A conservative think tank says Gilbert plans to impose an illegal “pickleball tax.” The problem is a disagreement over the difference between goods and services.
Gilbert is proposing a series of slight tax increases to the town’s sales tax and bed tax, plus a new use tax on online vendors. The funds would go to several things including work on police, fire and parks infrastructure — including, yes: pickleball courts.
But the Goldwater Institute says that some of those taxes will be on intangible “services,” which municipalities can’t raise taxes on according to an amendment to the state constitution voters approved in 2018.
The issue isn’t what the taxes are paying for, it’s what is being taxed.
“We don't hate pickleball. This is an issue of whether it’s illegal under the Arizona Constitution,” Goldwater staff attorney Stacy Skankey said.
In 2018, Arizona realtors championed an effort and collected signatures to get Prop 126 on the ballot, which overwhelmingly passed with voters.
Prop. 126 bans municipalities like Gilbert from creating new taxes or raising existing taxes on services, such as selling a house.
There’s a debate as to what “services” means.
“Services” is not a term that’s defined in the state constitution, but it refers to activities without tangible goods. But does that apply to Gilbert’s bed tax on travelers renting accommodations?
“We look at the bed tax in that also part of the hospitality industry and the service industry so for the bed tax we also think that would include services,” Skankey said.
The Goldwater Institute sent a letter to Gilbert warning them against the tax increases.
“The term services generally encompasses activities of and businesses in the hospitality industry, including hotels, restaurants, bars, and the like. … Any portion of the proposed tax that imposes or increases a tax on any service performed in the state is unconstitutional. This would include Gilbert’s proposed sales tax, bed tax, and may include the new use tax,” the letter states.
Gilbert says the Goldwater Institute is misreading the law.
“Goldwater Institute’s claim that the proposed increase for sales tax on goods and use tax on the purchase of goods made online somehow constitutes an unconstitutional tax on a service is plainly wrong. In addition, Goldwater Institute’s claim that the proposed increase in the bed tax also misconstrues the Arizona Constitution’s prohibition on tax increases for services,” Gilbert Digital Media & Marketing Deputy Director Jennifer Harrison said in an email.
The Goldwater Institute and the town of Gilbert also disagree on how the taxes will burden residents. The Goldwater Institute states that the tax burden will fall hardest on Gilbert residents and “trample” their rights.
Gilbert argues the taxes are fair and are meant to preserve the resident’s quality of life.
“The proposed tax increases are designed to distribute the financial burden equitably. By increasing the use tax for online vendors and increasing the bed tax for visitors, we aim to reduce the impact on local residents and businesses,” Harrison wrote.
Skankey said the Goldwater Institute is keeping its options open as to whether they’ll take the town to court.
Gilbert’s proposed tax changes also include getting rental tax, as now required by the state legislature.
“While the Town’s operating budget has been adversely impacted by the loss of residential rental tax, the proposed tax increase is not intended to “make up for” its loss,” Harrison said.
The Town Council is scheduled to vote on the proposed tax increases on Oct. 22. If approved, the new rates will go into effect Jan. 1, 2025.
