City food tax ban faces skepticism from Hobbs

Arizona Gov. Katie Hobbs has signaled her opposition to a GOP legislative proposal that would bar cities from imposing sales tax on groceries.

Driving the news: Senate Bill 1063 would prohibit cities from taxing food for home consumption beginning July 2025.

• The Senate approved the measure 16-13 along party lines last Monday, and next will be a yet-to-be-scheduled House committee hearing.

State of play: Seventy of Arizona's 91 incorporated municipalities have sales taxes on food, including most in Maricopa County, per the League of Arizona Cities and Towns.

• Phoenix, Mesa and Surprise are the only cities in the Valley that don't tax groceries.
• The Joint Legislative Budget Committee estimated cities and towns will collect nearly $183 million in sales tax on food next fiscal year.

The big picture: Arizona scrapped its statewide sales tax on food in 1980, but didn't eliminate cities' ability to tax groceries.

• Banning sales taxes on food won't have any impact on state finances, but will affect cities, some of which argue the lost revenue is critical.
• Hobbs told reporters last week she's concerned about the effect SB1063 would have on cities, especially public safety budgets.
• Smaller communities are more reliant on sales taxes on food, Capitol Media Services reported.

By the numbers: Glendale collected the most food tax dollars in the state last fiscal year, with the $17.8 million making up 7.2% of its budget.

• Litchfield Park was most reliant on food sales tax in the Valley — with the revenue making up 16.8% of its budget, followed by Apache Junction (13.7%), Cave Creek (12.1%), El Mirage (11.7%), Fountain Hills (10.7%) and Gilbert (10.5%).
• Other Valley cities are less dependent on sales tax from food for their budgets, including Paradise Valley (0.1%), Guadalupe (2.9%), Scottsdale (3.5%).

Context: Democratic lawmakers have been the primary defenders of municipal interests for years, while Republicans were often quick to pass laws restricting their ability to act over their objections.

What she's saying: Hobbs told reporters there's more "we could be doing to make things affordable" instead of eliminating sales taxes on food.

• She's pushing to eliminate Arizona's sales tax on diapers and feminine hygiene products, but noted that wouldn't have the same effect on cities as dropping sales taxes on food and rent.
• Hobbs said she hasn't looked at the details of SB1063 and will make a decision if it reaches her desk.

The other side: Republicans tout the bill as relief for families struggling to cope with skyrocketing inflation, saying it'll especially benefit low-income Arizonans.

• "What this does is exempts a tax on essential items for people to survive and live," bill sponsor Sen. Sonny Borrelli, a Republican from Lake Havasu City, said.

Catch up quick: Hobbs last month vetoed another Republican bill that would have prohibited cities from collecting sales tax on rent. Among her objections was the fiscal impact on municipalities.

• Eliminating municipal sales taxes on rent and food was part of GOP gubernatorial candidate Kari Lake's platform and was incorporated into the Republican legislative agenda after Hobbs won.

What we're watching: Whether Hobbs vetoes the legislation, the idea could be revived later in the legislative session as part of budget negotiations.