South Tucson property owners paid about $1.8 million over three years toward a tax that was illegally enacted, but there is no guarantee they will get that money back.
Taxpayers elsewhere in the state could find themselves in the same situation because there is no law requiring such refunds and no formal checks on whether secondary property taxes are put in place legally.
Although the Pima County Treasurer’s Office collected South Tucson’s secondary property tax and the Pima County Board of Supervisors approved the tax valuations and assessments, neither had the legal responsibility to check that the city got the required approval from voters.
While the state Property Tax Oversight Commission double-checks primary property taxes, no such thing exists for secondary property taxes.
It’s not overseen by the state Department of Revenue or the Office of the Auditor General.
And taxpayers themselves have not been keeping a close eye. Only two showed up to comment during the budget hearing on Aug. 1, 2011, when the City Council voted to implement the tax.
Two current city council members, Anita Romero and Mayor Paul Diaz, voted against the tax, and one, Mary Soltero, voted for it, minutes from the meeting show.
Of the two-dozen home and property owners the Star called to discuss the tax’s recent elimination, none had heard about it.
NO FUNDS TO REPAY
The budget the South Tucson city council approved Wednesday ended the tax, but elected officials and administrators have stopped short of calling for repayment.
“There aren’t funds for that,” City Manager Luis Gonzales said.
The council has an item called “secondary property tax” on its agenda for a closed session to be held Monday.
The $10.2 million budget for the fiscal year that begins July 1 includes several tax and fee increases to compensate for the approximately $600,000 hole created by eliminating the secondary property tax.
And the city’s expected contingency funds, at less than 2 percent of revenues, are significantly below the level municipal finance experts recommend.
Gonzales thinks the former finance director, Ruben Villa, and the city manager at the time of the vote, Enrique Serna, should be held responsible for recommending the tax to the city council. Neither Serna nor Villa told the council the day of the vote that there were questions about the tax’s legality.
Meeting minutes indicate Villa called the tax a “constitutional and statutory option” that would help South Tucson address the $1.13 million deficit threatening to bankrupt the tiny city.
“It is especially important that I repeat my previous refrains regarding how critical the secondary tax levy is to the survival of the community,” Villa said, minutes show. “Said differently, what would follow (is) disincorporation, namely elimination of our city government, layoffs of all city employees, garbage rate assessments of $17 or more for all residents, secondary property tax levy equal to or greater than proposed in this budget, and possible additional secondary tax levy for existing monies owed for the existing jail bill.”
HOW A REFUND COULD WORK
There are mechanisms for returning money to taxpayers, but they usually apply to individual taxpayers whose bill was somehow computed in error, Pima County Treasurer Beth Ford said.
There is no precedent for responding to an illegal tax or for wide-scale repayment, Arizona municipal finance experts agreed.
Ford said taxpayers can file a notice of claim with the Pima County Board of Supervisors, which can determine whether the tax was illegal and order her to issue a refund.
It would work on a case-by-case basis, she said, and it’s still unresolved where repayment funds would come from.
South Tucson does not keep money in accounts managed by the treasurer, and the money brought in through the city’s primary property tax, at about $54,000 a year, doesn’t come close to covering the potential scale of the repayment requests.
There are further questions about how the county could ensure that taxpayers who paid the tax and later sold the property would get repaid because only the current owner of record is kept on file in the treasurer’s office, Ford said. There is also no record of who made cash payments.
State legislators are beginning to take an interest in the subject.
“This is a first,” said Rep. John Kavanagh, a Republican from Fountain Hills. “That’s why politics is interesting.”
Kavanagh said that if South Tucson didn’t implement a plan soon to voluntarily issue a refund, he would introduce legislation that would expand a judge’s ruling on whether a tax was illegal in one taxpayer’s case to all those who paid the tax.
He said he would make the legislation retroactive and include a provision forcing a municipality to pay the taxpayer’s legal fees should the levy be deemed illegal.
The office of Attorney General Tom Horne said it was impossible to check the number of citizen complaints on the issue and did not respond to an inquiry about potential action about the tax.
Legislators who represent South Tucson also did not respond with a comment by deadline.
Property owners, however, are beginning to investigate their options.
“I think I will apply for a refund,” Kenyon Gee, owner of T&T Market, said Thursday.