Peoria businesses scramble as city assesses amusement tax

By Philip Haldiman
Mail | X: @PhilipHaldiman

A Peoria city tax mired in obscurity for years has come to the forefront recently, and it hasn’t been a welcome sight for some local businesses.

The city has sent letters to a handful of businesses saying they owe several years worth of back taxes under section 12-410 of Peoria’s city code, referred to as an amusement tax.

At least one local business owner received a letter from the city claiming they owed more than $50,000, accumulated over more than seven years.

This person, along with others, declined to talk about it on the record for fear of being audited by the city.

The commonality among these merchants is they had no clue what the amusement tax was until a bill arrived at their door claiming they had never paid it.

Rhonda Carlson, Peoria Chamber of Commerce president & CEO, said those people wondering what an amusement tax is are not alone.

“The conversations I have had with business owners have been gut-wrenching, with many in tears as they do not know how they can pay these amounts due and keep their business afloat. Others that have not received letters are terrified they will at some point,” she said.

The amusement tax was approved by Peoria voters in 2005. It required certain businesses to pay 2.8% of their gross income for each customer for“providing amusement that begins in the city or takes place entirely within the city.”

The code includes businesses such as dance, martial arts and gymnastics instruction and many others. Businesses like these that are strictly instructional with no ticketed performances or offerings say they are being targeted for large amounts of back taxes.

At least one business is a vendor under the Arizona Department of Education and accepts Empowerment Scholarship Accounts, which is funding parents can use for their children’s education outside of public schools.

Carlson said outreach conducted has uncovered an overwhelming majority of businesses are unaware the tax exists, with many business owners questioning why they are considered an “amusement.”

She added there is wide misunderstanding about this tax among the business community, and those who have been audited never received prior communication by the city. She said those who have received a letter are being threatened to have their license taken away if the amount owed is not paid immediately.

In an email sent to one business, Deputy City Manager Kevin Burke said the 2.8% tax rate for amusements was voted upon and passed by Peoria voters at a special election on Sept. 13, 2005.

“An election is an extremely transparent and public notification to the community that a tax exists,” he stated. “Therefore, in combination with fulfilling the posting requirements, we do not find there was an extensive misunderstanding of your tax responsibilities under the tax code.”

At least on an anecdotal level, lawyer Stephen Newmark, who is representing a Peoria business in this matter, disagrees.

Unfortunately, he said, no one seems to be aware of this tax except for the city, which has audited instructional businesses that teach things like dancing and martial arts but do not produce ticketed performances.

However, if there is an extensive misunderstanding about the tax code, taxpayers can get a break, according to the Arizona Department of Revenue’s Model City Tax Code, a resource designed to help the business community in determining taxable and tax exempt items.

MCTC states if more than 60% of persons in the affected class have failed to properly account for their taxes owing to the same misunderstanding or misapplication of the tax laws, a businesses could be forgiven.

Newmark said the city could enter into an agreement that the tax should have been charged but it was not, and due to a misunderstanding, the participants would be forgiven and only be liable to pay tax from a certain point on and not be hit retroactively.

Newmark has proposed this rule to the city, and he said the city has not necessarily rejected it, but more research must be done first.

“For some local businesses who make instructional programs available, (the tax has) put them in a very difficult position,” he said. “If there is any ambiguity in the tax law, the law is always applied in favor of the taxpayer and against the taxing authority. The authority for this statement is found in the Arizona Constitution and many reported court cases.”

The city of Peoria has a brochure about the tax, a dedicated resource page on the amusement tax, as well as city tax information on the Arizona Department of Revenue’s website.

Peoria Spokeswoman Diane Arthur said the city hosts tax workshops for businesses at many times throughout the year, most recently July 20.

“The city does work with customers to set up payment plans when the full amount cannot be paid at once. The plan is set up once the assessment process is complete,” she said.

The Peoria Chamber of Commerce is asking local businesses to contact them if they have received or could potentially receive a letter from the city regarding the amusement tax.

Carlson said she believes there has been an “extensive misunderstanding or misapplication of the tax laws” as noted in the Arizona Department of Revenue’s Model City Tax Code.

“I believe it is absolutely our role as a chamber to assist our business community in matters like these, and I never want a business to feel like they are alone,” Carlson said. “We hope by working with those impacted by this, as well as the city of Peoria, we can provide resolution for our business community.”

Philip Haldiman can be reached at phaldiman@iniusa.org, or on Twitter @philiphaldiman. We’d like to invite our readers to submit their civil comments, pro or con, on this issue. Email AZOpinions@iniusa.org.

Philip Haldiman
Senior News Editor | Peoria

phaldiman@iniusa.org

Meet Philip
Haldiman is an award-winning journalist who most recently took first place for investigative reporting in 2023 from Arizona Newspapers Association. He joined Independent Newsmedia, Inc., USA, in 2015, covering Sun City West his first year. Since 2016, he has covered the city of Peoria. Prior to coming to INI, he was a reporter with The Arizona Republic for seven years, covering numerous cities throughout the Valley. Before that, he was a freelance writer.

Community: Haldiman spearheads the Peoria Independent Hometown Heroes Awards program, honoring local individuals and businesses that give back to the community. He has hosted local candidate forums over the years and is a member of the Society of Professional Journalists. Haldiman also served as a member of the Journalism Program Community Advisory Board at Glendale Community College. Outside journalism, Haldiman served as a member of the city of Peoria Complete Count Committee for the Census, 2019-2020. Lastly, he has served as a member of his HOA governing board since 2021.

Education: Arizona State University with a BA in Journalism and Mass Communications and a BA in Theater. 

Random Fact: Haldiman is a fourth-generation Arizonan as well as wrote and produced an autobiographical comic book about his time spent in Hollywood and his life as a cult film star.

Hobbies: He enjoys hiking Arizona’s mountainous landscapes and is currently working on a play for the stage.