Prop. 126 would prevent service taxes, is widely opposed

Voters will decide whether to restrict how lawmakers can raise revenue for the state when they cast their ballots for Proposition 126.

The state Realtors association launched the measure and it would prevent taxes on real estate services, but it also would prohibit any new taxes on any services.

The measure is widely opposed, marking one of the few bipartisan agreements in the state this year. Both candidates for governor and both candidates for state treasurer oppose Prop. 126.

Organizations that have joined the opposition include Americans for Prosperity, Free Enterprise Club of Arizona, Save Our Schools Arizona and the Grand Canyon Institute.

The proponents are blitzing the airwaves, having spent more than $8 million on their effort so far, while opponents barely got organized by the time ballots were mailed out.

Although there is no proposal to tax services in Arizona, opponents of the measure agree that the state tax base should be as broad as possible.

Who’s behind the Prop. 126 tax-measure ads

No proposal to tax services

Realtors who launched the initiative have paid for advertisements that depict greedy politicians sucking up money from taxpayers with a giant vacuum. They suggest that lawmakers could tax services such as doctor visits, veterinarians and child care.

But the only formal proposal from lawmakers to tax services, which came in 2016, would also have lowered income taxes.

In 2016, state Rep. Darin Mitchell, R-Goodyear, ran House Bill 2693, which would have taxed personal and financial services — everything from barber and child care services to mortgages and financial advising — but it also reduced income tax rates.

The Joint Legislative Budget Committee estimated it would have brought in $460 million a year once the income taxes were lowered and the new service taxes were enacted.

The bill went nowhere in the Legislature. Mitchell lost his primary bid in August and won’t return to the Legislature next year.

Wes Gullett, a spokesman for the group supporting the measure, rejected the idea that the proposition was designed to protect Realtors at the expense of the state.

“It is not surprising that politicians want to continue to find a way to tax people,” he said. “What 126 is trying to do is protect people, trying to protect small businesses, consumers, and trying to protect taxpayers.”

Arizona politics show: Do you know what propositions are on the ballot?

The measure’s opponents say the economy is moving toward fewer goods sold and more services. As such, it might make sense at some point for elected officials to try to tax services.

But the ballot measure also could yield unintended consequences because it doesn’t define service. Some opponents worry it could be interpreted to apply to many other new or extended taxes, such as the Prop. 301 education sales tax lawmakers renewed this year.

For example, some argued, the measure could be challenged in businesses such as restaurants, where part of the bill is food (goods) and part is for the wait staff (services).

Although Arizona does not broadly tax services, it does tax things such as utilities, hotel rooms and transportation that could be construed as “services” and thus excluded from Prop. 301, opponents of Prop. 126 argue.

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