Arizona voters are given the chance to change the future of service taxes

Passage of Proposition 126 would prohibit taxes on services by state and local governments

Proposition 126, on the ballot this election, could have an impact on every student who pays for a service in Arizona. 

If passed, Proposition 126 would prevent local governments from imposing or increasing taxes on service-based industries that were not taxed before Dec. 31, 2017.

As Arizona moves toward a more service based economy, some researchers question whether services should be taxed more heavily to make up for the lack of revenue provided by taxed goods. 

Max Goshert, a senior research associate for the Grand Canyon Institute and an ASU graduate student studying public policy and educational policy, co-authored a report that said that state funding would suffer as a result of the Proposition. 

The paper also claims that the decline in goods sales has caused Arizona to lose $1 billion annually compared to 20 years ago. Goshert said there is no reason to exacerbate this problem further with Proposition 126. 

“The amount of goods as a proportion of all economic activity in Arizona is declining, so what that means is more services are being sold than goods,” Goshert said. 

Goshert said Proposition 126 would make Arizona's government less resilient to unexpected economic changes. 

“It limits us if something happens to our economy and we need to raise more money … the state is not able to get together and pass a tax increase," he said.

Shane Levinson, owner of Carpets of Arizona in Glendale and Chandler, said the Proposition, which would prevent future taxes on his business, is a bad idea for Arizona.

"It's irresponsible governance to handcuff your tax law for generations," Levinson said.

He also said any future service-tax would not harm his business because his competition would be equally impacted. 

“It’s a cost that gets passed right on to the consumers,” he said. “(Taxes) make everybody’s prices go up across the board.”

However, some small business owners support Proposition 126 and said they would not tolerate more taxes. 

Brad Hultquist is the owner of Grooming Humans Hair Studio and Grooming Humans II The Salon, both located in Tempe. He said that, as a business owner, he is in favor of Proposition 126 because any new taxes on services would affect his business.

“It’s just one more additional tax that my customer would have to pay, and it would seem like it’s coming from me but instead it’s coming from the state,” he said. “(The Arizona state and local governments) need to balance their budget and work with what they have. They don’t need anymore money, they need to work better with the money they’re already getting.”

"Yes on 126," a campaign by Citizens for Fair Tax Policy, advocates for the proposition and against taxes on small businesses. 

“The biggest thing I look at is protecting small business,” Citizens for Fair Tax Policy chairperson Holly Mabery said. “We want to protect Arizonans from burdensome taxes and so as we look at, we want to play the long game ... we want a robust economy and that’s based on small business.”

However, ramifications of the passage of Proposition 126 may reach beyond the realm of business. 

The Grand Canyon Institute policy paper reports that public K-12 schools rely on service taxes for over 30 percent of their funding, which would be prohibited under Proposition 126. 

Goshert said this would lead to around $250 million being lost in public school funding if it passes.

Mabery, however, disputes the idea that Proposition 126 could end up taking money away from public schools.

"It actually helps protect small business, which is the economic engine of Arizona," she said. “There’s money (in Arizona tax corporations) but unfortunately, the politicians are more focused on putting the burden on small business as opposed to corporations."

 Reach the reporter at and follow @kiaraquaranta on Twitter. 

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