State Supreme Court reaffirms Arizona's nation-lowest flat income tax

Arizona’s high court has pulled a ballot question from the November election that could have erased the state’s largest-ever income tax cut.

The Arizona Supreme Court ruled Thursday that a veto initiative to repeal a gradual change from Arizona’s progressive income tax to a flat 2.5% wasn’t appropriate for the ballot process. The court didn’t immediately offer an analysis of the opinion.

Lawyers representing the Arizona Free Enterprise Club (AFEC), a taxpayer advocating nonprofit, argued before the court that the state’s constitution bans government functions such as tax cuts from being challenged at the ballot box.

“Today’s decision from the Arizona Supreme Court is a big win for taxpayers in our state,” said AFEC President Scot Mussi. “The legislature passed historic tax cuts last year that benefit all Arizona taxpayers. It’s time for Invest in Arizona and out-of-state special interest groups to accept this reality and stop making a farce of the referendum process.”

Invest in Arizona, a union-sponsored nonprofit based out of Phoenix and affiliated with Portland-based Stand for Children, was primarily responsible for gathering signatures to get the measure on the ballot.

Passed in 2021, the law reduced individual income tax rates for all taxpayers by gradually reducing the state’s four income tax rates to one 2.5% rate by 2022. With the court's opinion, the rate is now in effect.

David Lujan, president of the Arizona Children’s Action Alliance, said the court is protecting the state’s ultra-wealthy.

“Let's be clear about who wins with these tax cuts – the richest 1 percent of Arizonans who will get an average tax cut of more than $19K,” he said. “Household making $64K annually gets avg tax cut of $47 and our state loses billions for education and other needs.”

Republicans hailed the opinion as relief for taxpayers facing the nation’s most severe inflation.

“This ruling is another big win for our state’s taxpayers and it couldn’t have come at a better time,” Gov. Doug Ducey said. “With inflation hitting Arizonans hard, this decision ultimately means more of their hard-earned dollars can stay in their wallets.”

House Majority Leader Ben Toma, R-Peoria, said the ruling means surety for taxpayers.

“In 2021, Republican legislators provided historic tax relief to all Arizona taxpayers. The Supreme Court’s decision provides clarity and certainty that Arizonans will get this relief at a time when they need it most,” he said.