The Arizona House of Representatives is proposing a tax cut that on one hand would benefit residents but on the other, would impact city budgets.
During a state legislative update during the Tuesday, April 13, Sedona City Council meeting, City Attorney Kurt Christianson said the state House has proposed a $1.5 billion income tax cut that would reduce state income tax to a flat tax of 2.5%.
This proposal appears to have majority support, he noted. The exact time frame as to when it could go into effect has not yet been determined but if approved would be phased in over the next three to seven years.
This represents a 27% cut to Arizona municipalities of voter-approved, state-shared revenue, which became law in 1972. This would cut Sedona’s shared revenue by $401,279 annually after the phase-in is complete, and $3,611,515 over 10 years beginning as early as Fiscal Year 2023-24 and ending in Fiscal Year 2032-33. Christianson said this flat tax represents the single largest cut to local revenue in Arizona history.
The League of Arizona Cities and Towns is asking for elected officials to engage their state legislators on this proposal to encourage them to vote against it.
Christianson pointed out that in recent years Arizona ranked second in the nation for the least number of city employees per 100 residents on a per capita basis. Since then it has moved up to seventh.
“Arizona cities are very lean and operate very efficiently,” he said. “So there’s not, necessarily, a need for major cuts there.”
Some of the arguments from proponents of these cuts is that cities have recently received federal funding during the pandemic as well as from the Wayfair court decision that enables states — and hence cities — to collect sales tax on all online purchases. The League estimates that the state would need another $8 billion in additional online sales to make up for the $225 million lost in state-shared revenue if the tax rate were to be reduced.
Christianson said that while the funds Sedona would potentially lose would not impact the city greatly, for those cities that rely upon those shared revenues it “makes a huge difference” in their budgets.
While this would apply to personal income tax, Christianson said since the proposal has not been publicly released, it could change to include corporate income tax as well.
