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ARIZONA STATE SENATE
Fifty-Seventh Legislature, Second Regular Session
AMENDED
local excise taxes; rate limit
Purpose
Caps at 2.5 percent, for cities and towns with a population of 550,000 persons or more, the transaction privilege tax (TPT) or excise tax rate that may be imposed on each TPT classification. Requires a city or town to submit any proposed increase in a TPT or excise tax to the voters and exempts a TPT or excise tax rate approved by voters from the tax rate cap. Requires the Attorney General (AG) to withhold state shared revenues from a city or town that violates the tax rate cap or voter approval requirements.
Background
All gross receipts are subject to tax under 1 of the 16 TPT classifications unless specifically exempted or excluded by statute (A.R.S. Title 42, Chapter 5, Articles 2 and 4). The Model City Tax Code (MCTC) is a uniform sales and use tax act adopted by most cities and towns in Arizona. A city or town may not adopt an amendment to the MCTC unless the Municipal Tax Code Commission (MTCC) has adopted the amendment or the amendment is a result of a statutory change. Changes in rates of tax are not subject to review or approval by the MTCC, but within 10 days after passing an ordinance imposing a rate change the city or town imposing a new or different tax rate must notify the MTCC and the Arizona Department of Revenue. A notification failure renders the new or different tax rate void (A.R.S. §§ 42-6052 and 42-6054).
A municipality may not levy or assess a new tax or fee or increase an existing tax or fee on a business unless the municipality: 1) prepares a schedule of the proposed new or increased tax or fee; 2) provides written notice of the proposed charge or increase, the schedule of the proposed new charge or increase and supporting data at least 60 days prior to approval on the municipality's website; and 3) prepares a notice of intent to establish or increase taxes, assessments or fees, published on the municipality's website (A.R.S. § 9-499.15).
Commonly
referred to by the number of the establishing bill, 1487, the AG must
investigate any alleged violation of the Arizona Constitution or state law by a
governing body of a city or town upon the request of a legislative member.
Within 30 days of the request, the AG must make a written report of
investigative findings. If the AG concludes that a volitation has occurred, the
AG must notify the county or municipality of the determination, provide 30 days
to resolve the violation and, if the violation is not resolved, direct the
State Treasurer to withhold and redistribute state share monies from the county
or municipality until the violation is resolved (A.R.S.
§ 41-194.01).
There is no anticipated fiscal impact to the state General Fund associated with this legislation; however, there may be change to municipal tax collections.
Provisions
1. Prohibits, notwithstanding any other law, ordinance, charter provision, resolution or special act, a city or town with a population of 550,000 persons or more from levying or assessing a TPT or excise tax at a rate of more than 2.5 percent on any TPT classification.
2. Prohibits a city or town from adopting a new TPT or excise tax, increasing an existing tax rate, expanding a tax base or imposing a surcharge if doing so would cause the imposed tax rate to exceed the cap, unless the new TPT or excise tax is approved by voters.
3. Requires, notwithstanding any other law, ordinance, charter provision, resolution or special act and for a TPT or excise tax approved by voters on or after the general effective date, a city or town to submit any proposed increase in a TPT or excise tax to the city's or town's qualified electors.
4. Exempts a TPT or excise tax that is approved by the qualified electors from the tax rate cap, if the rate increase occurs at an election conducted on a consolidated election date in an even-numbered year.
5. Subjects a city or town that violates the tax rate cap and voter approval requirement to enforcement pursuant to the AG's S.B. 1487 investigations.
6. Requires the AG, if a city or town is found in violation of the tax rate cap and voter approval requirement, to notify the State Treasurer, as prescribed, to withhold state shared revenues from the city or town in an amount proportionate to the unauthorized tax increase until the violation is resolved.
7. Specifies that a TPT or excise tax approved by the qualified electors of a city or town is not invalidated by the tax rate cap and voter approval requirement.
8. Applies the tax rate cap separately to each TPT classification, regardless of the number of classifications, components or ordinances under which TPT or excise tax is imposed.
9. Defines terms.
10. Becomes effective on the general effective date.
Amendments Adopted by Committee
· Makes technical changes.
Senate Action
GOV 2/11/26 DPA 4-3-0
Prepared by Senate Research
February 11, 2026
MG/ci