Lawsuit filed against effort to increase income taxes

The opponents of a measure to double income taxes on small businesses filed a lawsuit in Maricopa County Superior Court today asserting that the proponents of the initiative misled voters with their description of the tax increase impact. The lawsuit also contends that the proponents did not disclose whether petition circulators were paid or served as volunteers.

According to the filing, the initiative description fails to disclose the repeal of an existing law that annually adjusts each income tax bracket for inflation. As originally reported by CBN, a June 20th memo by Arizona Legislative Council General Counsel Ken Behringer and Executive Director Michael Braun states that the proposed initiative would reverse this tax relief on all taxpayers. Known as tax indexing, this adjustment of tax rates keeps pace with inflation and prevents lower and middle-class individuals from paying higher income taxes when they are not experiencing any real increase in purchasing power.

In addition to repealing income tax indexing, the Invest in Education Act will increase the income tax rate from 4.54 percent to 8 percent for individuals who have a taxable income between $250,000 and $500,00 and for families who generate between $500,000 and $1 million. For individuals and families that make more than $500,000 and $1 million, respectively, the tax rate will jump to 9 percent.

The lawsuit states that the description of the income tax increase on the petition is misleading. The petition description alleges that income taxes will increase by “3.46% on individual incomes over a quarter million dollars (or household incomes over half a million dollars), and by 4.46% on individual incomes over half a million dollars (or household incomes over a million dollars).” But the plaintiffs note that the initiative actually increases the top marginal tax rate on incomes by 76.21 percent and 98.24 percent, respectively.

“The drafters of this initiative were either sloppy or deceptive,” Arizonans for Great Schools and a Strong Economy Chairman Jaime Molera said. “Unfortunately, we now must go to court to ensure that this poorly drafted, misleading initiative does not appear on the November ballot.”

The complaint also notes the proponents’ failure to disclose whether petition circulators were paid or acted as volunteers. The plaintiffs state that petition sheets were marked “paid” or “volunteer” by a third party, not by the circulators themselves as required by law. These missteps could put the initiative at risk given the strict compliance standard which went into effect last year.

In 2017, the legislature passed and Governor Ducey signed into a law H.B. 2244 which required ballot measures adhere to a strict compliance standard for judicial review, rather than just substantial compliance.

“This initiative is rife with errors,” Molera said. “The proponents’ corner-cutting has left voters with a confusing, misleading mess that falls far short of the ‘strict compliance’ standard that the law requires. We are confident in our case and look forward to our day in court.”