Tax Insights

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Could Prop 105 save Prop 208 from being repealed?

As you have probably heard, Arizona Proposition 208 has been called and passed. There has been a lot of commentary surrounding the passing of Proposition 208, from people who approve and disapprove of the proposition. Individuals who disapprove have been looking into repealing the proposition due to the surcharge of 3.5% additional tax on the excess of $250,000 for single fillers and $500,000 for married filing jointly fillers. Although the statement of “repealing the proposition” sounds like a simple task, it may not be that easy.

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Arizona “Voter Protection Act”

In 1998, voters in Arizona passed Proposition 105, also known as the Voter Protection Act. This proposition amended the Arizona constitution to prevent a governor’s veto, prohibit legislative repeal, and require a 3/4’s vote of both the Senate and House of Representatives in Arizona to alter or repeal laws created by voters.

Receiving a majority ruling in both the House of Representatives and Senate would be a tough task, as the current chambers include: 60 seats in the House of Representatives (31 Republican, 29 Democratic) and 30 seats in the Senate (17 Republican, 13 Democratic).

Current Legal Challenge Filed

There are individuals who are taking a different route to repeal proposition 208. A Scottsdale business owner and a retied judge are looking to challenge proposition 208, stating that there is no “constitutional authority” for voters to levy a tax and direct how the cash must be spent. As there are no precedents surrounding this legal action, this makes the issue right for a ruling by the Arizona Supreme Court. If you would like to dive deeper into this challenge, please see the following links:

KJZZ – Lawsuit to Challenge Arizona Prop. 208, New Voter-Approved Education Tax
AZCentral – Business Executive, Retired Judge Plan to Challenge the Constitutionality of Prop. 208

Proposition 208 will come into effect for tax years beginning after December 31st, 2020 (i.e 2021). Since this will be a difficult proposition to repeal, planning for this increase in taxes can start as soon as today. Please contact a Henry + Horne tax professional to start planning.

Erika Sutton, CPA