There’s nothing illegal about taxing tourists renting cars in Arizona to pay for sports complexes in Pima and Maricopa counties, the state Supreme Court ruled today.
All seven justices agreed with the state Department of Revenue that it’s legally irrelevant that the majority of the tax is paid by out-of-state visitors. They said that does not make it illegally discriminatory.
But the justices were more divided on the issue of whether it’s legal to use a tax on the rent of vehicles to pay for things like stadiums.
Justice Ann Scott Timmer, writing for the majority, acknowledged that a provision of the Arizona Constitution approved by voters in 1952 spells out that any tax proceeds or other funds relating to the “operation, or use of vehicles on the public highways” must be used solely to build and repair roads.
But Timmer said it’s a stretch to say that a tax on renting a car translates out to a levy to use Arizona roads. She said car rental agencies “merely benefit from the existence of roads.”
The decision is a crucial victory for the state Sports and Tourism Authority as the car-rental tax generates more than $14 million of its more than $55 million annual budget.
Nearly $22 million of the authority’s budget goes to paying off the debt on the construction of the stadium for the Arizona Cardinals. But it also provides $8.3 million for tourism promotion, almost $5 million to promote the Cactus League and another $1.1 million for youth and amateur sports.
In Pima County the levy generates $1.5 million a year which has paid for construction of the Kino Sports Complex.
County officials say those funds maintain the stadium and baseball fields which, while there is no longer any Cactus League play there, are used for spring training for teams from Korea and Mexico. At other times they say the stadium and fields can be used by other teams, including youth sports, and for special events.
At issue is a law designed to help counties attract and retain sports teams and spring training by building facilities. The chosen method in Maricopa County was a 3.5 percent surcharge on car rental contracts, paid by the car rental companies; Pima County put in a flat $3.50 per rental charge.
Shawn Aiken, representing Saban Rent-A-Car, challenged the levy as illegal.
In 2014 Maricopa County Superior Court Judge Dean fink ruled the Arizona Constitution limits any taxes levied on the use of vehicles on public streets to be used solely to fund road construction and maintenance and related purposes. Fink said the tax on car rentals clearly falls outside that purpose.
But Timmer said there are a whole host of reasons why the levies are legal even though the funds do not go for roads.
She said this can’t be interpreted as a road-user tax because it is a “special tax not levied generally on all businesses.” And Timmer said that there is nothing to indicate that those who crafted the 1952 constitutional amendment limiting the use of certain taxes for roads or those who voted for it ever intended to include car rentals in its scope.
Justice Clint Bolick, in his lone dissent, said his colleagues were essentially reading the Arizona Constitution the way they want, not the way it’s worded.
“Even public objectives of the highest order, including (apparently) the building of publicly financed stadiums, do not license us to rewrite constitutional text,” he wrote. And Bolick said the link between renting a car and the use of public roads – the provision in the constitutional amendment prohibiting the diversion of funds from non-road uses – is clear.
“If the vehicles are used or operated on public highways, then any fee or tax specially directed toward that use implicates the anti-diversion clause,” he wrote.
All seven justices, however, had no problem with concluding that it’s OK to enact a tax crafted in a way to have the tab picked up by out-of-state visitors who are more likely to rent vehicles than those living here.
“But even if true, this does not evidence an intent that out-of-state visitors be treated any differently from residents,” Timmer wrote, which is the test for whether a tax is illegally discriminatory. “The fact that visitors as a group pay most of the surcharges collected by car-rental agencies is not ‘discriminatory.’ ”