The Arizona Court of Appeals has affirmed the dismissal of a complaint challenging a city tax measure in Scottsdale. The court ruled that the tax, which was approved by voters, did not require a supermajority for enactment. This decision affects local taxpayers and sets a precedent regarding the approval process for city taxes.
The case, Robert Marc Stamper and Gretchen Jacobs v. City of Scottsdale, was filed under docket number 2 CA-CV 2025-0449. The appellants, Robert Stamper and Gretchen Jacobs, who operate AZ Design Group, argued that the tax measure, known as Proposition 490, did not receive the necessary sixty percent approval required under Arizona law for tax measures. The court's ruling clarifies the legal standing of such tax measures and the requirements for their approval.
The dispute began when the Scottsdale City Council adopted a resolution to increase the transaction-privilege and use tax rate, placing it on the ballot as Proposition 490. In November 2024, the tax measure passed with 58.25 percent of the vote and took effect on July 1, 2025. Before the tax was implemented, Stamper and Jacobs filed a complaint seeking to declare the tax unconstitutional and to prevent its enforcement. They contended that the measure was a referendum that required a supermajority vote.
In their complaint, the appellants claimed that the tax was unconstitutional because it did not meet the sixty percent approval threshold set by Arizona's constitution for tax measures. The City of Scottsdale and the Arizona Department of Revenue moved to dismiss the case, arguing that the appellants had not exhausted their administrative remedies and that Proposition 490 was not a referendum.
The superior court dismissed the complaint, ruling that the appellants were required to exhaust their administrative remedies before seeking judicial relief. The court also determined that Proposition 490 was not a referendum, which meant it did not need to meet the supermajority requirement. The case was then appealed to the Arizona Court of Appeals.
The Court of Appeals, led by Presiding Judge Vásquez, affirmed the lower court's ruling. The court found that the appellants did not need to exhaust their administrative remedies because the Arizona Department of Revenue could not declare the tax unconstitutional. The court stated, "Only courts may declare laws and rules unconstitutional, either facially or as applied." This distinction is crucial as it allows challenges to the constitutionality of laws to be brought directly to court without going through administrative processes first.
Additionally, the court ruled that Proposition 490 was not a referendum under Arizona law. The court explained that a referendum is a measure that allows voters to approve or reject legislation that has already been enacted. Since the City Council submitted Proposition 490 for voter approval before it was enacted, it did not fall under the definition of a referendum requiring a supermajority vote.
Judge Vásquez emphasized that the authority to seek voter approval for tax measures comes from statutory law rather than the referendum process. The ruling clarified that the City Council had the authority to submit the tax measure to voters without it being classified as a referendum.
The court's decision has significant implications for local governance in Arizona. It confirms that city councils can propose tax measures to voters without needing to meet the stringent requirements of a referendum. This ruling may encourage other cities in Arizona to pursue similar tax measures without fear of legal challenges based on voter approval thresholds.
Looking ahead, this ruling may influence how local governments approach tax measures and the legal frameworks surrounding them. The decision could embolden city councils to propose tax increases or new taxes, knowing that they may not face the same level of scrutiny regarding voter approval as previously thought.
As for the appellants, they may consider further legal options, including an appeal to the Arizona Supreme Court. However, it is unclear if they will pursue this route. The court filing did not indicate any plans for an appeal or any related cases pending.
