Court: It’s legal to tax rental cars to fund stadiums

A juggler walks the concourse at Goodyear Ballpark prior to a spring training baseball game between the Cincinnati Reds and the Cleveland Indians on Feb. 23 in Goodyear. Promotion for the Arizona Cactus League is partially funded by a tax on car rentals that the Arizona Supreme Court found to be legal. (AP Photo/Ross D. Franklin)
A juggler walks the concourse at Goodyear Ballpark prior to a spring training baseball game between the Cincinnati Reds and the Cleveland Indians on Feb. 23 in Goodyear. Promotion for the Arizona Cactus League is partially funded by a tax on car rentals that the Arizona Supreme Court found to be legal. (AP Photo/Ross D. Franklin)

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.’ ”

Lawmakers approve $45 million to promote NASCAR raceway

NASCAR Racing champion ship
NASCAR Racing championship (Deposit Photo) 

The Joint Legislative Budget Committee certified a plan Tuesday that requires the Arizona Office of Tourism to spend $1.5 million a year for 30 years promoting ISM Raceway, Avondale’s one-mile NASCAR race track.

The deal was made in 2016, when then Rep. David Livingston, R-Peoria, pushed HB 2495, which stated that if the raceway spent $100 million on renovations, the Office of Tourism would receive $1.5 million a year to spend on promoting events at the venue from fiscal-year 2022 to fiscal-year 2051.

The raceway, formerly known as Phoenix International Raceway, exceeded the required amount, the renovations totaled $178 million and ranged from new seats to a giant light up Saguaro cactus that looks like a stoplight.

The changes also included a new location for the finish line, a margarita tequila bar on the infield and a new wifi system that will be free for race-goers.

The bill divided lawmakers in 2016, but not along party lines. It passed the house 35-19 with support from 16 Democrats and 19 Republicans. In the Senate, the bill passed 18-11, with 10 Democrats and eight GOP lawmakers in favor of the bill.

JLBC members were also split on the issue Tuesday. Rep. Randall Friese, D-Tucson, said he took issue with the specificity of the bill and its support of private industry instead of public tourism destinations like Grand Canyon National Park.

“Public dollars spent on private enterprise can lead you down a path where you do not want to go,” Friese said at the committee meeting Tuesday evening.

But Sen. Rick Gray, R-Sun City, who was in favor of certifying the plan, said the money will benefit all of Arizona, not just the race track.

“This isn’t going to the raceway, it’s not like we are paying them back,” Gray said. “Tourism is a huge return on investment, it really is a benefit to our state to have this.”

Sen. David Gowan, R-Sierra Vista, echoed Gray’s point, and said private events often are advertised by the Office of Tourism.

“When you have the Super Bowl here, do you go on vacation?” Gowan asked the tourism representative at the meeting.

Rep. Diego Espinosa, D-Tolleson, who represents the district that contains the racetrack, said the two annual NASCAR races at the track generate $425 million and thousands of jobs.

Aside from NASCAR, the track holds other racing events as well. It is also set to hold NASCAR’s 2020 championship weekend.

Although spending public dollars to promote private events is not new, Ben Stewart, who spoke for the Office of Tourism at the meeting, said the specifics of this legislation are new.

Stewart said the department typically decides where to spend its general fund dollars and is not required to spend it on specific events.

He said the closest example to the spending for ISM Raceway is the department’s spending for Cactus League spring training, which takes place yearly.

Although there will need to be reports sent to the committee about the spent money, the certification Tuesday approved all 30 years of the plan.

Major League Baseball wants players exempt from minimum wage law

In this March 5, 2018, file photo, Colorado Rockies' DJ LeMahieu bats during a spring baseball game against the Chicago Cubs, in Scottsdale. Major League Baseball is seeking an exemption of baseball players from Arizona’s minimum wage law at the Legislature. (AP Photo/Chris Carlson, File)
In this March 5, 2018, file photo, Colorado Rockies’ DJ LeMahieu bats during a spring baseball game against the Chicago Cubs, in Scottsdale. Major League Baseball is seeking an exemption of baseball players from Arizona’s minimum wage law at the Legislature. (AP Photo/Chris Carlson, File)

As pitchers and catchers prep to report for spring training in February, Major League Baseball is trying to convince Arizona lawmakers to exempt minor league ballplayers from the state’s minimum wage law.

The legislative maneuver mirrors the league’s lobbying effort at the federal level, where in 2018 Congress passed the Save America’s Pastime Act as part of a budget bill. That law exempts baseball players on minor league contracts from the Fair Labor Standards Act, which requires employees to be paid the federal minimum wage and overtime pay.

Garrett Broshuis, a St. Louis-based attorney and former minor league player, said that law doesn’t preempt state law from applying to players while they participate in the Cactus League, Arizona’s spring training system.

Arizona voters overwhelmingly approved a law to gradually increase the state’s minimum wage in 2016. Now $11 per hour, the rate will spike to $12 in 2020.

Baseball players won’t see a penny of that come February and March.

“I think that most baseball fans don’t realize that minor league baseball players are not paid at all when they go to spring training,” Broshuis said. “Each year there are thousands of minor leaguers that report to spring training, and they have to perform a month of work, seven days a week, with no pay at all.”

Broshuis sued the league in U.S District Court in San Francisco in 2014 to challenge minor league contracts, which pay as little as $1,100 per month. Those contracts, and those for major league players, only pay during the regular season.

The law passed by Congress was a setback for Broshuis’s case at the federal level. But he’s also seeking class action status in Arizona and Florida – MLB’s other base for spring training – to challenge the league’s pay structure under state law. A federal judge denied that request, but Broshuis is awaiting a ruling on his appeal.

A bill sponsored by Rep. T.J. Shope, R-Coolidge, attempts to undercut that legal fight or any other complaint that teams are in violation of the state’s minimum wage by not paying minor league baseball players during spring training.

HB 2180 would carve out minor league baseball players in Arizona law by enshrining the exemption in federal law in state statute. If signed into law, the bill also applies retroactively, meaning teams would be free from liability against any prior claims that the law was violated. Broshuis said he’s still assessing the bill’s potential impact on his lawsuit.

Shope said the league is trying to shore up it’s legal defense at the state level.

“I think it’s just trying to clear up what MLB considers a gray area on their flank. … My assumption is they obviously do have a concern, and are trying to protect a flank of theirs more in the pro-active sense,” Shope said.

As for the players, Shope described spring training as “essentially a tryout. You’re not on the team yet.”

But once drafted, MLB teams can control a player’s rights for years. A player who doesn’t make the major league roster will most likely get assigned to a minor league affiliate at the team’s discretion, “and then they have to pay that first month of rent, they have to pay that security deposit wherever they’ve been assigned,” Broshuis said. “And it’s incredibly difficult to do that when you’ve been required to work for a full month without pay at all.”

The Major League Baseball Players Association doesn’t represent minor league players, but union officials said they oppose exempting players in the minors from state law.

“It is fundamentally unjust to deny professional baseball players the basic protection of the minimum wage laws, especially at a time when clubs are reporting record revenues,” said Ian Penny, general counsel for MLBPA.

In a statement provided by an MLB spokesman, league officials said that a carve out for minor league players is just another of “a variety” of exemptions in the state’s minimum wage law.

“This legislation is a very specific exemption for a very specific problem. It is not a broad based change in Arizona’s minimum wage law. It furthers the purpose’ of what voters intended by specifying a group that should be exempt,” league officials stated.

In fact, Arizona’s minimum wage laws only exempts employees who regularly receive tips, babysitters and people employed by a parent or sibling.

And Shope acknowledged it’s questionable if the law furthers the voters intent.

That argument is crucial, since the Arizona Constitution has strict protections for voter-approved laws. If lawmakers want to change those laws, as HB 2180 proposes, it requires a three-fourths majority vote of the Legislature and must further the law’s intent.

Attorneys for Living United for Change, a major backer of the minimum wage initiative, said they don’t think Shope’s bill furthers the purpose of the law.

Shope said whether his bill meets those requirements is “something we’re going to have to talk about.” And the political reality of convincing three-fourths of his colleagues to vote for the bill could spell its doom.

“If there is organized opposition to this, you’re never going to get the three-fourths vote anyway,” Shope said.

Broshuis said a carve out for baseball players can’t be what voters wanted.

“It really is just unfortunate, because the people of Arizona passed this law to require employers to pay all workers a minimum wage, and these ballplayers are performing a service that is a valuable service, and they deserve to be compensated at least the minimum wage for it,” he said.

U.S. Supreme Court refuses to hear case on Arizona rental-car tax

In this July 16, 2019, file photo, the Supreme Court is seen in Washington. (AP Photo/Carolyn Kaster)
In this July 16, 2019, file photo, the Supreme Court is seen in Washington. (AP Photo/Carolyn Kaster)

Pima and Maricopa counties are going to get to keep tapping tourists to pay for their sports facilities.

The U.S. Supreme Court on Monday refused to review a ruling by the Arizona Supreme Court which found nothing improper by financing these projects with taxes on car rentals, a levy largely borne by people visiting the state. The justices gave no reason for their decision.

Monday’s ruling, made on the first day the nation’s high court was back from summer recess, also leaves intact the decision by the Arizona justices that, strictly speaking, a tax on the renting of cars is not a tax on the use of state roads.

That distinction is critical.

The Arizona Constitution spells out that any cash raised from fees or taxes related to the registration, operation or use of vehicles on public highways and streets can be used only to build and maintain roads. If the court had found the car-rental tax was a levy on the use of public roads, then it would be illegal to use the cash to finance stadiums and other similar facilities.

Monday’s decision ensures that the state Sports and Tourism Authority continues to benefit from the car-rental tax. The most recent audit shows the tax of 3.5 percent on vehicles rented in Maricopa County contributes close to $15.6 million of the authority’s $51.8 million annual budget.

The biggest share of those dollars – nearly $13.9 million – goes to paying off the bonds used to construct State Farm Stadium, home of the Arizona Cardinals. There also is $8.3 million for tourism promotion, $5 million for Cactus League and $1.8 million for youth and amateur sports.

In Pima County, the tax is a flat $3.50 per vehicle rental, generating about $1.5 million annually.

Those funds have been used to pay for construction of the Kino Sports Complex. And while there is no longer Cactus League play in Tucson and the debt is being paid off, the county has kept the levy to expand the complex.

In filing suit, attorneys for Saban Rent-A-Car first charged that the levies violated the Commerce Clause of the U.S. Constitution because it was designed to impose a burden on residents of other states that, in general, did not exist for Arizonans.

Arizona Supreme Court Justice Ann Scott Timmer did not dispute that the tax was sold to voters on the premise that it would be visitors who largely would pay for the sports facilities. But she said that, strictly speaking, it was not discriminatory because the tax also applies to Arizonans who, for whatever reason, also need to rent a vehicle.

The closer question was that issue of the state constitution requiring that the proceeds any tax raised based on the use of public streets be used only for road construction, maintenance and related purposes. But Timmer said the majority did not see the car-rental fee as a road-user tax.

That drew a skeptical response from Justice Clint Bolick.

“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 in his dissent.