Phoenix Sales Tax Increase Possible in 2025 to Address Budget Shortfall

The City of Phoenix, in the State of Arizona, is considering its options on how to close the USD 90 million budget shortfall caused by the decision on the State level to remove residents' rental sales tax and implement a flat income tax.

To bridge this significant financial gap and ensure compliance with regulations requiring that the local budgets, unlike the federal budget, be balanced and cannot spend more than they generate, the city government is considering raising sales tax or cutting some services to its residents.

Impact of the Proposed Change 

The City Council announced its intention to increase the transaction privilege tax (TPT) and use tax, equivalent to sales tax, by up to 0.5%. However, it is vital to state that the publication of this notice of intent does not mean that the City will increase taxes. It gives community members a 60-day grace period to provide their opinions and suggestions about the proposed measure and other ways to balance the budget. If the Council votes to increase the sales tax by 0.5%, the decision will take effect on July 1, 2025.

Moreover, if raised, the TPT rate would increase for the first time in nearly 40 years, since the current rate of 1.2% was introduced in 1986. This would also contribute to the increase in the combined sales tax rate, which is currently 2.3%, and would rise to 2.8%.

As a consequence, the increase in the applicable sales rate would cause a minor increase in the prices of goods and services subject to TPT and use tax for residents. 

Conclusion

The decision on whether to increase the TPT, or sales tax rate, will be made at the next council meeting, scheduled for March 18. Until then, in addition to reviewing community opinions, City government departments will submit suggestions for potential service cuts, which will also be considered a measure to reduce the budget gap.

Source: City of Phoenix