Judge orders Arizona to refund millions in rental car taxes used for stadiums, tourism

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Arizona must refund millions of dollars it collected from a rental car tax that funds stadium projects and tourism efforts in Maricopa County after the tax was earlier declared unconstitutional, a judge ruled.

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The decision by Maricopa County Superior Court Judge Christopher Whitten is not the final say on the matter.

Lawyers for the Arizona Sports and Tourism Authority and the rental car companies that sued over the tax expect his ruling and one in 2014 that declared the tax unconstitutional to be appealed.

The state Department of Revenue also expects to appeal, according to spokesman Sean Laux.

If the earlier ruling declaring the tax unconstitutional is ultimately upheld, it would remove nearly half the authority's tax revenues and blow a big hole in the agency's finances.

The public agency would still bring in enough cash to pay bondholders who financed University of Phoenix Stadium where the Arizona Cardinals play and that hosts the Fiesta Bowl. But spring training stadiums, tourism promotions and youth sports programs would likely lose major funding.

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Shawn Aiken, an attorney representing 115 car rental agencies who sued over the tax, said Thursday that he estimated the state Department of Revenue owes his clients about $150 million, including interest, for taxes it has collected since the suit was filed.

The ruling says the state is on the hook, even though it passed on the taxes to the sports and tourism authority and can recover the money over three years from that agency.

More importantly for the sports and tourism authority, it depends on more than $12 million a year in annual rental car tax funding to fill out its budget, which also includes a hotel tax and funds from the NFL and from stadium operations. The stadium bondholders are first in line for payments.

Maricopa County voters approved the tax in 2000. Aiken challenged it on grounds that the state Constitution says taxes on vehicles must be directed to roads projects.

"We're diverting perfectly good revenues that are supposed to go to those roads to NFL team owners," Aiken said. "Just from a public safety and fairness point of view it's important to challenge the tax. And No, 2, it's unconstitutional."

An earlier court of appeals ruling in the case said the rental car companies are the ones who might be owed a refund, not the customers who actually paid the 3.25 percent tax.

Sarah Strunk, general counsel for the sports and tourism authority, said the agency believed the 2014 ruling by another judge was incorrect.

"We're going to say that he got it wrong for basic, fundamental legal issues. The provision under the Arizona state Constitution that he said was violated was enacted after there were already (sales) taxes imposed on rentals in the state of Arizona," Strunk said. "This is no different than those types of taxes."

She also said she believed Whitten was incorrect in ruling that the state can recover any refund it pays from the authority.

"Everybody knows all sides on this matter will appeal this, no matter what," Strunk said. "So the issue is a matter of law that is still being worked through the courts."

The tax is still being collected and will be until the case ends.