The tranquil town of Gilbert, Arizona, nestled within Maricopa County and a short drive from Phoenix, has experienced a remarkable transformation. From its humble agricultural beginnings as the “Hay Shipping Capital of the World,” Gilbert has blossomed into a hub for science and technology, attracting a young and vibrant population. This rapid growth, which saw the town’s numbers double every five years between 1980 and 2000, is projected to continue, with estimates reaching over 330,000 residents by 2030. Despite this expansion, Gilbert maintains its appeal as a low-tax haven, devoid of corporate franchise and state estate taxes. While sales taxes are relatively high, most services are exempt, and Arizona’s personal income tax rates remain in the lower third nationally. Notably, the absence of a property tax necessitates funding infrastructure projects through bonds or sales tax revenue, a factor that lies at the heart of the current legal dispute.
Gilbert’s expansion has brought about inevitable increases in expenses and infrastructure needs. To address these growing demands, the town council voted in October 2024 to increase sales tax from 1.5% to 2.0% and transient lodging tax (bed tax) from 2.8% to 5%, effective January 1, 2025. These increases are intended to fund critical projects within the police and fire departments, as well as enhance parks and recreation facilities. Specifically, the police department will use the funds for expanding operational space, community policing services, administrative functions, a new substation, and a crime lab. The fire department will benefit from the rebuilding and remodeling of existing fire stations and the construction of a centralized facility for fire, police, and specialized apparatus. Parks and recreation projects include trail improvements, a new park, recreation centers, a splash pad, and a 16-court pickleball complex complete with bleachers, restrooms, a ramada, and parking.
The tax increases, however, have sparked controversy, leading to a legal battle that pits the town of Gilbert against some of its residents and a prominent conservative think tank. The lawsuit, Barth v. Town of Gilbert, filed in Maricopa County Superior Court on December 27, 2024, challenges the constitutionality of the tax hikes. The plaintiffs, Gilbert taxpayer and short-term rental owner Jonathan Barth and the Home Builders Association of Central Arizona (HBACA), argue that the increased taxes will negatively impact their businesses and contribute to rising housing prices. They are represented by the Goldwater Institute, a conservative think tank founded in 1988 with the purported blessing of former U.S. Senator Barry Goldwater.
The crux of the lawsuit hinges on a 2018 amendment to the Arizona Constitution, which prohibits the state and its subdivisions from imposing or increasing transaction-based taxes on services. The plaintiffs contend that the Gilbert tax increases violate this amendment, with the Goldwater Institute labeling it an “illegal pickleball tax”. They argue that the increased taxes will disproportionately burden Gilbert businesses and consumers, driving up the cost of services like construction and lodging. The Goldwater Institute seeks to invalidate the tax increases and prevent similar actions by government officials in the future.
The Town of Gilbert firmly refutes the claims made by the Goldwater Institute, maintaining that the tax increases are fully compliant with Arizona law and the state constitution. Gilbert’s legal team asserts a thorough review of relevant statutes and precedents, ensuring adherence to all legal requirements. They argue that the Goldwater Institute’s interpretation of the Arizona Constitution’s prohibition on tax increases for services is a misconstrual. While the former mayor of Gilbert, Brigette Peterson, voted against the tax changes, she did not offer further comment, directing inquiries to the incoming mayor, Scott Anderson, who has not yet responded.
The legal battle is expected to be protracted, despite the tax increases taking effect on January 1, 2025. The outcome of this case could have significant implications beyond Gilbert, influencing how local governments in Arizona address funding challenges and navigate the constraints of state law. The Goldwater Institute’s stated goal is not just to reverse the tax increases but also to deter similar “illegal schemes” in the future, setting the stage for a broader debate about the balance between local government autonomy and state-level restrictions on taxation.
This legal challenge unfolds against the backdrop of anticipated federal budget cuts under the incoming Trump administration. These cuts could potentially reduce federal funding to states and municipalities, placing further pressure on local governments to find alternative revenue sources. The Gilbert case highlights the growing importance of tax policy at the state and local levels, as communities grapple with balancing the need for essential services with the burden of increased taxes on residents and businesses. The outcome of this lawsuit, and the broader conversation it sparks, will be crucial to watch as it shapes the future of local governance and fiscal policy in Arizona and potentially beyond.
