Ariz. Free Enter. Club v. Hobbs – 08/19/2022

September 1, 2022

Arizona Supreme Court holds that tax revenues for the support and maintenance of existing government departments and institutions are exempt from the referendum process under the Arizona Constitution.

The Invest in Education Act, also known as Prop 208, was enacted by voters.  It imposed a 3.5% surcharge on certain taxable income.  The Legislature then passed SB 1828, a flat tax measure that reduced a household’s tax liability under Prop 208 and thereby reduced the state’s total tax revenue.  The political committee that helped enact Prop 208 sought to challenge SB 1828’s flat tax rate by referring it to the ballot for referendum.  A social welfare organization filed a motion for preliminary injunction attempting to enjoin any attempts at a referendum.  The organization’s challenges were twofold.  It first argued SB 1828 was exempt from referendum under the Arizona Constitution’s referendum provision, and second that the petition sheets and signatures were deficient. 

The trial court denied the organization’s motion for a preliminary injunction on the first challenge, and the organization directly appealed to the Arizona Supreme Court.  

The Arizona Supreme Court reversed and remanded the decision below.  The Court closely analyzed the text of the constitutional provision, its history, and Washington’s constitutional counterpart.  In doing so, the Court acknowledged that the first and second clause appear to conflict.  It found the different verbiage intentional and consistent with the purpose of each clause.  The Court concluded that the constitutional exemption from referendum only applies to revenue measures that support and maintain existing departments and state institutions, including those tax measures that decrease state revenue.

The Court reversed and remanded the decision below.

Justice Lopez authored the opinion for the Court, in which Justices Brutinel, Timmer, Bolick and King joined. Jutices Beene and Montgomery concurred in part and dissented in part.

Posted by: Annabel Barraza