Opponents of an income tax surcharge to fund education have yet to receive a clearcut answer on whether the voter-approved proposition is unconstitutional.

Proposition 208, approved by voters in November, raises taxes of some of the state’s higher earners with a 3.5% surcharge on taxable incomes of more than $250,000 to help fund public education in the state. For married couples, the surcharge applies to those who earn $500,000 or more per year.

Some in opposition to the measure say the legislature — not voters — should be in control of any taxes for education.

Both the Goldwater Institute and the Rose Law Group, a Scottsdale law firm, have filed lawsuits against the proposition, which voters approved in the last election. The law firm is representing Ann Siner, CEO of My Sister’s Closet, and John Buttrick, a retired judge.

“I’m very much for education,” said Ms. Siner. “But Prop. 208 is the wrong way to fund it.”

Ms. Siner, whose business has 13 locations in the Phoenix area and in San Diego, said she had to close two of her stores recently.

The business owner, who has owned the company for 30 years, said she’s “absolutely appalled” over the passage of the law. She said the extra tax “punishes” small business owners. She said she knows of other business owners looking to relocate elsewhere.

“It’s to the point that it’s a diminishing return,” Siner said. “It doesn’t sound like much. But it really adds up.”

On Jan. 14., Maricopa County Superior Court Judge John Hannah rejected a motion by the law firm that would have prevented Prop. 208 from going into effect until its constitutionality could be fully determined.

The judge said funds must be used to help pay teachers and support staff. The monies can’t be used to replace other funding, he said. The judge did not rule on whether the surcharge is unconstitutional.

Prop. 208 went into effect on Jan. 1.

Supporters of the tax hike say the surcharge could raise upwards of $1 billion for the state’s public school system. The surcharge would raise money for districts that have had to deal with uncertainties of the pandemic along with fixed costs.

Arizona’s schools use a funding formula to determine the amount of money each school district in the state should spend based on the number of students enrolled in the district.

In 2020, the Education Law Center released a report that said Arizona ranks last in the country in public school funding.

“Arizona ranks dead last, and inadequate funding is at the root of the state’s severe teacher shortage and lackluster student achievement,” the report stated

Mesa Councilwoman Jen Duff said the public school system in Arizona is underfunded.

Ms. Duff, a proponent of education, said she is in favor of a tax to raise money for education. She is part of Mesa’s role in Achieve60AZ, an initiative to have 60% of Arizonans complete at least two years of post-high school education in the form of a certificate, license of degree by 2030.

She said improved education will lead to an improved future workforce in the Valley.

“Arizona is tremendously underfunded,” Duff said. “It’s important to find ways to raise money.”

But Jon Riches, director of litigation at the Goldwater Institute, said the tax hike is the “largest single tax increase” the state has ever seen.

He said the measure was sold as a method to raise education funding by taxing the wealthy. Instead, he said, it’s impacting small business owners with “serious economic consequences” some can’t afford.

The Goldwater Institute has a webpage dedicated to pointing out problems with Prop. 208. In one claim, the website says business owners shouldn’t have to worry about another tax.

“…Tax increases on job creators are the last thing Arizona needs.”
Ms. Siner agrees.

“It makes me say, it’s not a good time to punish small businesses.”