In 2018, Arizona voters passed a proposition that amended the Arizona Constitution to include Article 9, Section 25, which restricts the state, cities, and other political subdivisions from imposing new taxes on services as follows:
 The state, any county, city, town, municipal corporation, or other political subdivision of the state, or any district created by law with authority to impose any tax, fee, stamp requirement, or other assessment, shall not  impose or increase  any sales tax, transaction privilege tax, luxury tax, excise tax, use tax, or any other transaction-based tax, fee, stamp requirement or assessment  on the privilege to engage in, or the gross receipts of sales or gross income derived from,  any service performed in this state.
In December 2019, the Phoenix City Council adopted an ordinance imposing new airport trip fees for ride-sharing and other vehicles, with fees based on (1) GPS data or (2) historical usage, if the GPS system fails. The ordinance provided for the City to invoice for fees monthly.
Before the ordinance went into effect, an Arizona legislator asked the Attorney General to provide an opinion under A.R.S. § 41-194.01 as to the ordinance’s constitutionality. The Attorney General determined that the ordinance may violate the Arizona Constitution, compelling the Attorney General to file a special action with the Arizona Supreme Court under § 41-194.01.
The Arizona Supreme Court held that the ordinance did not violate Section 25. The Court first acknowledged that the term “transaction” used in the phrase “any other transaction-based tax” is ambiguous on its face—and could mean either (1) any activity involving more than one person or (2) a commercial agreement or exchange. If the broader definition applied, the fees in the ordinance would be unconstitutional. Yet after applying canons of construction stating that a word following others in a sequence (ejusdem generis) and words grouped in a list (noscitur a sociis) should be read similarly, the Court held that the phrase “transaction-based” should be interpreted to mean the same type of taxes enumerated in Section 25, including sales, use, and similar taxes based on commercial dealings. The Court held that the trip fees in the ordinance are therefore not transaction-based fees under Section 25 but rather authorized-user fees—like toll fees—which allow the City to recoup costs associated with airport use.
The Court also held the bond provision in A.R.S. § 41-194.01(B)(2) requiring local governments to post bond is unintelligible and unenforceable because it provides no guidance as to any consequences for a local government’s failure to post a bond.
Vice Chief Justice Timmer authored the unanimous opinion.
Posted by: Travis Hunt
Disclosure: Osborn Maledon attorneys were involved with this case.