No on Prop. 126, the false and purposefully misleading Protect Arizona Taxpayers Act

The so-called Citizens for Fair Tax Policy Committee (it is actually the Arizona Association of Realtors)  is already running television ads for Prop. 126, a constitutional amendment titled the Protect Arizona Taxpayers Act.

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You have to go to their website to see a copy of this false and purposefully misleading ad designed to dupe the public. https://protectaztaxpayers.com.

This is a special interest initiative, not a true citizens initiative. And it is yet another example of an anti-tax ballot measure of the type that has gotten Arizona into the revenue deficit problem we have today.

It is a preemptive measure which is a solution in search of a non-existent problem — services are not subject to sales tax in Arizona — and likely will never be because of Prop. 108 (1992) the “Two-Thirds for Taxes Amendment,” the GOP’s weapon of mass destruction which requires a two-thirds vote of each legislative chamber either to impose a new tax, or to eliminate or reduce a tax credit or tax exemption.

The legislature’s renewal of the school sales tax this past session to avoid sending it to the ballot for renewal was the first time since Prop. 108 passed in 1992 that the legislature has voted in favor of a new tax.

Annual attempts to clean up Arizona’s antiquated tax exemptions have been snuffed out by the special interests that benefit from them. There is no real threat of services being taxed.

A constitutional amendment to address a non-existent problem is the height of bad public policy.

Most states do not charge sales taxes on services. Only Hawaii, New Mexico, and South Dakota charge sales taxes on all services provided by businesses to their customers. Other states have only taxed certain types of services.

As Pew reported last year, Why States Are Struggling to Tax Services:

Twenty-three state legislatures considered proposals this year to impose taxes on at least some services. But so far, none has made it into law intact — and most died outright.

* * *

Trying to define exactly what services should be subject to a new tax can be tricky, with proposals to tax specific businesses usually drawing opposition from those who would be affected. And proposals to tax all services prompt demands for exceptions from businesses that maintain they are “essential” and should not be subject to tax.

Another challenge is that taxes on services are regressive, with a disproportionate impact on low-income residents, and are sometimes seen as an unfair way to plug a budget hole or reduce other taxes, prompting opposition from advocates for the poor.

But this is what the special interest Arizona Association of Realtors is worried about:

[Conservative Republican] Oklahoma Governor Mary Fallin called for a “sales tax modernization” in her budget message this year. “As the economy in the United States has shifted from a manufacturing based economy to a service based economy, the way we impose taxes and collect revenue no longer reflects the current economy, but an outdated system that has not changed much since its inception,” she said.

Gov. Fallin is insightful and correct. This is why state legislatures need flexibility in fiscal policy, not restrictions imposed by special interests to tie their hands as Arizona has done far too many times over the years.

Fallin initially proposed expanding the state’s 4.5 percent sales tax to broadly cover services, with the goal of raising an additional $839.7 million annually. Partly because of a decline in oil revenue, Oklahoma faced a nearly $900 million shortfall in its $7.8 billion budget. As a tradeoff, the Republican governor proposed removing groceries from the items subject to the sales tax along with lowering corporate taxes.

She was not specific on the services to be taxed, but a report from the progressive Oklahoma Policy Institute suggested that they could include activities like home repair, auto services and washing, service contracts, funeral services, cable television service and overnight trailer park rentals.

But the outline immediately ran into trouble both from anti-tax legislators who predominate in the conservative state, and service industries that could have been affected. The funeral home industry called the proposal a “death tax” and argued that families already burdened with thousands of dollars of funeral expenses didn’t need a sales tax bill on top.

This is exactly what would happen in Arizona to any legislative proposal to impose a sales tax on services. Special interests and anti-tax zealots dominate the Arizona legislature. Therefore, there is no reason for The Protect Arizona Taxpayers Act, and it should be rejected by voters.

The problem is that the Arizona Association of Realtors is likely to be able to dominate the airwaves with their false and purposefully misleading ad designed to dupe the public.

As far as I can find at the Secretary of State’s website, there does not appear to be any committee organized to oppose Prop. 126. The “Against Arguments at the Secretary of State’s website include gubernatorial candidate Steve Farley (who has tried to close “tax loopholes” his entire political career), the think tank Grand Canyon Institute, and oddly enough, the “Kochtopus” organization Americans for Prosperity.

This “Kochtopus” organization is the only one that conceivably could invest the financial resources in an opposition to Prop. 126, or not. Other groups, especially good government organizations, need to step up to fill this void to fight for “No on Prop. 126.” As I said, a constitutional amendment to address a non-existent problem is the height of bad public policy.

I can’t be the only one sounding the alarm about this entirely unnecessary special interest proposition. Every Democratic candidate for office needs to make “No on Prop. 126” an essential part of his or her campaign. Arizona’s political media needs to start paying attention to this and arguing for “No on Prop. 126.” Each of you can write letters to the editor of your local newspaper.

Defeat Prop.126 this year, then file a citizens initiative to repeal Prop. 108 (1992), the “Two-thirds for Taxes” Amendment, so that we can restore fiscal sanity and fiscal flexibility to the Arizona legislature if we are ever going to have true tax reform and modernize Arizona’s antiquated tax structure to meet the fiscal needs of this state, and make our tax system genuinely more “fair.”





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27 responses to “No on Prop. 126, the false and purposefully misleading Protect Arizona Taxpayers Act

  1. A service tax is regressive, as is the current sales tax. The sales tax needs to be lowered and income tax needs to be raised.

  2. Prop 126 might violate the “separate amendment” rule. The last sentence in Section One of Article XXI (21, the amending article) requires that all substantive constitutional changes “shall be submitted in such manner that the electors may vote for or against such [changes] SEPARATELY” [emphasis added]. This is judicially interpreted as requiring a separate proposition for each substantive change (amendment) in the constitution.
    Prop 126 will do two things: 1) It will create Sec. 25 of Art. IX (9, the revenue article) which bans any sales tax on services. 2) It will silently, and implicitly amend the first sentence in Section One of Art. 9 (the very same revenue article). That first sentence is: “The power of taxation shall NEVER be surrendered, suspended, or contracted away.” [emphasis added]
    That first sentence is a restriction on what the legislature can do. The people of Arizona are legally acting as the ultimate legislature of the state when amending its constitution. This means they cannot amend the state’s constitution is such a way as to leave a big chasm of contraction in the middle of that constitution. There can be no doubt that Prop 126, no matter how it is construed, does indeed either suspend, or surrender, the power of taxing services. That is in direct, explicit contradiction of the words of the first sentence in Section One of Art. 9.
    If Prop 126 implicitly changes the scope of Section One’s first sentence (Art. 9), then it is definitely a substantive change in the Arizona Constitution. Section One should be changed to reflect that very significant change. The founders were very serious about the intent of Section One’s first sentence. I don’t think we can change it’s scope willy-nilly in such an indirect, implicit, and casual manner. At the very least the voters should be advised as to everything they are doing in voting ‘yes’ on Prop 126. And that’s a requirement that the founders were also very serious about in drafting the last sentence of Sec. One of Art. 21.
    Even if the judges were to find that Prop 126 does not violate the “separate amendment” rule, the text of this proposition fails to insert an exception clause into Sec. One of Art. 9. The drafters of a 2000 proposition (that amended Sec. 18 of Art 9) thought it necessary to at least insert an exception clause into the second sentence of that very same Sec. One of Art. 9. That inserted exception clause added “Except as provided by Section 18 of this article” at the beginning of Sec. One’s second sentence.
    If the drafters of Prop 126 had included a section that added the words “Except as provided in Section 25 of this article” then Prop 126 might well pass muster as a single amendment proposition if challenged in court. But without even a Section One exception clause insert in the text of Prop 126, it doesn’t seem logical that a judge could allow this proposition to stay on the ballot in its current form. You’ve got to tell the people what they’re voting to do.
    Sadly, some civic group leaders are aware of Prop 126’s potential “separate amendment” problem. But the funds of almost every progressive civic group are already allocated to cope with the costs of the November election. (The Center for Law in the Public Interest?)
    I’m pretty sure that Prop 126 will pass with a large margin. I take solace in the fact that Prop 126 is a very good argument for the Invest-in-Ed proposition. If expanding the sales tax to services is off the table, and if the current retail sales tax rate is already politically too high, then there’s only one revenue option left—Invest-in-Ed!

    • AZ BlueMeanie

      Well stated argument. Perhaps you should file a legal challenge in court.

      • I got one civic leader to consider the issue. They think there might be a valid basis to challenge it using the “separate amendment” rule. But their organization has no funds to spare to challenge Prop 126. There are just so many court challenges and other election expenses right now, that many civic groups are strapped for funds. (That’s why I mentioned the AZ Ctr for Law in the Public Interest with a question mark.)
        If I were in the more affluent social league I might fund such a lawsuit. But even then I think it requires one of the larger civic groups to adequately fund and manage such a lawsuit.
        If you or anyone else wants to know more about the “separate amendment” rule consult the commentary on pp. 419-421 of “The Arizona State Constitution” 2nd Ed (2013) by John D. Leshy. I think most attorneys and probably all law libraries have a copy of this book. Some public libraries might have a copy. But make sure its the 2013 edition. There were some omissions in the 2011 edition. (I got my copy on Amazon for a goodly price.)

  3. The argument that our economy is shifting from manufacturing based to service based is ridiculous. Yes, the income creating mechanism of our economy is shifting to service more than manufacturing but you use this argument as though this is reducing the ability to generate revenue through sales tax. We may not produce as many goods but our consumption of goods has never slowed down. Consumption based taxation is in fact so profitable that many states rely solely on the collection of those taxes and forgo state income taxes.

  4. You state !!!” This is a special interest initiative, not a true citizens initiative. And it is yet another example of an anti-tax ballot measure of the type that has gotten Arizona into the revenue deficit problem we have today”. It’s sad that we need a “Special Interest Group” to watch out for Arizona citizens. I and suspect many, would expect our elected officials to do that. As for the “revenue deficit” problem we have today, why is it that the state’s immediate response is to RAISE taxes, how about trying to REDUCE SPENDING. Your basically asking Arizona Tax payers to give you an opportunity (if you need funding) to add taxes. I’ll vote NO on Prop 126, when I see Senators take a 10% reduction in their salary. If we have a deficit, then reduce spending, set a good example, show real leadership and start with reducing YOUR salary and stop forcing citizens to bail you out !!!!

    • Katherine L Miller

      I agree, for US Representatives however our state representatives only make $24,000 a year.

  5. Bobby Sue O'Dell

    I agree as it generally takes an act of God to amend the State Constitution. Keeping something so broad in spectrum from out of the constitution without much flexibility, seems imperative. And if AZ has a billion dollar deficit, the more reason for the flexibility. One must also consider the changes in Sec.25 art.9 and Sec. 6 art 9 giving great leeway to corporations allowing them to assess and collect taxes. Come on people.

  6. Roger A. Prior, Jr.

    Thank you for explaining these TV ads, in the spirit of clarity.

    Furthermore, Arizona needs a tax structure to fund basic services for all present and future citizens, one example being public education. This also means reversing emphasis on Charter schools being publically funded, and attendant issues, in the name of more “school choice.”

    The philosophy of reducing/cutting taxes has not worked in Arizona. Only until these “anti-tax” policies are reversed will Arizona begin to move out of the “doldrums.”

    Arizona needs a legislature and governor willing to move in a more progressive direction, and stop impeding progress in the name of tax reduction, for any chance of our states future success.

    Lets stop being in the “race to the bottom.”

    • Progressive direction. Nice way to say Hidden Socialist Communist agenda. We need school choice because public schools have run amok indoctrinating students into leftist ideology. When I was in school teachers had to keep their political views be they socialist or capitalist to themselves and allow students to espouse and think for themselves now students who dare disagree with a teachers political leanings are actually punished in their grades. Enough is enough. We need to focus on students learning real world skills and while we’re at it no more federal student loans except for fields with applicable real world skills. We have students graduating with tens of thousands in debt studying degrees that are about as useful as toilet paper as they are for getting a job. You want to study art appreciation fine do it on your dime or mommy and daddy’s. You want to study engineering, chemistry, biology, nursing, medicine, etc no problem then federal loans will help you meet your educational goals.

  7. Thank you for explaining this from a liberal view. You have convinced me to vote yes,

  8. Sen. John Kavanagh

    So you have taken the time to oppose an initiative to stop sales taxes on services, taxes that you admit have only a snowball’s chance in Phoenix of ever coming into being. In addition, you concede that it will be stopping a type of tax that is regressive and that disproportionately hurts the poor. Finally, you call it a special interest initiative, even though it bans sales taxes on ALL services, including food and medicine. Hmmmmmmmm.

    • For Sure Not Tom

      Perhaps you could chime in on why the ads and the initiative itself are so misleading, Professor Doctor Policeman State Senator John Kavanagh, PhD?

      If it’s a good idea, why are they being deceptive?

      And while you’re here, can I assume that you do not support Steve Ferrara?

      Because he has signs around the neighborhood listing hist qualifications as veteran and physician, and you’ve posted in the past how tacky you think people who do that are.

    • Sen. John Kavanah, the Self-righteous Guardian of the Peoples Money… as HE TRIPLE-DIPS FROM THREE PUBLIC PENSIONS. PUBLIC. NOT private sector. Hypocrisy much, senator?

      • Sen. John Kavanagh

        Nothing like an ad hominem attack to advance intellectual discourse. Thank you, Mike, for your contribution to this discussion.

    • AZ BlueMeanie

      It’s interesting that someone who is in court right now trying to prevent citizens from enacting constitutional mandates on clean energy because it impinges on legislative prerogatives nevertheless supports an initiative that impinges on legislative prerogatives when it comes to taxes, the legislature’s most fundamental power. These are matters for legislation, not constitutional amendments. Arizona’s Constitution is already cluttered with such amendments.

      • Sen. John Kavanagh

        I guess I really got to you because you can only reply with an ad hominem attack.

        Please comment on:

        So you have taken the time to oppose an initiative to stop sales taxes on services, taxes that you admit have only a snowball’s chance in Phoenix of ever coming into being. In addition, you concede that it will be stopping a type of tax that is regressive and that disproportionately hurts the poor. Finally, you call it a special interest initiative, even though it bans sales taxes on ALL services, including food and medicine. Hmmmmmmmm.

        Also, are you forming Progressives for Regressive Taxation?

      • I’m sorry but it is not citizens enacting constitutional mandates on clean energy. It is a California billionaire buddy of Elon Musk looking to get richer. They claim the measure is to reduce carbon dioxide emissions generated from the production of electricity. However there is no carbon emissions associated with the production of Nuclear energy. Thus one wonders why they are targeting specifically nuclear energy by stating it cannot be included among the clean energy producers. If they were really fighting carbon emissions to battle climate change they wouldn’t be pushing for a measure that would force the abandonment of a non carbon producing energy plant 27 years ahead of its life cycle. A plant that infuses in excess of $1,000,000,000.00 per year to the local economy. The loss of thousands of high paying, revenue creating jobs, would be felt all across the valley. Not to mention the massive increase in the cost of energy production that would ultimately be paid by the end user further stifling economic growth by ravaging the already tight budgets of so many Arizona families.

  9. What is the purpose of th AZ Assoc.of Realtors, backing this Prop? Other than insureing their “services” are not taxed in the future.
    What would be the harm in voting “yes”? If we don’t anticipate any services being taxed in the future anyway?

    • AZ BlueMeanie

      The realtors have over the years backed several anti-tax measures on the ballot. Their success is partly the reason Arizona has a revenue deficit and cannot adequately meet the state’s basic needs. The other reason is annual GOP tax cuts since 1992.

      The harm in voting yes is enacting a constitutional prohibition that limits the fiscal flexibility of the legislature to address economic cycles and to raise adequate revenues to meet the state’s basic needs. As the economy becomes more and more a service economy, at some point in the future taxing some services may become both reasonable and necessary.

      The realtors must not be very confident in the ability of their lobbyists to carve out an exception for realtor fees from these sales taxes on services. This limited approach would make more sense than a prophylactic prohibition on sales taxes on all services. It is overreaching and is bad public policy.

      • Sen. John Kavanagh

        Sounds like you should form a new pro-regressive sales tax group. How about “Progressives for Regressive Taxation.”

        • For Sure Not Tom

          Arizona has a billion dollar budget deficit and here you are making funny jokes about taxes!

          Maybe you should learn about government and budgets before you start your career as a stand-up comedian.

          Oh, yeah, and how embarrassed are you that California has a budget surplus, while we have a deficit?

          After years mocking California, here’s California kicking our state’s ass.

          Now that funny, Johnny, I don’t care who you are.

          • Sen. John Kavanagh

            Who told you we had a $1 billion budget deficit? At the end of session we projected a $20 million shortfall, which some feared could go to $108 million. However, it not looks like we could end up in the black due to the Trump-Ducey economy, fueled in part by tax cuts and deregulation.

            The last time we had a $1 billion deficit was when Ducey assumed office. It is amazing what Republican fiscal and regulatory policies can help achieve. So where did you get that wild figure from?

          • Sen. John Kavanagh

            Hello Tom. Are you there????

          • For Sure Not Tom

            Sorry, John, had to spend some time doing my job in the private sector.

            You’re sort of right, my bad, and you’re sort of wrong.

            https://www.usnews.com/news/best-states/arizona/articles/2017-10-12/arizona-legislatures-budget-analysts-predict-2018-shortfall

            So the shortfall is 200 million. I keep finding that number when I search.

            Interesting that even disgraced and disgusting AZ rep Don Shooter started lipping off about the tax cuts being a bad idea.

            You can’t cut your way to prosperity, John, it’s been tried, and all you get is Kansas.

          • Sen. John Kavanagh

            You are citing an October 2017 analysis. Are you aware of that?