In a big win for Arizona taxpayers, Maricopa County Superior Court Judge Christopher Coury ruled that a nearly $1 billion income tax hike cannot appear on the November ballot due to its misleading language.
Backers of the Invest in Education initiative said it would have imposed “a 3.5% surcharge on taxable income above (a) $250,000 annually for single persons or married persons filing separately, and (b) $500,000 annually for married persons filing jointly or head of household filers.” Three and a half percent sounds like almost nothing, but as the Judge pointed out, that is shockingly and deliberately dishonest.
“Invest in Education circulated an opaque ‘Trojan horse’ of a 100-word description, concealing principal provisions of the initiative,” said Coury in his 20-page ruling. One of his main concerns with the initiative is its use of the word “surcharge” in the description.
“Although the use of the term ‘3.5% surcharge on taxable income’ may be perfectly understood by some Arizona voters to be permanently adding 3.5 percentage points to the taxation rate – an increase 77.7% in the tax rate on taxable income above the threshhold – others reasonable Arizona voters may understand a “surcharge” to mean a temporary tax, or to mean a modest 3.5% increase of the existing tax rate,” explained Coury. “The use of the term ‘surcharge’ creates a substantial likelihood of confusion for a reasonable Arizona voter.”
Coury also noted that the description fails to inform voters that the proposed tax increase would apply to more than just the “wealthy.” It would also apply to a number of small businesses, which are already struggling from the pandemic. Coury explained:
“Under applicable tax law, income generated by businesses – sole proprietorships, limited liability companies, S-corporations, and partnerships – that is not paid at the business level ‘passes-through’ to individuals and is captured as taxable income of the business owners. This ‘pass-through’ business income is taxed at the individual level. The 100-word description does not alert signers that this ‘pass-through’ ‘business’ income would be subject to the ‘surcharge’ if it was part of an individual or married couple’s taxable income…”
Adding insult to injury, a similar Invest in Education initiative was bumped off the ballot in 2018 for similar reasons. The Arizona Supreme Court suggested acceptable initiative language to the backers of Invest in Education, but they deliberately chose not to use it.
“Arizona is not a low tax state. Its top income tax rate is already too high – just a tad below Massachusetts’. And certainly above the nine states that do not tax wage income, such as Texas, Florida, Tennessee, and Wyoming,” said Grover Norquist, president of Americans for Tax Reform. “Arizonans know this. An effort to phase down the state income tax to zero over time was narrowly defeated in the Arizona Senate just last year.”
Tragically, unclear tax initiatives are not uncommon. For example, in Arkansas, a roughly 9% permanent sales tax hike will be on ballot this November under the title “Continuing a One-Half Percent (0.5%) Sales and Use Tax for State Highways and Bridges; County Roads, Bridges and Other Surface Transportation; and City Streets, Bridges, and Other Surface Transportation After the Retirement of the Bonds Authorized in Arkansas Constitution, Amendment 91.”
Coury’s ruling shines a spotlight on a major problem that happens throughout the country. Too many tax hike measures are intentionally vague or unclear in hopes of confusing or tricking voters into supporting them.
Backers of the Invest in Education initiative have filed a notice of appeal, but given the Arizona Supreme Court’s opinion in 2018, Coury’s ruling is unlikely to be overturned.