Arizona’s voter referendum provision. The decision was welcomed news for Scot Mussi, president of Arizona Free Enterprise Club and one of the individual plaintiffs.
“Today’s decision from the Arizona Supreme Court is a big win for taxpayers in our state,” said Mussi. “The legislature passed historic tax cuts last year that benefit all Arizona taxpayers. It’s time for Invest in Arizona and out-of-state special interest groups to accept this reality and stop making a farce of the referendum process.”
As a result, there will be no referendum and state officials are allowed to take steps to ensure SB1828’s 2.5 percent flat income tax rate is ready to go into effect in January 2025. Several Republican lawmakers have even begun expressing an interest in moving the effective date up one, even two years, in light of Arizona’s multi-billion dollar budget surplus.
House Majority Leader Ben Toma was very involved in the discussions which led to passage of SB1828 last year. He is also active during the current legislative session with budget negotiations, and hailed to Arizona Supreme Court’s quick decision on the referendum issue.
“In 2021, Republican legislators provided historic tax relief to all Arizona taxpayers,” Toma stated Thursday. “The Supreme Court’s decision provides clarity and certainty that Arizonans will get this relief at a time when they need it most.”
The decision released Thursday did not mention how many of the seven justices concurred with the not-referrable decision. Nor was it disclosed whether some justices reached that determination based on one legal argument while another justice or justices came to the same outcome based on a different argument.
A formal written opinion explaining the ruling will be released in the coming weeks. Until then, it remains unclear whether all legislation related to generating revenues is off-limits to referendum, or if there was a narrow issue specific to SB1828 which led to the justices’ decision.
The Goldwater Institute filed an amici curiae (friends of the court) brief in support of the plaintiffs along with the Arizona Attorney General’s Office.