Why is Phoenix considering a sales tax increase?

Phoenix is facing a $90 million budget shortfall due to state-level tax changes, including the removal of rental sales tax and the implementation of a flat income tax.

How much could the Phoenix sales tax increase?

The City Council is considering raising the transaction privilege tax (TPT) and use tax by up to 0.5%, increasing the rate from 1.2% to 1.7%.

When will the decision on the tax increase be made?

The Phoenix City Council will vote on the proposed sales tax increase at its next meeting on March 18, 2025.

How will the tax increase impact residents and businesses?

If approved, the higher sales tax will slightly increase the prices of goods and services subject to TPT and use tax, affecting both residents and businesses.

When would the new sales tax rate take effect?

If the Council approves the tax increase, the new rate would take effect on July 1, 2025.

Can residents share their opinions on the proposed tax increase?

Yes, community members have a 60-day period to provide feedback and suggest alternatives before the City Council makes its final decision.

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