Proposition 126 – Protect Arizona Taxpayers Act – Citizens’ Initiative

What is the ballot measure? Proposition 126 would amend the Arizona Constitution to prohibit state or local governments from imposing any new tax on “services” or increasing any existing tax on “services”.

Background: Arizona does not impose a true sales tax on businesses or individuals, but rather a Transaction Privilege Tax (TPT). A TPT differs from a true sales tax because it is imposed on the seller, rather than the buyer. This tax often gets passed on to the buyer as a “sales” tax. Certain businesses such as retail, construction, professional services, and restaurants are required to pay these taxes. Under current law, a portion of state TPT is distributed to cities and counties and is a major source of local government revenue.

Most businesses that provide services (except utilities, telecommunications, lodging) do not pay the TPT, although there is no formal definition of what constitutes a “service” in state law. The Dept. of Revenue has considered health care, education, finance and personal care as “services” when analyzing how much potential tax revenue is “lost” by not taxing them.


  • The state, counties, cities, towns, and other local governments could not increase any current tax rate being applied to services as of December 2017, and could not add any new tax on services. The amendment applies to all local governments including charter cities.


There is no way to estimate the amount of revenue that would be lost to the state/local governments because of this ballot measure, because at present there are no proposed measures with any details about what services would be taxed and at what rate.

However, in 2017 the Department of Revenue estimated the state could be missing out on $5.2 billion by not taxing services. Furthermore the state is currently imposing sales taxes on some businesses that could be considered services (i.e utilities, telecommunications, lodging). It is unclear how these businesses would be impacted by Prop 126.

Arguments For:

  • Sales taxes on services are regressive and would hit low-and middle-income families (to include senior citizens, the disabled and others on fixed incomes) the hardest. It is almost impossible for families not to use services such as haircuts, doctor visits, child care, vet services, car repairs, etc.
  • A service tax makes Arizona less appealing for commercial recruitment. Low taxation has allowed Arizona to maintain a competitive advantage over other states, creating more job opportunities.
  • Prop 126 would preserve the status quo on service taxes - so there would be no impact on Arizona’s consumers and businesses.

Arguments Against:

  • The state has a significant revenue challenge. Elected officials and policymakers need flexibility to evaluate revenue options in order to meet the needs of our state, counties and cities. Therefore, tax policy should not be written into the Constitution, which is very difficult and time consuming to change. Tax policy should be created by laws.
  • Arizona already has adequate safeguards to prevent a rush to impose sales taxes on services. Raising taxes requires a two-thirds vote from both chambers of the legislature and the governor’s signature OR a legislative referral or citizen initiative sent to voters.
  • When the government decides that certain businesses don’t need to pay taxes for any reason, winners and losers are often chosen based on their political power and influence.
  • Our modern economy is becoming a service-based economy, meaning there are fewer and fewer “goods” to tax. So unless we allow the possibility of taxing at least some service categories to raise additional revenue as sales taxes on “goods” decline, governments won’t be able to pay for many things we now take for granted such as transportation, police, fire, public schools, etc.
  • By taxing some services it will be possible to lower the state’s sales tax rate. Otherwise, there will be ever-increasing sales taxes on life’s necessities (goods) while services for middle class and working families are cut.
  • This amendment is primarily being funded by an association of realtors, trying to get themselves a permanent exemption from taxation, at the expense of the rest of us.


  • Relators Issues Mobilization Fund - $5.1 Million
  • National Association of realtors - $1 Million
  • Arizona Retailers Association
  • National Federation of Independent Businesses


  • Grand Canyon Institute
  • Arizona Chapter, Americans for Prosperity