Key Points:

• Pinal County residents won’t receive $300 check for illegally collected taxes

• Plan to issue rebates stalled in the Senate before lawmakers adjourned

• Lawmakers may revisit the issue next year to decide on rebates or projects

A plan to issue $300 rebates on illegally collected sales taxes in Pinal County never received a final vote in the Senate before lawmakers adjourned for the session earlier this month — but the issue isn’t over.

Unable to agree on what to do with the $45 million to $50 million available, lawmakers tucked a provision into the new state budget to keep the money parked for now. Next year’s Legislature will have to decide whether to pay out rebates or steer the dollars into specific Pinal County road projects. 

Without that budget provision, the money could have been swept into the state’s general fund — leaving Pinal residents with nothing.

This all goes back to 2017, when Pinal County voters approved Propositions 416 and 417. The first was a regional transportation plan; the second was a sales tax to pay for it.

Voters approved both.

But there was a legal challenge to the half-cent sales tax. As it stood, the proposition only taxed the first $10,000 of anything purchased, with no additional levy for anything above that. That prompted the Arizona Supreme Court to void the tax in 2022, calling it an illegal two-tiered system.

Under normal circumstances, that decision would require a refund of the more than $80 million collected.

But legally, this isn’t a normal sales tax. 

Arizona does not have a “sales tax” which is paid by the buyer.

Instead, it has a “transaction privilege tax,” legally imposed on the merchant. Because the tax is technically owed and remitted by businesses, the state offered refunds only to the merchants that paid it between April 2018 and March 2022, not to the customers who ultimately covered the cost at the register.

The state gave affected businesses until April 9, 2026, to seek refunds from the Department of Revenue. That deadline has now passed, and many never sought their share.

That has left an estimated $45 million to $50 million unrefunded and sitting in the state treasury.

 In seeking to prevent the money from going to the state, Martinez, a Casa Grande Republican, crafted a bill to divide it up among 12 Pinal County road projects.

That, she said, is the fairest resolution, ensuring that the money is used for the purposes intended by voters.

But Rep. Justin Olson, who chairs the House Ways and Means Committee — where Martinez’ bill was assigned for a hearing — said that was unacceptable.

“That creates a moral hazard if you give a benefit to a government for having collected an unconstitutional tax,” said the Mesa Republican.

So Olson took her bill and recrafted it to instead say that anyone whose primary residence was in Pinal County in 2018 through 2024, and who files an income tax return in 2026, would be entitled to get a $300 check. And if the taxpayer is dead, the money would go to a surviving spouse or the estate.

Olson rejected the idea that using the money for road projects in Pinal County — what Martinez proposed — would fulfill the intent of the voters who approved the levy.

“Well, a lot of voters voted against it,” he said. “And those voters should be protected.”

That’s true.

While Proposition 416 was approved by a 57-43 margin, the actual half-cent levy that the court voided — Proposition 417 — earned just 51% of the vote.

Essentially, Olson said, it comes down to the court’s decision that the tax was unconstitutional.

“That’s got to mean something,” he said, meaning it should be refunded, even if it meant the county would not get the road-construction dollars.

“That’s essentially the same as being convicted for robbing a bank and the court slapping you on the wrist and saying, ‘Have fun and don’t spend it all in one place,’ ” he said. “You don’t get to keep the proceeds of ill-gotten gains.”

Olson did manage to get his $300 rebate through the House on a unanimous vote. But it stalled in the Senate.

While she didn’t favor the Olson approach of rebates, Martinez said the decision to simply bank it for the time being makes more sense than having it become part of the money that could get used for other purposes.

“At least it ain’t going to unclaimed property,” she said. “At least I bought us one more year.”

And it also gives them another chance to fight about it: Both are running for reelection.