On Nov. 19, the office of Secretary of State Katie Hobbs (D) announced that enough signatures were valid for a veto referendum to overturn an income tax bill that Gov. Doug Ducey (R) signed on June 30, 2021. Since the veto referendum was certified, the targeted legislation will not go into effect until voters decide the bill in 2022. At least 118,823 signatures of the more than 215,000 signatures submitted needed to be valid.
The veto referendum was designed to repeal Sections 13 and 15 of Senate Bill 1828 (SB 1828). Together, Sections 13 and 15 would reduce the state’s income tax brackets from four to two and further reduce the tax brackets to a flat rate when state revenue exceeds $12.976 billion ($12,976,300,000). As of 2021, the lowest income tax rate in Arizona was 2.59% on income below $26,501 (single filing) or $53,001 (joint filing) and the highest income tax rate was 4.50% on income above $159,000 (single filing) or $318,000 (joint filing). Under SB 1828, the state’s four tax brackets would be reduced to two. The tax rates would be, for a single filer, 2.55% on income of $27,272 or less and 2.98% on income above $27,272. The two tax brackets would be reduced to a flat rate of 2.5% when state revenue exceeds $12.976 billion.
Invest in Arizona is leading the campaign for the veto referendum (a “no” vote on the legislation). The ballot measure committee was known as Invest in Education in 2020 and supported Proposition 208, which voters approved. Proposition 208 was designed to enact a 3.50% income tax surcharge and allocate the revenue to education and teacher-related programs. Senate Bill 1828, Sections 13 and 15, would not make a direct change to the income tax surcharge. Invest in Arizona collected signatures for a second veto referendum related to revenue generation from Proposition 208, but not enough signatures were found valid. David Lujan, CEO of the Children’s Action Alliance, said the tax changes “are attempting to give huge tax cuts to the rich, which is just disastrous for our future.” State Sen. J.D. Mesnard (R-17) responded to the referendum, saying, “[a]ll we’ve done … is make sure that we are not going to drive taxpayers out of the state and actually create a situation where you have less revenue going to our education system because less people are living here.”
The Arizona Free Enterprise Club is challenging the veto referendum in court, arguing that the state constitution prohibits veto referendums against bills that provide for support and maintenance of state government and that tax bills fall under this umbrella. Lawyers for the campaign argue that tax decreases do not provide for support and maintenance of state government and therefore can be referred to voters through the veto referendum process.
The veto referendum is the 36th veto referendum in Arizona since the process was adopted in 1911. Voters last decided a veto referendum in 2018, when legislation to phase in an expansion of the state’s Empowerment Scholarship Accounts (ESAs) program was repealed. The veto referendum is the fourth measure certified for the election on Nov. 8, 2022, in Arizona. The other three ballot measures are legislative referrals, including a measure to allow in-state tuition for residents without legal citizenship status and repeal related provisions of Proposition 300, passed in 2006. The veto referendum’s certification follows the certification of an income tax reduction initiative in Colorado on Nov. 18.