Gilbert must defend its sales and bed tax increases and new use tax against a lawsuit from the Homebuilders Association of Central Arizona and a Gilbert resident.
The Goldwater Institute, the Phoenix-based conservative public policy think tank, has filed suit against the town of Gilbert on behalf of two clients, seeking to dismantle part of Gilbert’s new tax increases.
The institute, representing the Homebuilders Association of Central Arizona and an Arizona State University professor living in Gilbert, claims in its suit, filed Dec. 30, that parts of Gilbert’s sales and bed-tax increases and new-use tax are unconstitutional and asks collections to be terminated.
Gilbert Town Council voted in October to increase the sales tax on goods and services from 1.5% to 2%, institute a new-use tax of 2% on purchases from out-of-state retailers or through online transactions for vendors who do less than $100,000 in annual sales in Arizona, and raised the bed tax from 2.8% to 5%.
The Goldwater Institute previously sent a letter to council, urging it not to pass the tax. It argued increasing or levying a new tax upon services was unconstitutional. The lawsuit makes the same argument.
“We urged them not to, and they did it anyway,” Goldwater Institute spokesperson Joe Setyon said. “So now we're filing suit. Our point here is that the Arizona Constitution is very clear about allowing new taxes or tax increases on services, and that's exactly what's happening here.”
But in a statement released late Tuesday afternoon, the town said the taxes are in full compliance with state law and the constitution.
“Our legal team has thoroughly reviewed the relevant statutes and precedents to ensure that any tax increase and associated processes strictly adhere to the requirements of state law,” the town stated. “The assertion that these taxes are illegal is unfounded and misrepresents the legal framework governing municipal taxation and longstanding case law in Arizona.”
It added that the tax increases are designed to distribute the financial burden equitably.
The lawsuit targets the taxes upon services, as opposed to goods, based on Article 9, Section 25 of the Arizona Constitution, which prohibits state and local governments from enacting new taxes or increasing tax rates in effect on Dec. 31, 2017, on services performed in Arizona.
The section was applied to the 2018 tax year, after voters approved Proposition 126 on the November 2018 ballot by a 64%-36% margin.
The lawsuit argues that the homebuilders association’s work in construction contracting and speculative building are services that should not be subject to a tax increase under the state constitution.
Likewise, the bed tax on transient lodging is a service provided by the hospitality industry and should not be subject to a tax increase. That portion of the suit defends the rights of Gilbert resident Jonathan Barth.
Barth is an ASU associate professor of history and associate director of the Center for American Institutions at ASU. The university’s website describes the center as having the nonpartisan purpose of “preserving and renewing fundamental American institutions to maintain well-ordered liberty.”
His home in Gilbert has a one-bedroom, one-bathroom “in-law suite” attached to his primary residence and which he uses as a short-term rental to “help make ends meet,” according to the lawsuit.
Barth and homebuilders association spokesperson Stratton Hickcox referred comment to the Goldwater Institute.
The tax package was instituted as a way to pay for $700 million in capital projects that the town deemed a priority. The capital projects are for the town’s police, fire and parks and recreation departments.
But Setyon said the taxes go beyond being illegal.
“Actually, it's going to hurt people,” he said. “It's going to cause a rise in construction prices. It's going to make it harder for people like our client, Jonathan, to earn a living in Gilbert.”
He also questioned the value of the projects while Arizonans are struggling with a rising cost of living.
“What's unfortunate about it is that a lot of what they're funding is for things like pickleball, courts, splash pads, a lot of those sorts of things where there's a right way if you want to raise money,” he said. “There's a right way to do that, and they're doing it the wrong way, in the illegal way.”
But the town countered in its statement that the town’s first responsibility is to meet the needs of its residents and businesses.
“This must remain a primary focus,” the statement read. “The tax adjustments ... are essential measures to address the critical infrastructure needs of our rapidly growing community. These funds support projects that protect the quality of life for all Gilbert residents, including necessary and vital improvements to police, fire, parks and recreational facilities.”
We would like to invite our readers to submit their civil comments, pro or con, on this issue. Email AZOpinions@iniusa.org. Tom Blodgett can be reached by email at tblodgett@iniusa.org or follow him @sp_blodgett on X.
Meet Tom Tom Blodgett joined Independent Newsmedia, Inc., USA, in 2022, when the company acquired Community Impact Newspaper's Phoenix-area properties. Raised in Arizona, he has spent more than 35 years in journalism in the state.
Community: He has served as an instructional professional in the Walter Cronkite School of Journalism and Mass Communication since 2005, and is editorial adviser to The State Press, the university's independent student media outlet. He also is director of operations for an 18U girls fastpitch softball team from Gilbert.
Education: Arizona State University with a BS in Journalism.
Random Fact: He lived in Belgium during his freshman year of high school.
Hobbies: Tweeting enthusiastically about ASU softball (season-ticket holder) and grumpily about other local sports (pessimistic fan).
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