Goldwater Takes On Phoenix Over Alleged “Unconstitutional Tax Scheme”

By Matthew Holloway |

The Goldwater Institute has issued a warning to the City of Phoenix, urging a halt to what it views as violations of taxpayers’ rights. This reaction arises from a proposed tax increase aimed at businesses providing services, which the organization argues contradicts the Arizona Constitution. The city council is scheduled to cast its final vote on this tax proposal on March 18, 2025.

If approved, the increase in Transaction Privilege (“TPT”) and Use Tax rates will take effect on July 1, 2025.

The Goldwater Institute argues that Phoenix’s proposal is a response to a revenue shortfall but emphasizes that the resulting tax burden will ultimately impact local businesses and consumers. This could lead to heightened service prices, particularly in sectors like construction and hospitality. The organization points out that Article IX § 25 of the Arizona Constitution strictly prohibits any entity from implementing new or increased transaction-based taxes on services within the state.

While acknowledging that the prohibition does not annul taxes previously established before December 31, 2017, Goldwater lawyer Stacy Skankey contends that the new tax proposals constitute a violation of the law. She states, “New or increased taxation on services violates the Arizona Constitution.”

Skankey elaborates, noting that the Constitution’s definition of ‘service’ encompasses a wide array of activities that do not result in the production of tangible goods, including sectors like hospitality, construction, and more. “The proposed TPT tax increase directly targets services as outlined in the Constitution, making it unconstitutional.”

The Goldwater Institute is advocating for the rejection of this proposed tax increase, warning against any future taxes that may contravene constitutional guidelines. In January, the organization had already initiated legal action against the Town of Gilbert for implementing a similar service tax affecting local homebuilders and short-term rental businesses.

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