Education groups have filed a lawsuit seeking to overturn Governor Doug Ducey's "small business" tax credit law, telling the judge that it violates Arizona's Constitution by undoing a portion of the Invest In Ed initiative passed by voters last year.
Maricopa County Superior Court Judge Sherry Stephens will hold an initial hearing this coming Monday on the request by Invest In Arizona for a preliminary injunction.
The effort against SB1783 appears to be a backstop in the event that the coalition created by the Arizona Education Association and Stand for Children are unable to collect enough referendum petition signatures before September 28 (2021) to put the measure on the ballot in 2022. The lawsuit does not seek to undo the other two tax bills which the groups are circulating petitions to stop.
In 2020, Arizona voters approved the Invest In Ed initiative (aka "Prop 208"), which raises monies for education by adding a surcharge to wealthier taxpayers. The Legislature and Governor passed several workarounds last month to un-do the funding mechanism. The newest Invest In Ed-related referendum targets SB1783, which creates a new credit for an expanded definition of small business taxpayers to offset the Prop. 208 surcharge.
The legislative budget analysts estimates SB1783 would reduce Invest In Ed revenues by more than $262M each year.
In touting his signature on the bill, Governor Doug Ducey said "After a year as tough as the last, we should not be raising taxes on our small businesses — we should be cutting their taxes. That’s exactly what Senate Bill 1783 does." He did not mention either the impact on Prop. 208 nor that the new Arizona definition of "small business" includes anyone who reports interest or dividends. (This means that any high income taxpayer with any stock dividends or interest suddenly becomes a "small business" and qualifies for the new offsetting tax credit.)
The Complaint and the Motion for a Preliminary Injunction against the State of Arizona are below.
On the flip side, the Arizona Free Enterprise Club's lawsuit to stop all three of the Invest In Arizona referenda efforts will not be determined before the September 28 signature deadline. AZFEC is claiming that the tax-related bills are not subject to the citizens' right to refer them to the ballot.
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