Phoenix City Council raises sales tax by .5% to offset revenue losses from the passage of state bills
The Brief
Phoenix City Council members voted to increase the city sales tax by .5% to offset the passage of two bills in the Arizona State Legislature.
Collections from the tax increase will go to the city's General Fund, supporting a variety of items.
The last sales tax increase that contributed to the General Fund was in 1986, the most recent sales tax increase in Phoenix took place in 2016.
PHOENIX - In an 8-1 vote at the March 18 Phoenix City Council meeting, council members voted to raise the sales tax for certain business activities from 2.3% to 2.8%.
The tax rate increase is supposed to offset revenue losses the city expects to see from the passage two bills in the Arizona State Legislature, one regarding state rental tax and another regarding income taxes.
Collections will help support the city's General Fund.
What we know
In January, the Phoenix City Council announced their intention to explore the possibility of raising the city sales tax.
The sales tax is officially referred to as the Transaction Privilege Tax (TPT).
According to a release by the council, the TPT has not been increased to support the General Fund since 1986.
The TPT was most recently raised to 2.3% in 2016 to support the Transportation Fund.
Local perspective
The funds generated through the tax will be directed toward the following programs:
Maintaining existing programs and services
Providing additional resources to reduce Fire Department response times
Continue efforts to address homelessness
Fund operating costs for expiring grants and bond programs
Facility maintenance
Invest in city employees
Addressing the impacts of inflation
Big picture view
For comparison purposes, the Retail Sales Tax rates of other major cities in Arizona range from 3.00% in Buckeye at the high end to 1.5% in Chandler on the low end.
The Phoenix 2.8% tax will not apply to groceries.
The backstory
SB 1131 eliminated residential rental tax collections and was enacted on Jan. 1, 2025. The city expects revenue losses of more than $125 million between the fiscal years of 2024-25 and 2025-26 because of the passage of the bill.
SB 1828 changed the state's income tax rate to a flat rate of 2.5%, a change that eliminates a ladder system that drew more revenue from higher-income households.
In response, Phoenix City Council members proposed a tax increase of .5%, effective July 1, 2025.
The increase was proposed in the form of an amendment to Chapter 14 of the Phoenix City Code and was described as a way to ensure funding for essential city services.
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