Republicans in the Legislature are bouncing back a vetoed proposal from 2023 that would cut “essential” food items from being taxed by cities, but a potential amendment to the measure may gain the support of cities and towns. 

The House Ways and Means Committee passed HCR2021 on Feb. 12 that would prohibit cities and other taxing jurisdictions from imposing a sales tax on food items intended for consumption at home, such as bread and eggs from grocery stores.

“These are things that families need to survive,” said the sponsor of the resolution, Rep. Leo Biasiucci, R-Lake Havasu City. “This is the right thing to do. The fact that we are taxing people on eggs and milk and bread is insane.”

A 2023 version of the measure made it to Gov. Katie Hobbs, but she vetoed it after leaders of municipalities said they would likely have to cut city services like police and fire departments if the measure went into effect. 

“It’s clear that this bill doesn’t actually eliminate costs for our residents. It simply moves those costs around,” Hobbs wrote in her veto letter of the 2023 bill. 

But a potential compromise is in the works. Rep. David Livingston, R-Peoria, said he and other lawmakers are working on an amendment with Peoria Mayor Jason Beck. The amendment would freeze current tax rates for food, but any attempts to increase the rate would have to get voter approval. 

About 20 mayors attended the House Ways and Means Committee meeting on Feb. 12. Each one asked by Livingston if they would support that potential amendment said they would as long it was worded as Livingston described. 

“There’s devils in all the details but with Mr. Beck working with (Livingston), I’m pretty confident that we’ll go to a place that makes everybody happy,” said Yuma Mayor Douglas Nicholls.

A fiscal note from the Joint Legislative Budget Committee estimates that cities would lose about $227 million of revenue from a sales tax on grocery foods by fiscal year 2028. 

Data from the Department of Revenue indicates 70 of Arizona’s 91 cities and towns taxed grocery foods in fiscal year 2024 for more than $196 million. Budget analysts are projecting about a 16% increase in food and beverage items at grocery stores over the next four years. 

Among those 70 cities, 40 of them don’t levy property taxes. 

Now, as a concurrent resolution, Hobbs won’t have the opportunity to weigh in on the matter if it gets through the House and Senate. 

Voters would decide if the measure should be law instead, but Nick Ponder, a lobbyist who testified on behalf of the League of Arizona Cities and Towns, said that 58% of Arizona voters don’t live in a city that has a food tax.

“I might naturally vote no,” Ponder said of those voters should the measure make it to the ballot. 

Shawn Palmer, mayor of the town of Taylor, testified  that the town heavily relies on the food tax. About 30% of the city’s revenue comes from the food tax, which tourists and visitors pay when they purchase food at a grocery store in town.

“A little bit of taxation is not despicable. That’s what the state of Arizona runs on,” Taylor said. “A 3% food tax is a lot more equitable than adding a property tax and concentrating that tax on 4,500 people.”

Rep. Neal Carter, R-San Tan Valley, cited increases in municipal sales tax revenue from online sales tax revenue following the U.S. Supreme Court decision of South Dakota v. Wayfair, a case that allowed states to collect online sales tax from businesses that  are located outside of the state

Between 2019 and 2024, cities and towns have received more than a 60% increase in sales tax revenue. Carter said he was concerned that city expenses have risen to the point where cities would consider cuts to services with the elimination of the food tax.

“This is a terribly regressive tax. This is the most regressive tax I could possibly dream up,” Carter said. “If I was going to dream up a regressive tax, I would tax the one thing that you literally have to have to live. You don’t even, in a sense, have to have a home to live, but you have to have food.”