A lawsuit filed Thursday seeks to halt citizen petition drives that would let voters decide the fate of cuts to Arizona’s income tax on the 2022 ballot.
The suit argues the referendum drives launched by Invest in Ed and Stand for Children are unconstitutional. It cites a provision of the state Constitution that states any tax measure that is “immediately necessary … for the support and maintenance of the departments of the state government and state institutions” cannot be referred to.
The tax policies in question seek to cut state taxes. Collectively, the state’s legislative budget office estimated the policies would amount to a $1.5 billion permanent cut to state revenue.
The lawsuit was filed in Maricopa County by the Free Enterprise Club, Scot Mussi, the club’s president, and Yavapai County resident Diane Schafer.
It asks the court to declare the tax policies are indeed necessary for the support of the state government. It also seeks an injunction to block the filing of any petitions, and a directive to Secretary of State Katie Hobbs to not accept any such petitions.
It’s a response to a trio of measures filed earlier this month that object to tax policies the Legislature approved in late June.
Rebecca Gau, executive director of Stand for Children, called the filing the latest attack on Proposition 208, a voter-approved measure from last fall that imposes a 3.5% education surcharge on income earned above $250,000 (or $500,000 filing jointly).
“It’s a totally frivolous lawsuit,” Gau said.
She noted the timing was odd, given most challenges to referenda come in after petitions are filed to put the issue on the ballot.
Invest in Ed has until Sept. 28 to gather 118,823 signatures from registered voters to put a pause on the tax issues until voters can decide the matters in November 2022. Gau said Invest in Ed supporters are out on the streets already with thousands of petitions.
Kory Langhofer, an attorney who is representing the plaintiffs, did not return a phone call seeking comment on the filing.
A closer look: Here’s what the Legislature’s tax plan would mean for you
What the tax policies do
The tax policies targeted by the referendum drives do the following:
• Lower income tax rates to 2.55% and 2.98% this year, with the goal of reducing it to a single rate of 2.5% within three years.
• Cap the top rate for income at 4.5%. This allows for the collection of the education surcharge created by Proposition 208, but effectively reduces a taxpayer’s tax contribution to the state’s general fund to 1%.
• Create a new income tax category for small businesses. It was crafted to allow many of Arizona’s higher-income earners to avoid the 3.5% education surcharge. The new category covers “interest, dividends, profits and certain capital gains.” That captures many small businesses, but also includes individuals with investment earnings.
Reach the reporter at maryjo.pitzl@arizonarepublic.com and follow her on Twitter @maryjpitzl.
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